The Box

The Economist magazine explains containerization:thebox

[C]ontainers—uniform boxes that can be easily moved between lorry, train and ship—have reshaped global trade over the past few decades. Why…?

Uniform metal containers were invented by Malcom McLean …in 1956. Before then goods were shipped as they had been for centuries. Crammed in to the hold of a ship, loose cargo in wooden crates would be loaded and unloaded by vast crews of dockworkers. The process was unwieldy, unreliable and so slow that ships often spent longer docked than they did at sea. Theft of transported goods was rampant: as an old joke put it, dock workers used to earn “$20 a day and all the Scotch you could carry home.”

Containers changed this in several ways. The price of everything fell…

  • The cost of loading and unloading fell …to $0.16 per tonne to load compared with $5.83 per tonne for loose cargo. …
  • Because containers were packed and sealed at the factory, losses to theft plummeted, which in turn drastically reduced insurance costs.
  • More could also be loaded: in 1965 dock labour could move only 1.7 tonnes per hour onto a cargo ship; five years later they could load 30 tonnes in an hour.
  • As a consequence, ships could get bigger and more efficient while still spending less time in port.
  • As containers made inland distribution by train and lorry easier, ports became bigger and fewer in number. (In 1965 there were 11 loading ports in Europe; by 1970 there were three.) This, along with increased productivity, meant fewer dockworkers were needed, undermining their bargaining power and reducing the number of strikes.

The bolded clause is wrong.  The longshoremen unions have achieved incredible wages due to containerization. Harold Meyerson says that they are “this country’s best-paid blue-collar workers; many make more than $100,000 a year.” Although there are only a tenth as many people working the docks as in 1950, they are much more productive and their wages are incredible.  Before containerization longshoremen got paid “$20 a day and all the Scotch you could carry home.” One of the previous benefits of the job was the Scotch and other goods that were routinely stolen from the docks.

New research claims that containerization is the most important reason that trade has increased over the past half century.

[The research] finds that containerisation is associated with a 320% increase in bilateral trade over the first five years and 790% over 20 years. A bilateral free-trade agreement, by contrast, boosts trade by 45% over 20 years, and membership of GATT raises it by 285%. In other words, containers have boosted globalisation more than all trade agreements in the past 50 years put together. Not bad for a simple box.

But the effect of containerization was not mainly by reducing the cost of shipping.  The improved speed and reliability was more important in boosting trade by allowing companies to reinvent their supply chains.

Though containers brought some early [cost] savings, shipping rates did not drop very much after their introduction. In a 2007 paper David Hummels… found that ocean-shipping charges varied little from 1952 to 1970… Speed and reliability of shipping enabled just-in-time production, which in turn allowed firms to grow leaner and more responsive to markets as even distant suppliers could now provide wares quickly and on schedule. International supply chains also grew more intricate and inclusive. This helped accelerate industrialization in emerging economies such as China, according to Richard Baldwin, an economist at the Graduate Institute of Geneva. Trade links enabled developing economies simply to join existing supply chains rather than build an entire industry from the ground up. But for those connections, the Chinese miracle might have been much less miraculous.

Advertisements
Posted in Globalization

Leave a Comment

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Enter your email address to follow this blog and receive notifications of new posts by email.

Join 21 other followers

Blog Archive