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The Box; Marc Levinson; Princeton, NJ: Princeton University Press, hardback 2006, $24.95; paperback 2008, $16.95; Amazon Kindle edition, $9.99. 376 pp.
Free marketeers reading the news these days cannot help but feel depressed. Media reports would lead us to believe that entrepreneurs are exploiters, that global trade hurts rather than helps people in America—in short, that capitalism has failed and that only the “change” offered us by central planners can alleviate our economic woes. In this climate, Marc Levinson’s book The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger provides a welcome respite and intellectual refueling for weary capitalists. It tells a suspenseful story of achievement—replete with many twists and turns and a swashbuckling American hero—that will leave you wanting to run to the nearest container port to admire with newfound appreciation the industrial machinery that impacts almost every part of our daily lives. The Box, published on the fiftieth anniversary of the first sailing of a containership christened The Ideal-X, tells the story of how a seemingly mundane thing—a metal box with a wooden floor—managed to fundamentally change the world we live in.
Until the 1960s, shipping had not changed much in decades. Handling cargo was a labor-intensive activity, and transportation costs and times—whether by land or by sea—were huge obstacles to trade, often making transcontinental, let alone global, trade economically unfeasible.
In the 1950s, moving goods by ship was “a hugely complicated project,” involving “millions of people who drove, dragged, or pushed cargo through city streets to or from the piers” (p. 16). Docks were cluttered with every kind of good imaginable, “steel drums of cleaning compound and beef tallow alongside 440-pound bales of cotton and animal skins”—all of which needed to be loaded and unloaded manually by gangs of longshoremen (p. 17). The process of loading and unloading a single ship during a single visit to a port often took weeks and accounted for between 60 and 75 percent of shipping costs. And, given the difficulties inherent and time involved in moving goods housed in a variety of different containers, it was imperative that factories locate close to docks for fast access to raw materials. Transportation costs and long delivery times made long-distance trade challenging and expensive—even before factoring in the heavy regulation that plagued the shipping industry.
Recognizing the great expense and wasted time inherent in shipping practices of the day, two companies—both outsiders to the maritime shipping industry—developed in parallel an alternative system. Malcom McLean, an entrepreneur who grew his trucking company from a single vehicle purchased on credit during the Great Depression to one of the largest in America, bought a marginal East Coast maritime shipping line using “an unprecedented piece of financial and legal engineering” to circumvent regulations that prevented trucking companies from owning ship lines (p. 45). McLean set out to design and build a new shipping system from scratch based on a novel approach to the business: Whereas most shipping executives at the time believed that their business was operating ships, “McLean’s fundamental insight, commonplace today but quite radical in the 1950s, was that the shipping industry’s business was moving cargo” (p. 53, emphasis added).
Within less then two years, McLean and his company, Pan-Atlantic, bootstrapped the first viable container system, in which cargo was loaded into stackable metal and wooden boxes of uniform dimensions, eliminating much of the labor required for and many of the problems inherent in loading ships with goods housed in a variety of containers. Further, “McLean understood that reducing the cost of shipping goods required not just a metal box but an entire new way of handling freight. Every part of the system—ports, ships, cranes, storage facilities, trucks, trains and the operations of the shippers themselves—would have to change. In that understanding, he was years ahead of almost everyone else in the transportation industry” (p. 53). His team of entrepreneurial, fast-moving engineers, managers, and partners designed, among many other things, the 33-foot box (only small steel containers were previously available); developed a quick-release locking system that eliminated the need to chain containers to ships or trucks; built a new trailer chassis to guide containers automatically into place; and put in place large cranes equipped with spreader bars—devices stretching the entire length of a container that enabled crane operators to attach and release hooks at the container’s corner with the flick of a switch, thereby eliminating the need for longshoremen to climb up to each container corner and attach chains manually. And they accomplished all of these things while dealing with skeptical regulators who doubted the safety of containers and were pressured by truck and rail competitors to prohibit the container shipping experiment.
When the first containership sailed on April 24, 1956, McLean’s detailed cost tracking system showed clearly the benefits of the new system: “Loading loose cargo on a medium-sized cargo ship cost $5.83 per ton in 1956. McLean’s experts pegged the cost of loading the Ideal-X at 15.8 cents per ton. With numbers like that, the container seemed to have a future” (p. 52).
While McLean was developing his container system, Matson Navigation Company, an established Hawaiian shipping company that operated outside of the established cartel and subsidy system, began to study the prospects for mechanized cargo handling. In contrast to the “scrappy upstart” Pan-Atlantic, Matson took a deliberate, research-based approach to the container, establishing in 1956 an in-house research department for the purpose and hiring an operations research (OR) scientist, Foster Weldon, to run it. Leveraging his expertise in OR, the study of efficient ways to manage complex systems, Weldon’s goal was to leverage “good data and use them to find the optimal way for Matson to embark upon container shipping” (p. 61). Weldon and the Matson team used the latest in science, engineering, and technology to design a container system tailored to the needs of their Hawaii–California shipping business. “After analyzing thousands of Matson shipments by computer—a task that in 1956 required feeding in thousands of punch cards—Weldon’s researchers concluded that vans of 20 to 25 feet would be most efficient in the Hawaii trade: larger containers would travel with too much empty space, while containers shorter than 20 feet would require too much loading time” (p. 62).
Matson management then charged their managers to apply similarly rigorous thinking to every aspect of the container operation: “Every choice had to be justified based on whether it offered a higher return on investment than the alternatives” (p. 62). Matson’s container cranes were engineered specifically for the purpose—not adapted from other uses like Pan-Atlantic’s. Container designs were tested for months in test cells that simulated shipping conditions in order to “determine just how much clearance was needed between the containers and the vertical angle bars that formed the corners of the cell” (p. 64). And fleet use and routes were optimized with the aid of the latest technology:
Renting time on an IMB 704 computer at several hundred dollars a minute, the researchers built a fully fledged simulation model of the business . . . to provide real-time answers to practical questions: Should a big Hawaii-bound ship call at Hilo and Lanai, or should it transfer its cargo to a feeder ship at Honolulu? . . . Such simulations were new in the 1950s and had never been used in the shipping industry (p. 65).
After two years of innovative research and development, Matson launched the Pacific’s first container service in 1958—a service that still runs strong more than fifty years later.
Fifty years after the advent of the container system, it is evident that it has changed shipping—and the world—in ways no one could have anticipated. In The Box, Levinson details the resulting changes in port operations, demonstrates the new system’s impact on manufacturers, and chronicles the development of an entirely new way of thinking about business logistics, enabling readers to see, firsthand, how profit-motivated individuals operating in a relatively free market can change the world for the better.
Whereas ports in the early 1950s were bustling with longshoremen inefficiently moving diverse containers into and out of waiting ships, modern container ports are automated factories, where mammoth vessels of up to 1,100 feet long and 140 feet across dock, carrying nothing but metal containers, stacked 15 or 20 abreast and 12 to 15 high. Schedules are tight, and computers assist highly skilled operators in unloading and reloading these huge ships, usually within twenty-four hours—a far cry from the days or weeks that it once took. Land transport, on trucks and trains, is seamlessly integrated into one long, efficient supply chain, which is the foundation of today’s global economy. “Transportation has become so efficient that for many purposes, freight costs do not much effect economic decisions. . . . ‘It is better to assume that moving goods is essentially costless than to assume that moving goods is an important component of the production process.’ Before the development of the container system, such a statement was unimaginable” (p. 8).
Levinson explains how the integrated container shipping system enabled great changes in manufacturing. For instance, he shows how “just-in-time” manufacturing would not have been possible without the reliability in shipping and low costs made possible by the container system. This process, pioneered by Toyota in the 1980s and now used by manufacturers everywhere, increases efficiency by integrating the supply chains of manufacturers and suppliers, with small shipments of guaranteed quality delivered “within very narrow time windows for immediate use,” and thereby reduces inventory costs (p. 265). Of course, this requires that parts be delivered quickly and reliably, something that became feasible only with the container system. The result of the adoption of just-in-time manufacturing can readily be seen in Barbie, an all-American product with a truly global pedigree:
By the mid-1990s, Barbie’s citizenship had become even less distinct. Workers in China produced her statuesque figure, using molds from the United States and other machines from Japan and Europe. Her nylon hair was Japanese, the plastic in her body from Taiwan, the pigments American, the cotton clothing from China. Barbie . . . had developed her very own global supply chain (p. 264).
Such manufacturing changes have led to significant savings for business and consumers alike—for instance, an annualized savings in 2004 of $80–$90 billion just in reduced inventory carrying costs for U.S. businesses. Containerization has led to integrated supply chains so vital to everyday American manufacturing that “in September 2001, when U.S. customs authorities stepped up border inspections following the terrorist attack that destroyed the World Trade Center in New York, auto plants in Michigan began shutting down within three days for lack of imported parts” (p. 266).
Unfortunately, although container shipping was first implemented in the late 1950s, it took until the mid-1980s to become the dominant, world-changing system that it is today. Much of this delay can be traced to government intervention. Levinson provides numerous examples of how regulation, unionization, government management of ports, and subsidies slowed the container system’s progress and thereby delayed its beneficial impact, possibly by decades.
For example, longshoremen unions, protected as bargaining partners by federal labor regulations, held back the development of the container shipping system by using their protected position to extract compensation payments from shippers and to impose work rules aimed at protecting members’ employment. Union leaders at the International Longshoremen’s Association (ILA) on the East Coast demanded that “every container, whatever its origin, be ‘stripped and stuffed’—that is, emptied and then reloaded—by its members on the pier” (p. 104). If enacted, such a policy would protect the jobs of union members—and destroy most of the benefit provided by the container system. When the ILA’s demands were rejected, the union instead sought “a guarantee of dockworkers’ incomes,” which began a multiyear labor struggle that delayed implementation of container shipping on the East Coast (p. 105). On the West Coast, where a comprehensive agreement reached by 1960 between unions and shipping companies allowed the container system to move forward, the increase in shipping volume actually meant more work for the longshoremen there. In fact, many shippers chose to run Asian imports through West Coast ports, then onward to the East via rail, rather than lose money and time dealing with the work rules environment of East Coast ports.
Other examples of the government’s detrimental impact on the shipping industry abound. Until transportation deregulation in the 1980s, the potential of a unified, low-cost shipping system serving factories across continents and oceans via trucks, rail, and ships could not be realized. For more than twenty years a host of regulations—dictating everything from routes to rate structures—made it impossible for shippers and manufacturers to fully leverage the opportunity of the container. But “deregulation changed everything.”
In two separate laws passed in 1980, Congress freed interstate truckers to carry almost anything almost anywhere at whatever rates they could negotiate. . . . Trucks and rail cars that had often been forced to return empty were able to get cargo for backhauls. . . . For the first time, railroads and their customers could negotiate long-term contracts setting rates and terms of service (p. 261).
With this newfound freedom to act, railroads finally had an incentive to invest in the specialized equipment necessary to make container shipping efficient, including “low-slung railcars for fast loading of containers stacked two-high, the sort of cars Malcom McLean had tried—and failed—to convince railroads to use back in 1967” (p. 262).
(The story of how containers became standardized is a fascinating one. It concerns container sizing and technical specifications, involves many private players and governments, and took most of a decade to unfold. Although discussed in detail in The Box, the issue of standardization is too complicated to cover briefly in a review.)
Unfortunately, despite the evidence he gives that serves to contrast the innovative power and wealth-generating possibility of the free market with the harmful effects of government intervention, Levinson himself credits both with making the container revolution possible. For instance, he asserts that “government investment in ports had been crucial to the development of container shipping in the 1960s and 1970s,” ignoring the fact that most ports at the time were government-owned and that private ports, had they existed, would have had great incentive to accommodate container shipping (p. 238). In fact, Levinson shows that much of the government money invested in port development “went to waste”: Bureaucrats often made decisions based on nonobjective goals such as “local economic development” rather than the long-term, objective perspective of a for-profit company (p. 239). As a result, some public ports initially attracted shippers but, failing to garner the long-term contracts needed to guarantee payback on their investments, were left with expensive equipment sitting idle on their docks as shippers moved to ports that offered greater taxpayer-funded incentives. Other public ports spent money on the basis of nothing more than mere hopes of attracting container business—business that failed to materialize. Others invested heavily, then found themselves shut down by lengthy labor struggles. And even with the ability to forcibly extract funding from taxpayers, the better-managed public ports could not keep up with the market. With larger investments needed for modern ports, and a general shift toward privatization, new ports built in the 1990s were, for the most part, privately managed: “By the end of the twentieth century, nearly half of the world’s trade in containers would be passing through privately controlled ports” (p. 239).
Despite its failure to conclude on the basis of its presentation that freedom in the marketplace leads to innovation and wealth creation whereas government intervention thwarts these things, Levinson’s The Box is a worthwhile and inspiring read. Readers will enjoy discovering, through its colorful concretes, how profit-seeking businessmen can transform the world—and will find in it further evidence that capitalism is an ideal worth fighting for.
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