Chapter 19. Mapping an Industry
After World War II global trade exploded, with a plethora of bilateral agreements between friendly nations and the signing of the multi-national General Agreement on Tariffs and Trade (GATT[1]). These boosted trade “by 45% over 20 years [and] 285%” respectively. However, the real star of the post-war global trade boom, boosting trade by a staggering “790% over 20 years” — more than “all trade agreements in the past 50 years put together” — was a “simple box”[2]: the humble shipping container.
Transporting goods had been an expensive business, accounting for up to a quarter of the value of goods being shipped. But in just a few decades, shipping containers became the central component of a “highly automated system for moving goods from anywhere, to anywhere, with a minimum of cost and complication on the way”.[3] However, shipping containers weren’t a new invention; wooden containers had been used for centuries to speed up the loading and unloading of cargo, driven by the economic reality that ships only made money when at sea. The innovation of the modern shipping container — the value it created — was addressing the costliest part of the entire value chain for transporting goods: getting goods to the ship in the first place. This sparked a revolution that transformed the entire transport industry.
In this chapter, we’ll explore how the humble shipping container changed an entire industry. We will show how, contrary to the popular business myth, it’s not the invention of a new technology that disrupts an industry, but the industrialisation, or widespread adoption, of a component and the new practices they enable. This is the real story of innovation.
As J.R.R Tolkien[4] wisely said, we’re going to ‘start with a map’.
Value Chain for Shipping Goods
The first step in mapping is to identify the users. Every product or service has multiple users, but in this case we’ll focus on the user that mattered most to the shipping industry — paying customers — specifically, ‘manufacturers’ who needed to ship goods to their buyers (see #1 in fig.85 below).
Fig.85: Value Chain For Shipping Goods (Post-World War II)
To ship goods manufacturers needed a ‘ship-line’ (2) — a company specialising in transporting finished goods to customers, as well as raw materials to manufactures. Transporting freight required ‘ships’ (3), which needed a ‘dock’ (4) where they would collect the freight. Freight was ‘transported’ (5) to the docks by ’trucks or railcars’ (6), where they were ‘unloaded’ (7) and stored in ‘transit sheds’ (8) until the ships were ready for loading. This meant docks needed large ‘warehouses’ (9) to accommodate multiple transit sheds as freight often sat for weeks, or even months, on the dockside.
As mentioned, one of the biggest expenses in this process was the manual labour of teams of longshoremen or ‘dockers’ (10) who hauled cargo the last mile through city streets to the docks. While manufactures spent up to a quarter of their goods’ value on shipping, half of that cost went to paying dockers for their manual labour. This entire operation was managed with ‘tally sheets’ (11), to ensure goods were properly accounted for when ‘loading’ (12) onto ships.
Ships themselves needed ‘cranes’ (13) to lift freight aboard. Freight itself was typically packed in ‘wooden crates and casks’ (14), which were ‘assembled’ (15) by dockers on the dockside, wrapped in ‘rope netting’ (16) to make them easier to lift. Crates consisted of ‘pallets’ (17) of goods, moved from transit sheds to the dockside by ‘forklifts’ (18) — one of the few areas of automation in the post- war era
‘Loading’ freight required an ‘itinerary’ (19), managed by a ‘foreman’ (20), who determined the order in which freight was loaded. This was a critical job, as ships called in at multiple ports and only freight intended for that port was unloaded; to minimise the ship’s time in dock and reduce the risks of breakages and theft. Thus, shipping goods in this era depended heavily on both human muscle and intelligence, with minimal automation throughout the process.
Applying Evolution To The Value Chain
Using the cheat sheet introduced in chapter 15,[5] we can now add evolution to this value chain to create a high-level map[6] of the shipping industry in the post-world war II era:
Fig.86: Map For Shipping Goods (Post-World War II)
- ‘Manufacturers’ who wanted to ship goods needed:
- A ‘ship-line’. In this era, there were many ship-lines competing on price and availability, meaning they supplied a low-valued added, commoditised service. Therefore, we’ve placed them close to the ‘industrialised’ stage on our map (see fig.86 above).
- The service provided by ship-lines — ‘transporting freight’ — was under price pressure due to oversupply. Customers could be demanding and had little tolerance for failure, with ship-lines liable for any goods that didn’t arrive. We’ve shown this as a low-margin, commoditising service by also placing it close to the ‘industrialised’ stage on our map.
- Transporting freight required ‘ships’, an essential cost of doing business for ship-lines. Many ships had been commandeered for the war effort but were now back in commercial use, leading to oversupply. Therefore, in this era, ships were a commodity component.
- Ships needed ‘docks’ to load freight. Docks are placed on the extreme right of our map as they were utility-like services, with ship-lines only paying for what they used (e.g. time in dock, tonnage shipped).
- Transporting freight to the docks required ‘railcars’, which were, like the ship-lines, become more commoditised due to the increasing standardisation of the rail infrastructure.
- For shorter distances ‘trucks’ were used. We’ve placed these in the ‘transitional’ stage on our map as, in this era, they were products that could be differentiated (e.g. by speed or fuel efficiency).
- Freight needed ‘(un)loading’ from railcars and trucks and onto ships.
- This was done by ‘dockers’, which is where the tension in the industry was. Traditionally, docks had an abundance of casual labourers, which meant ship-lines could set the price of labour (due to supply and demand). But a the post-war boom saw more higher-value consumables, rather than the lower-value commodities, being shipped, and labour unions sought to differentiate their members by the extra value they added: skilled dockers could load goods faster, with fewer losses, breakages and theft, thereby making ship-lines more profitable. Unions therefore fought for their members’ fair share of these increasing profits and the growing tensions with ship-lines, whose margins were tight due to competition, would soon change the entire industry (marked by an arrow on the map).
- Dockers’ ability to ‘assemble’ freight so it could be quickly, efficiently and safely loaded onto ships became a key differentiator between professional dockers and casual labourers. We’ve placed this component in the ‘transitional stage’ to show it as a good practice, not done equally well by everyone.
- Assembly required standardised, commoditised ‘pallets’ of goods, used for moving freight from transit sheds to the ship-side ready for assembly.
- The ‘forklifts’ needed to move these pallets were bought commercially from dealerships, who would have talked up the advantages of new features (e.g. lifting loads). Therefore, these were products in the ‘transitional stage’.
- Dockers also needed ‘itineraries’ to ensure they were loading the right ships, with the right freight, in the right order. This was a good practice, so placed it in the ‘transitional’ stage.
- This practice required a ‘foreman’ with specialised knowledge and experience to ensure smooth and profitable operations. Good foremen would have been in high demand.
- The entire process of getting freight to the docks in the first place required ‘tally sheets’ — a good practice that helped minimise losses for ship-lines.
- Freight was stored in ‘transit sheds’ prior to loading onto ships or trucks.
- For longer-term storage, ‘warehouses’ were needed. Both transit shed and warehouses were essential but standardised components, so we’ve placed in the ‘industrialised’ stage.
- Finally, ships needed ‘cranes’ to lift freight on and off-board. Cranes were a mature product, widely available but differentiated by lifting capacity (and price).
- Cranes needed ‘wooden crates and casks’ of palleted goods they could easily lift.
- And ‘rope netting’ — widely available at docks in this era — was the final, low-margin but essential utility-like service in this entire operation. It could be bought by the metre.
This is how we turn a value chain into a map by adding evolution. But the question you’re probably asking yourself now is — so what?
The first thing we can see is the shape of the map — components are skewed to the right, suggesting that shipping was rapidly becoming a commoditised industry. Margins were tight and profitability depended on high-volume operations, which led the industry to consolidate around a few large players with the scale necessary to compete. However, these players tactically understood that if any of them tried to ‘win the game’ — for example, aggressively going after market share — it would trigger a race to the bottom on price, further eroding everyone’s slender margins. Therefore, rather than try to ‘rock the boat’, industry players settled into a mutually beneficial and comfortable existence as members of an exclusive club in a strategically important industry, where government offered generous subsidies in exchange for the power to dictate routes and prices according to their own trade policies. This explains why, aside from some advances in ship design and investment in technology like forklifts, the shipping industry hadn’t evolved much for decades.
However, nothing stays the same forever. The growing prosperity of the post-war world and the surge in trade of higher-value consumer goods created irresistible pressure for change. And if change wasn’t going to come from inside the club, it would inevitably be forced on them from outside.
Aside from the maintenance and running costs of the ships themselves, the industry’s main operational cost was the labour-intensive process of hauling of goods to the docks and loading of thousands of pieces of loose freight onto ships. It had long been clear to many that the way to reduce these costs was to “put the freight into big boxes and just move the boxes”[7]. In fact, various attempts had been made to do this: In the late 19th century British and French railways moved household furniture in boxes on rail flatcars and horse carts; an American steamship company custom-built ships to hold railway boxcars that could be lifted on and off ships with large cranes on the dockside;[8] and the largest US transportation company became a powerful advocate of this approach after they estimated that the cost of sorting freight would fall from 85 cents per ton to just 4 cents — whilst also reducing claims for damages.[9]
Yet, to many in the exclusive members club, for whom shipping was tied up with romantic ideas of sailing to foreign ports — rather than the unromantic notion of moving cargo — containers were simply dismissed as a “niche technology”.[10] However, history teaches us that resistance to change is ultimately futile.
Fig.87: Main Operational Cost For Ship-Lines
Then, in 1949, Keith Tantlinger, an engineer, designed an aluminium box for a client that would go on to revolutionise global trade. Tantlinger actually made two hundred 30ft boxes designed to be ‘stacked two high on barges and pulled by a truck’. Yet, as he later recalled, “despite much curiosity, no other orders followed … everybody was interested, but nobody wanted to reach for his pocketbook”.[11]
However, Malcolm McLean, a US trucking magnate, saw the potential that others had missed. McLean had long believed that “railroads, trucks, and ship lines were in the same business — moving freight”[12] and recognised in Tantlinger’s simple box was the key to realising his vision. And if the shipping industry couldn’t see it, he would have to show them.
McLean’s vision was bold: “every part of the system — ports, ships, cranes, storage facilities, trucks, trains and the operations of the shipper themselves — would have to change”.[13] Containers would be loaded with goods directly by the manufacturers at their factories, transported to the docks on trucks, taken off and moved around by forklifts, then lifted onboard ships by large cranes located on the dockside. This would drastically reduce the need for expensive manual labour and reduce dockside congestion. Freight would now no longer need to sit in dockside warehouses taking up space as it could be trucked in when ships were ready for loading; decreasing ship time in dock and maximising the time they were out on the open sea making money.
Fig.88: McLean’s Vision
The Port of New York Authority was the first to embrace McLean’s vision. At the end of 1955, before the first modern container had even been shipped, the Port Authority announced plans “to turn 450 acres of New Jersey salt marsh into a futuristic port for containerships, a scheme [which was] utterly beyond the capability of any other port in the world”.[14] The development of Port Newark was a big, bold gamble and one not without risks;[15] but it came off spectacularly as container traffic surged and its “share of total port traffic [rose] from 9 percent to 18 percent in just four years”.[16] The vast increase in jobs in “trucking, railroads … customs brokers and freight forwarders” and tax revenues from “port-related businesses”[17] transformed New Jersey’s fortunes. But this was all still in the future. In the mid-1950s, McLean still had to prove his concept could succeed.
After months of delays, overcoming objections from government bodies and fierce lobbying by vested interests, McLean launched the first modern container ship-line — Pan-Atlantic — in April 1956. For the occasion he invited a hundred dignitaries to a lavish lunch at Port Newark, where they watched containers being loaded onto a Pan-Atlantic ship “every seven minutes [meaning] the ship was loaded in less than eight hours and set sail the same day”[18] — a stark contrast to the days it took to load a similar amount of loose freight.
The invited manufacturers, logistics companies and ship lines quickly grasped the startling implications: Manufacturers could load goods themselves, making shipping goods more reliable as containers could be sealed directly at the factory; logistics companies could seamlessly move containers from rail to trucks, enabling them to expand their operations; while the ship-lines themselves — beyond the massive reduction in labour costs and money saved from no longer having ships idling in dock as they were loaded — could also eliminate burdensome extras like the special packaging needed to prevent damage to goods, which lead to a “25 percent discount on insurance”[19] — all contributing to improving their slender profit margins.
As McLean had envisioned, containers would impact every part of the transport industry, even the ships themselves. Containers, packed with freight, became too heavy for most ship-borne cranes to lift. To solve this, ports provided their own specialised cranes, which freed up valuable space on the ships for more money-making containers. McLean pioneered the use of industrial cranes, which he’d taken from disused shipyards, that moved along railway tracks laid out on the reinforced dockside. “Hanging from the cranes was another money-saving piece of equipment newly invented by Tantlinger, a spreader bar stretching the entire length and width of a container.”[20] The spreader, managed by a crane operator in a cabin perched 60ft above the dock, could pick up and move containers without any other dockers involvement, further driving down costs and making container shipping even more irresistible. Within a decade, the only constraint on the container revolution was the shortage of containers themselves as the entire industry adopted this new practice.
In 1962, the Port Authority decided to build an ever bigger port (Elizabeth) to accommodate up to four times more container traffic then Newark. This development put further pressure on New York City, which had been the dominant port on the US East-coast for centuries. To try and retain its status it invested in infrastructure upgrades that would allow it to accommodate a mix of containers and loose freight. However, loose freight was increasingly “an economic drain, because the cost of extra port time to handle non-containerised cargo ate up the savings from containerisation”.[21] By 1965 container ships could un/load 1,7 tons of cargo an hour — significantly more than any volume of loose freight. By 1970 it was 30 tons an hour.[22]
The industry had undergone a decisive shift and any port, like New York City’s, that tried to hedge their bets had made a serious miscalculation. Yet, this was only clear with hindsight, as the container revolution did not follow a straight line. A series of battles had to be fought and won first. Until then, anyone going ‘all in’ on containers was taking a huge risk that could have wiped them out.
These battles came to be known as ‘the standardisation wars’.
The Standardisation Wars
In the 1950s, the word “container meant very different things to different people”,[23] with no agreed size, shape or design for containers. Ports lacked cranes capable of handling the various types of containers, crates and casks in use, which is why ships had their own cranes on board. Trucking and railway companies also needed different, specialised vehicles and rolling stock to transport containers of varying lengths, widths and heights. This lack of standardisation created massive inefficiencies across the entire transport supply chain.
Unleashing the container revolution meant overcoming the huge risk of building infrastructure that might quickly become obsolete. For instance, if ship builders designed larger ships to carry 30ft containers, but 40ft containers later became standard, those ships would have suffered massive inefficiencies in an industry operating on razor-thin margins. The continued uncertainty around container standards made it impossible to plan for future growth and explained why many investors — with the notable exceptions of McLean and the Port of New York Authority — were reluctant to invest the vast sums the container revolution needed. The risk of being left with costly infrastructure, not fit for future purpose, was simply too great a risk for most.
The lack of a standardised container meant regulators were reluctant to authorise any ships carrying them. They couldn’t be certain that a ship, loaded with containers of unknown specification, wouldn’t endanger its crew, especially in adverse weather conditions. Without regulatory approval ship-lines couldn’t get insured, forcing them to assume full financial liabilities themselves. McLean, frustrated by these endless bureaucratic delays, decided to take matters into his own hands. He reasoned that the only way to prove the safety of shipping containers was to ship containers with a live demonstration, the one he successfully did in 1956. Once he had proven the concept, the US government got involved, partly because they too needed a standard for new ships, as the US navy retained “the right to commandeer subsidised ships in the event of war [and] worried that a merchant fleet using incompatible container systems would complicate logistics”.[24]
With government on-board, private commercial interests — such as the truckers and railroads who saw the potential for massive costs savings in their industries — also got involved. “These interests wanted to reach a decision on container sizes quickly, because once standard dimensions were approved, the domestic use of containers was expected to burgeon”.[25] However, as containers gained mass market acceptance, the early adopters — McLean and the Port of New York Authority — staged a fight to protect their early bets. They had made “large investments that could be rendered worthless if their containers were deemed “nonstandard”.[26] Thus began a battle amongst ship-builders, ship-lines, manufacturers, truckers, railroads and even crane makers over every part of what would become the standardised shipping container.
Battles were fought over container size, design, and even the locking devices used to secure containers onto cranes before lifting. Without agreement on these seemingly minor details, the entire logistics industry risked fragmenting into blocs that wouldn’t be able to interoperate, negating the advantages containerisation promised. For example, if containers had incompatible locking devices, ports would either have to invest in multiple types of cranes to lift them (driving up costs) or manually lock cranes on containers (increasing loading times). A standardised locking device was critical, but the question arose: which of the many locking devices already in use should be adopted?
The stakes in these battles were high — having one’s design adopted meant there would be no need to reinvest in new standards, whilst the patent holder could charge everyone a license fee to use their design. This stand-off over locking devices was only broken in 1963 when McLean’s new ship-line, Sea-Land (now the world’s largest container fleet), agreed to release its patent rights for free, paving the way for it to become the new industry standard. McLean waived license fees as he was focused on the bigger revolution he’d started.
Fig.89: Container Standardisation (Locking Devices)
By the early 1960s, the US had settled on a standard container size and design, but other countries, especially in Europe, wanted their containers — designed to fit their local railroad gauges sizes — to be recognised as standard too. After long negotiations, governments and industry players on both sides of the Atlantic reached a compromise, agreeing on a set of international container standard.
Despite this, the standardisation war continued. Resistance came from from the two leading ship-lines which, by the mid-1960s, accounted for two-thirds of all containers being carried. These companies had invested $300 million in custom-built ships to carry their containers that were no longer considered ‘standard’. This would force them to only carry their own containers, limiting their reach, or carry standardised containers less efficiently than their competitors. The market leaders responded by warning that, they “don’t care what container size is adopted as a standard [for] if the marketplace can find one that moves cheaper, that is the way the marketplace will dictate it and we want to be flexible enough to follow the marketplace.”[27]
It wasn’t until 1970 that the ‘bitter battles’ over standardisation began to wind down and a “new era of freight transportation finally seemed to have arrived. In principle, land and sea carriers would soon be able to handle one another’s containers. Container leasing companies could expand their fleets in the knowledge that many carriers would be prepared to lease their equipment, and shippers could make use of containers without wedding themselves to a single ship line”.[28] Containers continued to evolve, as some agreed-upon standards proved to be weak and had to be replaced with better alternatives. But, by this point, standardised containers had become the central component in the entire global goods transport ecosystem.
However, the importance of containers wasn’t so much in the ‘simple box’ itself, but in the transformation of business practices it triggered. Manufacturers could now relocate away from the docks to cheaper locations and “learned to organise their factories so that they could save money by shipping large loads to take advantage of containerisation”,[29] fuelling the rise of affordable consumer goods. Land transport companies responded to this rising demand by learning how to move containers between trucks and railroad more efficiently, so containers could arrive at the docks just in time for loading and not sit idling. Ships were built bigger, making it economically feasible to deliver goods over greater distances, which encouraged ports worldwide to invest in bigger docks and the automation needed to handle containers faster, boosting margins. As a result in these changes of practice, it was now possible “to fill a container with freight in Kansas City with a high degree of confidence that almost any trucks, trains, ports, and ships would be able to move it smoothly all the way to Kuala Lumpur”.[30]
The era of global trade had arrived.
Fig.90: Transport Industry Before Containerisation
Fig.91: Transport Industry After Containerisation
A Landscape Changed
Malcolm McLean envisioned how a ‘simple box’ would force every aspect of the freight transport industry to redesign for faster handling, faster throughputs and more profitable operations. However, he may not have fully anticipated the proliferation of new inventions that would be built on this simple but revolutionary component. Refrigerated containers, for instance, enabled cold goods to be stored and stacked alongside ordinary containers at no extra cost, opening up entirely new markets for perishable goods. Massive dockside cranes, riding ”on a huge gantry that bridged the entire ship … stopping immediately above any container and hoisting it vertically”,[31] operated year-round, replacing the armies of dockers once essential for loading and unloading ships. While the sheer volume of containers now moving over land to and from ports not only swept up much of the casual labour no longer needed at the docks, but also precipitated massive investments in road infrastructure, forever changing the landscapes of cities and towns (the implications of which we explore in the next part).
The early movers into containerisation, like the Port of New York Authority, were able to ride this wave to success, while those who failed to adapt watched their former advantages disappear. New York City, whose tight waterways and harbours were ill-suited for the gigantic ships of the container era, was unable to prevent manufacturers and logistics companies — who paid exorbitant rents to be located along its waterfronts in order to avoid the delays and costs of traffic bottlenecks getting in and out of its busy port area — from drifting away. They could now re-locate to “a modern, single-story factory in New Jersey or Pennsylvania, [and] enjoy lower taxes and electricity costs at its new home”, while shipping goods through Port Elizabeth cost a fraction of what it had done out of Manhattan or Brooklyn. As a result, “industry fled the city [while] 83 percent of the manufacturing jobs that left New York between 1961 and 1976 ended up no farther away than Pennsylvania, upstate New York, or Connecticut.”[32] The once pre-eminent New York docks now became a distant memory and “when new tenants finally appeared, years later, the Chelsea Piers reopened for an entirely different use: recreation”.[33] A simple box had changed more than just the landscape of the shipping industry, it transformed the fortunes of cities and entire regions across the globe.
1 GATT was a legal agreement aimed at promoting international trade by reducing or eliminating trade barriers such as tariffs, quotas, and subsidies. It was signed in 1947 by 23 countries and became law on January 1, 1948. The purpose of GATT was to make international trade easier by eliminating protectionism. This was superseded by the creation of the World Trade Organisation (WTO) in 1995.
3 The Box. How the Shipping Container Made the World Smaller and the World Economy Bigger. Marc Levinson (2016) p19 (Note: quotes in the rest of this chapter are taken from this boo, except where indicated otherwise).
4 “I wisely started with a map”. https://tolkienlibrary.com/press/1152-tolkien-writings-to-understand-rules-of-life.php
5 Chapter fifteen — Wardley Mapping, Made Simple.
6 We’ve found that using a simplified map — with three stages of evolution instead of four — makes mapping easier for people new to the process. From experience, we noticed that very few components remain in the ‘genesis’ stage of the original four-stage Wardley Map after a bit of challenge. For this reason, we’ve combined the ‘genesis’ and ‘custom-built’ stages into a single ‘unchartered’ stage. However, if a component is truly the ‘genesis’ of a new activity or practice, we can still represent it by placing it on the far left of the map, just as we place utility-like components on the far right in the ‘industrialised’ stage (renamed from ‘commodity’). The ‘transitional’ stage in between highlights that all components are evolving, moving gradually from left to right.
7 ibid. p39
8 ibid. p57
9 ibid. p40
10 ibid. p69
11 ibid. p49
12 ibid. p148
13 ibid. p58
14 ibid. p165
15 At this time there were no standardised container sizes, which meant no custom-designed ships had yet been built. Therefore, a port might build infrastructure for ships and containers that would later not be the industry standard, risking huge and crippling write offs. More on standardisation below.
16 ibid. p88
17 ibid. p212
18 ibid. p56
19 ibid. p147
20 ibid. p56
21 ibid. p89
23 ibid. p116
24 ibid. p117
25 ibid. p120
26 ibid. p120
27 ibid. p132
28 ibid. p128
29 ibid. p142
30 ibid. p133
31 ibid. p61
32 ibid. p94
33 ibid. p92
