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INSIDE THE BLACK BOX: A LOOK AT THE CONTAINER
Abstract
The containerisation revolution, despite being centered on a relatively simple technology, did not take over the cargo shipping industry until the 1960s. This paper argues that the timing of its introduction was determined by organisational as opposed to technological factors. This argument is developed by looking at the events leading up to the introduction of containers into cargo shipping. The rapid spread of containers and the role of standards are also considered. Nonetheless, given the nature of finding coherent organisational patterns and complementarities, it is argued that informational externalities were most probably responsible for any delay in the container system's introduction.
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NOTES AND REFERENCES
J.O. Jansson and D. Shneerson, Liner Shipping Economics, Chapman & Hall, London, 1987, p.25.
There are suggestions that the U.S. military was also a pioneer in the use of containers. Small containers were used by UN forces in Korea in 1952, specifically to improve cargo carriage (R. E. Dittmer, ‘Distribution Cost Benefits to Shippers from Intermodal Transport,’ in Intermodal Transport: Its Effect on Rates and Service, Oregon State University, Corvallis, OR, 1969, pp.59.) But this was really not on a scale which could properly be described as containerisation. The boxes were simply not large enough. There was some linkage between military experience and civil development in that some former military personnel did play a role in the development of containers and, more importantly, containership design.
There is some dispute as to the name of the ship. Kendall refers to the Ideal X whilst others (e.g., Whittaker) refer to the SS Maxton, which according to Kendall was not used on the original voyage. See L. C. Kendall, The Business of Shipping, 4th ed., Cornell Maritime Press, Centreville, 1983, p.178; J. R. Whittaker, Containerization, 2nd ed., Wiley, New York, 1975, p.3.
Within two years the hand truck was completely driven from most wharves by this development.
In addition, because of the unpredictability of rain, cargo could not lie for long in the open and thus, had to be stored in dockside warehouses. Thus, the container, which was of necessity weatherproof in order to lie efficiently on the deck of the ship, also solved this problem of the break-bulk system.
This view was confirmed by a later National Academy of Science report in 1959 which argued that hybrid systems (with both break-bulk and container systems on a single ship) would not be economically viable. See S. Gilman, ‘Investing in Deep Sea Liners: Container, Ro-Ro or Conventional Technology,’ in I. Ryden and C. von Schirach-Szmigiel, Shipping and Ships for the 1990's, Handelschogskolan I Stockholm, Stockholm, 1979, pp.228–45.
G. Muller, Intermodal Freight Transportation, 2nd ed., Eno Foundation for Transportation, Westport, 1989, pp. 13–4.
Anderson quoted by M. Wronski, ‘Containerisation: Its corporate impact,’ Cranfield Research Papers in Marketing & Logistics, No.4, Bedfordshire, 1974, p.4. This remarkable statement 170 years prior to the introduction of containers was cited by Wronski although he gives no additional source.
Much of the detail of this account relies upon the excellent descriptions of Kendall, op.cit., Chapter 10. See also, British Transport Docks Board, Containerization: The Key to Low-Cost Transportation, report by McKinsey & Co., Ltd., 1967; R.O. Goss (ed.), Advances in Maritime Economics, Cambridge University Press, Cambridge, 1977; K.M. Johnson and H.C. Garnett, The Economics of Containerisation, George Allen & Unwin, London, 1971; S. Joy, ‘A Study of the Economic Influence of Containerisation on Transport Systems,’ ECMT Round Table 21, Economic Research Centre, Paris, 1973; E.T. Laing, Containers and their Competitors: The Economics of Deep Sea General Cargo Shipping in the 1970s, Marine Transport Centre, University of Liverpool, Liverpool, 1975; H.B. Meyers, ‘The maritime industry's expensive new box,’ Fortune, November, 1967, pp.152–4, 194; J.C. Nelson, “The Economics of Intermodal Transport,’ in Intermodal Transport: Its Effect on Rates and Service, Oregon State University, Corvallis, OR, 1969, pp. 1–40; OECD, Developments and Problems of Seaborne Container Transport, 1971; E. Rath, Container Systems, John Wiley, New York, 1973; S.G. Sturmey, ‘Barrow, Containers and Morecambe: A Polemic on Regional Planning,’ Shipping Economics: Collected Papers, Macmillan, London, 1975, pp.122–32; S.G. Sturmey, ‘Trends in Shipping Economics 1966–2066,’ Shipping Economics: Collected Papers, Macmillan, London, 1975, pp. 155–64; K. Jacob, ‘A Look at the Container Shipping Revolution,’ Traffic World, July 6, 1981, pp.60–3.
Which was an important prerequisite in providing a sufficiently large market for an intermodal system, at least initially. Even today, the success of containerisation hinges on single shippers, at least, being able to fill containers.
Kendall, op. cit., p.179
In 1951, TMT actually did something similar when it took converted truck bodies as cargo from Miami to Puerto Rico. See S. Gilman, The Competitive Dynamics of Container Shipping, Gower, Liverpool, 1983.
see Kendall, op. cit., for more details of this process
A. Marshall, Industry and Trade, Macmillan, London, 1920, p.307.
Journal of Commerce, August 18, 1955.
New York Times, Nov. 28, 1956
Kendall, op. cit., p.183. Thus, there is something to the following kinds of statements which reoccur through the literature: “What is of paramount importance is to realize that without the combination of practical wisdom, commercial genius, and unwavering audacity, the events which today are described as the container revolution might not have occurred.” (Kendall, op. cit., p.202, the italics are mine) Such statements are too strong, in my opinion. While McLean deserves full credit for the acceleration of the container revolution, it is too much to say that it might not have occurred at all. As discussed below, the rising relative labour costs would have, eventually, forced a switch to a more reliable capital intensive system.
New York Times, Nov. 23, 1958
This was a major problem on waterfronts prior to containers. It was estimated that at one time 20% of all whiskey shipped through New York disappeared (Whittaker, op. cit., p.46). Also see W. H. Penrose, “The Impact of Intermodal and Coordinated Transport on Ocean Carriers,’ in Intermodal Transport: Its Effect on Rates and Service, Oregon State University, Corvallis, OR, 1969, pp.45–6.
Even though, in the beginning, containers fell off deck occasionally, and condensation within containers caused some damage.
One such impediment was obviously customs inspection which diluted the advantages containerisation afforded in the way of reduced paperwork (H. K. Strom, ‘Containerization: A Pandora's Box in Reverse?’ Transportation Journal, 12, Winter, 1972, pp.46–57.). Some problems have been addressed, however. For example, provisions were made for the temporary importation of containers for spare parts and repairs with no duties or charges, and the registration of containers with International Containers Union in order to provide data for identification (A. Jatosti, ‘Containers: A technological revolution in transport,’ Review of Economic Conditions in Italy, 26, November, 1972, p.480.) In addition, international trade involves a greater cost in realising the intermodal advantages of containerisation. Since direct coordination with transport companies at both ends of the route are required, all associated communication costs are greater across continents.
E.T Laing, ‘Containers, pallets or lash? The economics of general cargo shipping,’ QER Special No.13, EIU, London, 1973.
Especially given a container shortage in the 1960s.
It is an interesting and open issue why ports were so enthusiastic about making way for containerisation. The potential competition between ports was almost certainly a factor here. However, the inducement to save labour in the face of rising relative wages and non-arms length interactions between ports and ship-owners could have played a role. This issue represents a significant avenue for further research.
George Holloway, Managing Director of Shipowning Co., quoted by F. Suykens, ‘Containerization, the Unit Load, the Combination Ship,’ Economisch En Sociaal Tijdschrift, 23(5), October, 1969, pp.455–6n.
Strom, op. cit., p.51–2.
Suykens, op. cit., p.456.
ibid.
Strom, op. cit., p.48.
L. W. Shaw, “Containerization - Present and Future,” in G. L. Gifford, Distribution with Imagination, Tucson, University of Arizona, 1962, p.21.
Almost Marxian-like motivation especially considering the dual forces of competition and technology. See Barry Jones, Sleepers, Wake! Technology and the Future of Work, 2nd ed., Oxford University Press, Melbourne, 1983, on displacing employment trends of technology.
See Gilman, op. cit; Kendall, op. cit; and E. T. Laing, Containers, Conferences and Competition, The Economist Intelligence Unit, London, 1984, for more details regarding these arrangements.
Paul A. David, ‘Clio and the economics of QWERTY,’ American Economic Review, 75(2), May, 1985, pp.332–7; Paul A. David, ‘Some New Standards for the Economics of Standardization in the Information Age,’ in P. Dasgupta and P. Stoneman (eds), Economic Policy and Technological Performance, Cambridge University Press, Cambridge, 1987, pp.206–39; Paul A. David, and Edward Steinmueller, “The Economics of compatibility standards and competition,’ mimeo., CEPR/Stanford, 1992.
Height was still under negotiation at this time with some suggestions that greater height be allowed for. Nine and a half foot high containers are now part of the sanctioned standards.
To use David and Steinmueller's, op. cit., terminology the container standard is a compatibility standard which was the result of market mediated forces. Initially, it was an unsponsored movement on the part of individual ship-owners which became sponsored by the ISO.
Kendall, op. cit., p.215.
I use the term “brittleness” in the sense implied by Paul Milgrom and John Roberts, Economics, Organization and Management, Prentice-Hall, Englewood Cliffs, 1992, Chapter 4. Their notion is supposed to capture an important flexibility and stability character in organisational design.
Stephen King, ‘Search with Free Riders,’ Journal of Economic Behavior and Organization, 1993, (forthcoming); Andrew Caplin and John Leahy ‘Miracle on Sixth Avenue: Informational Externalities and Search,’ Discussion Paper, No. 1665, Harvard Institute for Economic Research, 1993; Andrew Caplin and John Leahy, ‘Mass Layoffs and Unemployment,’ Discussion Paper, No. 1666, Harvard Institute for Economic Research 1993; Patrick Bolton and Chirstopher Harris, ‘Strategic Experimentation,’ mimeo., Oxford, 1993.
Wronski, op. cit., p.5. Similar accounts of over-optimistic expectations are reported by Laing, op. cit., 1973; Kendall op. cit., p.207; and G. Muller, Intermodal Freight Transportation, 2nd ed., Eno Foundation for Transportation, Westport, 1989.
Suykens, op. cit., p.461.
Jansson and Shneerson, op. cit, p.25.
Gilman, op. cit., 1979, p.238.
Gilman, op. cit., 1979, p.241. Indeed, because containerships spend relatively more time at sea, fuel costs play a greater part in their cost structure (Muller, op. cit.).
Jansson and Shneerson, op. cit, p.16.
Strom (op. cit, p.52) reported that for every 1,000 containers at sea, 3,000 were needed at maritime terminals for pick-up and use on inland feeder lines. In fact, this fact prompted Strom to anticipate the emergence of leasing programs years before their coming.
Kendall, op. cit, p.207.
For an interesting discussion of the role of experimentation on organisational forms see Nathan Rosenberg, ‘Economic Experiments,’ in Exploring the Black Box, Cambridge University Press, Cambridge, 1994, pp.87–108.
Such characterisations are not new to the history of shipping; see Douglass C. North, ‘Sources of productivity changes in ocean shipping 1600–1850,’ Journal of Political Economy, 67, 5, 1968, pp.953–70.
Paul Romer, ‘Idea gaps and object gaps in economic development,’ Journal of Monetary Economics, 32, 1993, pp.543–73.