Thinking Inside the Box

The Nobel Prize winning physicist and genius quantum mechanic Niels Bohr once pointed out that “Prediction is difficult, especially about the future” — a fact that he demonstrated empirically with respect to subatomic particles. Former Economist writer and business historian Marc Levinson has demonstrated that the maxim applies to technology businesses as well in a business history entitled The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger.

Levinson’s account of how shipping containers transformed the world economy reads like a good novel, a story revealed in layers. The plot is a compelling tale of egotistic business innovators struggling to overturn a regulated, moribund, unionized transportation sector. Characters include Malcom McLean, a self-made trucking magnate who understood the power of “inter-modal” containers that could move quickly between trucks, trains, and ships and Harry Bridges, the colorful and incorruptible communist longshoreman and powerful advocate for civil righs who built the ILWU into a west coast waterfront powerhouse. The setting is a half-forgotten world of tough dockside neighborhoods, federally-backed transportation cartels, and incompetent urban port authorities thriving in a web of political back-scratching, theft, and corruption that would have made Machiavelli blush.

The result was waste on a scale we can no longer imagine. Goods were moved by hand from truck to train to ship. Often dockside work rules required that a truck be unloaded by one crew into a staging area then loaded by a second crew of longshoremen, some entitled to a four hour break during every eight hour shift. Ships were packed by hand and crammed tight with stuff so it wouldn’t shift in transit — much as I packed the family station wagon this week before heading off on vacation. The process was repeated from truck to rail car to ship and then back to rail cars and trucks at the other end. At each stage, local mafia or dock gangs stole their share of the freight. Transporting anything was so expensive that transit costs functioned as hidden tariffs or taxes, depressing trade and constricting economic activity.

Although McLean used the first shipping container in 1954, “logistics” remained a military term, not a business function, until the 1980s. The idea of a global supply chain was unimaginable because in nobody’s wildest dreams would the cost of transporting goods and materials around the world drop so far as to become almost irrelevant. The astonishing impact of “free” computer processing, network bandwidth, and digital storage has been widely noted (they are not literally free, but the marginal cost of each is rapidly approaching zero). Fewer have recognized that the cost of moving most goods to most places is a fraction of what it was fifty years ago. Levinson explains why.

The box did not create logistics nor by itself create global supply chains, which required new institutions, technologies, and business practices, not just large aluminum containers.Many innovations make a huge impact once a variety of systems are put in place to support the new technology (rural electrification, for example, occurred two generations after Edison invented the light bulb). The full impact of inter modal containers was only realized once they were supported by newly designed ships, docks, trains, and trucks, backed by new shipping methods and technologies, and enabled by the wholesale privatization of port authorities, the elimination of federal regulatory agencies, the destruction of business cartels, and the euthanizing of transport workers unions (which in country after country rationally bargained the price of suicide).

Levinson has a nose for economic drama. He recalls the exploitation and corruption of early twentieth century transportation hubs where generations of immigrant dockworkers formed intensely loyal communities. These men did the tough and dangerous work of loading and unloading ships and lived in resentment of the stevedoring foremen who granted a day of work to any son who offered a higher bribe than his father at the notorious waterfront “shape-ups”. (Those not born into longshoring often became merchant seamen — the basis, I now imagine, for my father’s frequent but incomprehensible admonition to “shape up or ship out”).

The author details the theft and corruption that became endemic at trucking and shipping docks and notes that the earliest enthusiasts of shipping containers included Scottish whiskey exporters whose export costs had for more than a century included heavy transit losses to thirsty dockworkers. He spends much less time connecting these activities to the financing of the mafia and their cousins, corrupt labor unions. One hopes that this omission was not a courtesy to Teddy Gleason, the mobbed-up former head of the ILA (east coast longshoreman’s union) who Levinson interviewed for the book. As a former labor guy and federal labor enforcer, I know that ILA, the Teamsters, and the Laborers have long been America’s three most corrupt unions. Two of these are heavily dependent upon transportation and have seen their ranks gutted by containerization. (Interestingly, unions lead by communists or socialists, such as the San Francisco-based ILWU may have been ideologically corrupt but were almost always more democratic and much less likely to be on the take from employers or the mob).

The economic potential of containerization revealed itself slowly as shippers and shipping lines searched for ways to lower transportation costs. Levinson makes clear that no revolutionary led this revolution, not even Malcom McLean. Indeed, as in most economic and political revolutions, few of the participants understood the long term consequences of their actions — and many were comically deluded.

Companies were clueless. Malcom McLean, having made his fortune by building McLean Trucking into Sea-Land, the pioneer inter modal shipping company, sold his business to RJ Reynolds (the strategic logic being something like “tobacco is a dying business that throws off cash and shipping is a growing business that needs cash so it must make sense for cigarette guys to buy a global shipping business”). McLean attempted to revolutionize shipping again by designing a monstrous ship that traveled 50% faster than its peers and thus made several more round trips each year. Problem was, the price of oil suddenly tripled, the ships were useless, and RJR lost a bunch of money. Disgusted with RJR, McLean sold his shares, bought a competitor and proceeded to build the world’s most fuel efficient tanker — whereupon the price of oil fell and bankrupted his business.

Cities didn’t get it. Cities had grown up around their ports regarded them as a birthright. They were slow to recognize that the new shipping technologies removed a powerful economic incentive to locate near ports. Incumbent cities like London and Liverpool fought containerization and saw their ports vanish to towns like tiny Felixstowe, a place nobody had ever heard of that is today one of the world’s great shipping centers. Rotterdam, Antwerp, and Hamburg adapted. Lisbon, LeHavre, and Rome did not. Levinson: “Many of the successful ports were privately managed, and in some cases privately financed”.
A Chief Engineer of the Oakland port named Nutter got it right and made decisions to build a container port that shut down the ports of San Francisco and Richmond. Houston adapted, Galveston did not. Asia had little adapting to do, but Hong Kong, Singapore, Shenzhen, and especially Shanghai are now huge port cities as are Busan in Korea and Kaoshung in Taiwan. (Rotterdam fought Singapore for years for the title of world’s busiest port. The former measured cargo tonnage handled (total weight of goods loaded and discharged), the latter shipping tonnage handled (total volume of ships handled). Shanghai now beats them both, measured either way. Many cities, including New York and San Francisco, spent hundreds of millions of dollars rebuilding docks long after shipping companies had left only to learn the hard way that shippers are not interested in the expense of unloading cargo on a dense urban peninsula.

National governments were in all cases part of the problem. Like their local counterparts, were not designed to respond to fundamental technology changes. The chapter Levinson presents on the logistics calamity that was represented by the early years of the war in Vietnam is a wonderful snapshot of the failure of America’s best and brightest to use readily available technology to manage a very complex supply operation. To his credit, Robert McNamara privatized military logistics and the laughable supply problems were sorted out in less than a year.
As regulators, the federal process for approving unique rates for each type of cargo was made irrelevant by containerized shipping. The practice of approving different rates for truck, ship, and rail transport complicated matters further. The decision in the early 1980s to deregulate shipping was incredibly controversial at the time — and blindingly obvious today.

Labor unions, naturally suspicious of automation that threatened to reduce jobs, paid remarkably little attention to containerization. Like their corporate counterparts, union leaders grew up in a breakbulk world, with goods being shipped in crates, on pallets, in netting, or in the case of lumber or steel, simply oose in a ship’s hold. The radical labor savings represented by containerization was seen as a small part of the trend toward increased automation, which threatened to reduce the size of shipping gangs.

Even farsighted leaders like Bridges simply made sure that the savings from automation would be shared by incumbent longshoremen. This was not a hard deal to sell when, as in New York City, 75% of dockworker jobs were eliminated in a dozen years starting in 1963.
Thebox_7 Levinson argues by implication that history makes sense only in retrospect. Nobody in the 1950s or 1960s understood just how radical would be the transformation wrought by an aluminum box any more than we today understand the full impact of the biotechnology revolution.

The Box, is history well told by an author who keeps his subject economically and socially tethered. The book, published by Princeton University Press, is massively documented. It would have benefited from photos of the sort a trade press would have required — and also perhaps a chapter on modern uses for containers (they are art galleries, houses, smuggler’s dens, and the nightmare of Homeland Security agencies everywhere). It deserves to become a business classic.