Chapter 19. Mapping an Industry (Shipping)
Global trade exploded after World War II but this was less to do with the plethora of bilateral agreements friendly nations signed between themselves, or even the multi-national membership of GATT,[1] despite these boosting trade “by 45% over 20 years [and] 285%” respectively. Instead, the real star of the post-war boom, boosting bilateral 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]
Transporting goods used to be an expensive business, costing up to a quarter of the value of the goods being shipped. Yet, in just a few decades, the humble shipping container 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] But the shipping container was not a new innovation. Wooden containers had been used for centuries to speed up the loading and unloading of cargo ships, driven by the economic reality that ships only made money when at sea and not in dock. What the modern shipping container addressed though was the costliest part of the entire value chain of transporting goods — getting goods to the ship in the first place and it did this by triggering a revolution that affected the entire transport industry.
In this chapter we’re going to explore how the humble shipping container changed an entire industry. We aim to show how, contrary to popular business stories, it’s not the appearance of new technology that disrupts the world but the industrialisation (or widespread adoption) of a component and the new practices it gives rise to that is the real story of world-changing innovation.
So, in the wise words of J.R.R Tolkien,[4] let’s ‘start with a map’.
The first step when mapping is to identify who your users are. There are always many users for a product, or service but in our case here we’ll focus on the user that would have mattered most to the shipping industry — paying customers — who were ‘manufacturers’ wanting to ship goods to their buyers (see #1 in fig. 64 below). To ship goods manufacturers needed a ‘ship-line’ (2) — a company specialising in transporting goods, such as raw materials to manufactures or finished goods to end users. Transporting freight required ‘ships’ (3) and ships needed a ‘dock’ (4) where they would collect freight. This freight was ‘transported’ (5) to the docks on ’trucks or railcars’ (6) ready for the ‘ships’, where they were ‘unloaded’ (7) and stored in various ‘transit sheds’ (8) until the ships were ready for them. This meant docks also needed large ‘warehouses’ (9) to accommodate multiple transit sheds and the freight that would sit, often for weeks or even months, on the dockside.
Fig. 64 — Value Chain for Shipping Goods (post-world war II)
As already mentioned, one of the biggest expenses of this entire operation were the teams of longshoremen or ‘dockers’ (10) who often had to drag and push cargo the last mile through city streets to and from the docks. Shipping cost manufactures up to a quarter of the total value of their goods, but half of that went on the manual labour of the ‘dockers’ who managed the process with ‘tally sheets’ (11) to ensure goods were accounted for when ‘unloading’ and ‘loading’ (12) freight onto ships. The ships themselves also used ‘cranes’ (13) to lift freight on board, which had been packed in ‘wooden crates and casks’ (14) ‘assembled’ (15) by dockers on the dockside, who would wrap them in ‘rope netting’ (16) for ease of lifting. These crates consisted of ‘pallets’ (17) of goods that had been moved from transit sheds to the dockside by ‘forklifts’ (18) which, in the post-world war II era, was one of the few areas of automation in the entire process. ‘Loading’ freight needed an ‘itinerary’ (19) managed by a ‘foreman’ (20), which detailed which ship hulls and the order freight was to be loaded because, at this time, ships would call into multiple ports and, into order to reduce the time it took (as well the risk of breakages and theft), only unloaded freight intended for that port. Therefore, shipping goods in this era was entirely dependent on the muscle and intelligence of humans with the minimal use of automation anywhere in the process.
By using the cheat sheet introduced in chapter 15 we can now apply evolution to this value chain to create a high-level map[5] of the shipping industry in the decades following world war II:
Fig. 65 — Map for Shipping Goods (post-world war II)
This shows how evolved we think key components in the shipping value chain were in the post-war period:
- ‘Ship-lines’ provided a service, therefore we’ve placed them in ‘transitional stage’. But, as industry players were competing mainly on price, we’ve placed them close to the ‘specific stage’ to show that ship-lines were becoming commoditised (i.e. difficult to differentiate on expect by price and availability).
- ‘Ships’ were an essential cost of doing business for the ship-lines. Yet the many ships that had been commandeered for the war effort were now back in commercial use meaning there was an abundance of them. Therefore, we’ve placed ships in the ‘specific stage’ denoting a commodity-like component.
- ‘Docks’ were needed for ships to pick up freight, while manufacturers also set up factories dock-side to reduce ‘last-mile’ transportation costs. So we’ve placed docks on the extreme right to denote a utility-like service where users only paid for what they used (ex, per sq. ft of rental space or tonnage shipped).
- ‘Transport [of] freight’ was under constant price pressure (due to oversupply) and customers had a low tolerance for failure (ex, transporters were liable for any goods that didn’t arrive). This suggests that, despite being a commercial service, ‘transport of freight’ was also commoditising.
- ‘Trucks and railcars’ needed to transport freight have been split on this map as ‘trucks’ could still differentiated on (ex, a new truck able to transport heavier loads at greater fuel efficiency) making them a product, while ‘railcars’ were already a utility-like service as customers only paid for what they used.
- ‘Loading and unloading’ freight by ‘dockers’ was a source of constant tension between ship lines and labour unions. Goods now being shipped were increasingly higher-value consumables (rather than the lower-value commodities being shipped previously) and unions sought to differentiate their members by their professional value — skilled dockers could load and unload goods faster, with less losses, breakages and theft, making ship-lines more profitable — and they wanted their fair share of the increased industry profits. Yet, as there had always been abundant casual labourers at the docks looking for work, ship-lines had been used to setting the price of labour. This on-going conflict would build up the pressure for change in the industry (marked by a red arrow on the map).
- ‘Transit sheds’ and ‘warehouses’ for storing freight prior to loading onto ships or trucks were essential, yet trivial and standardised components that were impossible to differentiate on (except by price and availability) so we’ve placed these in the ‘specific stage’.
- ‘Tally sheets’ used to record the freight being loaded and unloaded have been placed into the ‘transitional stage’ on the map as these would have been considered a good practice at the time as they helped minimise losses for the ship-lines.
- ‘Cranes’ to lift freight on and off-board were a mature product, used by the ships themselves and differentiated on lifting capacity (as well as price). The ‘wooden crates and casks’ hoisted by the cranes in ‘rope netting’ were widespread at all docks, so are shown here as low-margin commodities.
- ‘Assembly’ of freight — quickly, efficiently and safely to minimise breakages, losses and delays — ready for loading was the key component on which labour unions sought to differentiate professional dockers from casual labourers. Therefore, this goes in the ‘transitional stage’ to suggest a good practice.
- ‘Pallets’ for moving freight from transit sheds to the ship-side ready for assembly were a trivial (though essential) component, so we’ve placed these in the ‘specific stage’.
- ‘Forklifts’ used to move these pallets from one place to another were bought commercially from dealerships who would have talked up the advantages of new features (greater fuel efficiency, lifting loads etc), meaning these were products and are recorded the ‘transitional stage’.
- ‘Itineraries’ used by dockers to ensure ships were loaded with the right freight and in the right order — so they could be unloaded at the right port — were a good practice.
- And this good practice was managed by a ‘foreman’ with the specialised knowledge and experience needed to ensure successful and profitable operations for the ship lines.
But the question you’re probably asking yourself now is — so what?
Well, looking at the shape of the map and how components had evolved towards far to the right we can see that, in the post-war period, shipping was a highly-commoditised industry. Margins would have been slender therefore high-volume operations would have been required to deliver profitability, which would have forced consolidation around a relatively small number of large industry players. Yet, despite their near-monopoly-like power, the operations of these industry giants were heavily dependent on human brain and brawn, (ex, dockers moving and assembling freight and foremen managing itineraries) which would have given them negotiating power with the ship-lines. It was this that created the pressure for change in the industry.
Yet, the shipping industry had long settled into a comfortable existence as members of an exclusive club who had long known that, should any of them try to ‘win the game’ — for example, by trying to increase profits through capturing more market share — a race to the bottom on price would likely ensure, harming the bottom lines of all ship-lines whose margins were already slender. Therefore, rather than ‘rock the boat’ they tacitly agreed to live off the government’s generous subsidies, in exchange for which they allowed politicians to set the routes and prices that suited the government who became, in effect, the industry’s main customer. This is why, beyond some advances in ship design and investment in technology like forklifts, the shipping industry hadn’t changed in decades. However, nothing stays the same forever and the growing prosperity of the post-war world and the explosion in higher-value consumer goods created irresistible pressure for change. And if change wasn’t going to come from inside the club, it was going to be forced on the club from outside.
Aside from maintaining and running ships the industry’s main operational cost went on the hauling of goods to docks and loading thousands of pieces of loose freight onto the ships. It had long seemed obvious to everyone that the way to reduce these costs was to “put the freight into big boxes and just move the boxes”.[6] This was not a new idea: In the late 19th century British and French railways moved household furniture in boxes on rail flatcars and horse carts; an American steamship company had even custom-built ships to hold railway boxcars that could be lifted on and off ships with large cranes on the dockside;[7] US motor companies had long proposed standardised containers that could be transferred from railcars to trucks; 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)[8]. Yet, to many in the shipping industry — especially those for whom shipping was tied up with romantic ideas of sailing to foreign ports (rather than the less romantic notion of moving cargo) — containers were dismissed as a “niche technology”.[9] Yet history teaches us that resistance to evolution is futile.
Fig. 66 — Main Operational Cost for Ship-Lines
Then, in 1949 Keith Tantlinger, an engineer, designed an aluminium box for a client that would become the modern shipping container that revolutionised global trade. Tantlinger had actually made two hundred 30ft boxes designed to be ‘stacked two high on barges and pulled by a truck’ yet, “despite much curiosity, no other orders followed … everybody was interested, but nobody wanted to reach for his pocketbook”[10] Tantlinger later recalled. However, a US trucking magnate who had long believed that “railroads, trucks, and ship lines were in the same business — moving freight”[11] was interested. In Tantlinger’s simple box he recognised the potential to realise his vision and, reasoned, that if the shipping industry couldn’t see it he would show them the way.
Malcolm McLean’s vision would mean that “every part of the system [for transporting freight] — ports, ships, cranes, storage facilities, trucks, trains and the operations of the shipper themselves — would have to change”.[12] Containers would now be loaded with goods by the manufacturers themselves at their factories, transported to the docks on trucks, taken straight off the trucks and moved around by forklifts, then lifted onboard ships by large cranes located on the dockside. This would do away with need for expensive manual labour to haul freight around the docks and assemble it into cargo the ship’s cranes were capable of lifting. Furthermore, the reduced dockside congestion — as they no longer needed such vast warehouses to store freight in — meant that trucks could be timed to arrive just when the ships were ready for loading; decreasing the time ships spent in dock and increasing the time they were on the open sea and therefore making money.
Fig. 67 — 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”.[13] Port Newark was a big, bold gamble not without risks,[14] 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”.[15] The vast increase in jobs in “trucking, railroads … customs brokers and freight forwarders” and tax revenues from “port-related businesses”[16] transformed New Jersey’s fortunes. But this was all still in the future. Back in the mid-1950s McLean still had to prove his concept could work.
After months of delays (overcoming objections from government bodies and lobbying by vested interests) in April 1956, McLean launched the first modern container ship-line — Pan-Atlantic. Where it used to take days to load a single ship with loose freight a hundred invited dignitaries enjoyed a lavish lunch at Port Newark while watching containers 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”.[17] For the manufacturers, logistics companies and ship lines assembled the implications were startling: Manufacturers would be able to ship goods quicker, cheaper and more reliably (as the containers were sealed); logistics companies could inter-operate between rail and trucks to expand their geographical reach; while the ship-lines themselves — quite aside from the massive reduction in labour costs and money lost as ships idled in dock — could also eliminate burdensome extras like special packaging and reduce the costs of damaged and lost goods, resulting in “a 25 percent discount on [their] insurance”[18] — all helping to improve the profit margins of the ship-lines.
As McLean had envisioned, containers impacted every part of the transport industry, even the ships themselves. Containers, packed with freight, were now too heavy for most ship-borne cranes to lift, so the ports themselves provided the cranes, which freed up space on the ships for more money-making containers. McLean’s Pan-Atlantic pioneered the use of industrial cranes (from disused shipyards) moving along railway tracks laid out on the reinforced dockside and “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.”[19] A spreader, managed by a crane operator in a cabin perched 60ft above the dock, could pick up and move containers without any docker needing to be involved, further driving down costs and making container shipping even more irresistible. Within a decade, the only constraint on the container revolution was the shortage in supply of the containers themselves as the entire industry fully embraced this change of practice.
In 1962 the Port Authority had decided to build an ever bigger port (Elizabeth) to accommodate up to four times more container traffic then Newark. At the same time, the nearby port of New York City, which had been the key port on the US East-coast for centuries was attempting to retain its status by investing in infrastructure upgrades to accommodate a mix containers and loose freight. Yet loose freight increasingly “was an economic drain, because the cost of extra port time to handle non-containerised cargo ate up the savings from containerisation”.[20] In 1965 container ships could un/load 1,7 tons of cargo an hour — significantly more than any volume of loose freight — by 1970 container ships could shift 30 tons.[21] 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 because, despite it’s stunning success, the container revolution did not follow a straight line — a series of battles had to be won first and, until they had been, anyone fully embracing the container revolution were taking huge risks that could have wiped them out.
These battles became known as ‘the standardisation wars’.
The Standardisation Wars
In the 1950s the word “container meant very different things to different people”[22] as no agreed container size, shape or design existed. Therefore, no port had cranes capable of moving every type of container (as well as crates and casks) then in use, which is why ships had their own cranes on board. Trucking and railway companies also needed various vehicles and rolling stock to transport all the containers of different lengths, widths and heights. And non-standard containers was the biggest impediment to building the infrastructure the container revolution would need. If, for example, ship builders invested in bigger ships to carry more 30ft containers, but 40ft containers later became the standard, these ships would have had serious inefficiencies in an industry of slim margins. This was why many investors, (with the rare exception of McLean and the Port of New York Authority) were reluctant to bet vast sums on the coming revolution — the risk of being left with lots of expensive infrastructure not fit for future purposes was a risk too far for most in the industry.
The lack of a standardised container also meant regulators would not authorise container ships as they could not ascertain, with sufficient certainty, whether a ship loaded with containers would be a danger to its crew in adverse weather conditions and without regulatory approval ship-lines could not get insured, making the financial liabilities too great for them to risk. Therefore, it was the trucking magnate McLean himself, frustrated by endless government delays, who took on this challenge head on with his live demonstration in 1956. He reasoned that, the only way to prove the safety of shipping containers was to take on the risk to show it was safe. Once he had proven his point the US government got involved, (partly because they too wanted 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”).[23]
With government now on-board private commercial interests, such as truckers and railroads, who recognised the potential for huge costs savings for their own industries 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”.[24] But just as the massive upside of containers was being embraced by the market the ‘early adopters’, the likes of McLean and the Port Authority, started to fight to protect their early bets — “large investments that could be rendered worthless if their containers were deemed “nonstandard”.[25] This battle triggered the ‘standards war’, as every part of what would become a standard shipping container was argued over by ship-builders, ship-lines, manufacturers, truckers, railroads and even crane makers.
Fig. 68 — Container Standardisation
The standards war was fought over seemingly minor issues (container size, design, locking devices etc.) yet, without agreement on these matters, the entire logistics industry would fragment into blocs that couldn’t interoperate, thereby negating the many advantages containerisation promised. Locking devices, for example, were used to secure containers onto cranes before lifting and if containers had different locking devices then ports would have to invest in different cranes to lift them (driving up costs) or manually lock cranes on containers (increasing loading times). Everyone understood the importance of an industry standard locking device but the question was, which of the many container locking devices already in use should be adopted? The advantage of having one’s design adopted was that there’d be no need to invest in the new standards, whilst the patent holder could also charge everyone else a license fee to use their design. This stand-off was only broken in 1963 when Sea-Land, (McLean’s new ship-line, which had the world’s largest container fleet) agreed to release the patent rights on its locking devices for free, making it the industry standard. McLean had agreed to forgo any license fees as he continued to focus on the bigger revolution he had started.
By the early 1960s the US had settled on a standard container size and design but other countries also wanted to have their containers (designed to fit local railroad gauges sizes in Europe) recognised as standard. After long discussions compromises were reached by governments and industry players on both sides of the Atlantic who agreed to an international set of standard containers. Yet resistance continued, especially from the two leading ship-lines (representing two-thirds of all containers being carried by the mid-1960s) who had invested $300 million in new, custom-built ships to carry their containers, which were now no longer considered ‘standard’. This would’ve forced the market leaders to only carry their own containers (limiting their reach) or carry standardised containers less efficiently than rivals which, in an industry driven by costs, would’ve been a serious disadvantage. So the market leader warned that they “don’t care what container size is adopted as a standard [as] 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.”[26]
This was why it took until 1970 for these ‘bitter battles’ to wind down when 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”.[27] Containers continued to evolve (as some agreed standards proved to be weak and had to be abandoned in favour of better options) but had become an industrialised and central component in the entire goods transport ecosystem. Yet it was not so much the container that mattered as the changes in practices it triggered: Manufacturers now relocated 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”,[28] which helped fuel the rise of affordable consumer goods; land transport companies responded to this greater demand by learning how to move containers between trucks and railroad more quickly to ensure containers arrived at the docks just in time; ships themselves became ever bigger, making it more economically feasible to deliver goods ever further; while ports around the world invested in bigger docks to handle these ever-bigger ships and in the automation needed to load containers ever quicker and get the ships on their way faster. 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”.[29]
The era of globalised trade had arrived.
Fig. 69 — Transport Industry after Containerisation
A Landscape Changed
McLean had envisaged how a (not so) ‘simple box’ would force every aspect of the freight transport industry to re-design for faster handing, faster throughputs and more profitable operations. And this is what happened. New inventions now proliferated on top of this simple but far-reaching change: Refrigerated containers that allowed cold goods to be stored and stacked together with ordinary containers at no extra cost opened up new markets. The development of huge dockside cranes needed to move the growing numbers of containers riding ”on a huge gantry that bridged the entire ship … stopping immediately above any container and hoisting it vertically”[30] meant that two giant cranes working together could un/load ships all year round, making yesterday’s armies of dockers obsolete. Casual labour now drifted into the trucking industry as more containers were moving from factory to port and from port to final destinations, triggering a massive increase in investments in road infrastructure (some of the implications of which we’ll explore in the next book).
Early movers into containerisation, like the Port of New York Authority, rode this wave to success while others watched its former advantages disappear. New York City could not prevent manufacturers and logistics companies drifting away, pushed by the delays and costs of traffic bottlenecks getting in and out of its once busy port area, whose tight waterways and harbours were ill-suited to the gigantic ships of the container era. Factories that had once paid exorbitant rents along the waterfront to avoid the problems of trucking goods in 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”. Shipping goods through Port Elizabeth cost a fraction of what it had done out of Manhattan or Brooklyn and “industry fled the city … 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.”[31] The pre-eminence of New York’s docks became a distant memory and “when new tenants finally appeared, years later, the Chelsea Piers reopened for an entirely different use: recreation”.[32] A simple box had changed more than just the landscape of the shipping industry.
1 General Agreement on Tariffs and Trade (GATT). 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 Organization (WTO) in 1995.
3 The Box. How the Shipping Container Made the World Smaller and the World Economy Bigger. Marc Levinson (2016) p19
4 “I wisely started with a map”. https://tolkienlibrary.com/press/1152-tolkien-writings-to-understand-rules-of-life.php
5 The version of the map we use here — with three stages of evolution rather than four — is a simplified version that we have found to be easier for people new to maps to work with. For, in practice, we have found that very few things are actually in the ‘genesis’ stage of the original Wardley Map four stage version, (or rather, very few components remain there after a bit of challenge) so we have combined ‘genesis’ here with the ‘custom-built’ stage. We can still show any component that is genuinely in the ‘genesis’ of a new activity or practice by locating it on the extreme left of the map (similar to how, in practice, mappers tend to show that a ‘commodity’ is being provided as a ‘utility-service’ by locating it on the extreme right of the map). The new labelling of the three stages of evolution here (‘Fluid’ ‘Transitional’ and ‘Specific’) comes from a paper by Abernathy & Utterback ‘Patterns of Industrial Innovation’ (1978), which triggered our original experiments with using the three stage version and we’ve found to be useful descriptions for people to understand the nature of the components they’re talking about (ex, “this is very FLUID at the moment as we’re still working things out” or “that’s a very SPECIFIC thing we use”).
6 ibid. p39
7 ibid. p57
8 ibid. p40
9 ibid. p69
10 ibid. p49
11 ibid. p148
12 ibid. p58
13 ibid. p165
14 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.
15 ibid. p88
16 ibid. p212
17 ibid. p56
18 ibid. p147
19 ibid. p56
20 ibid. p89
22 ibid. p116
23 ibid. p117
24 ibid. p120
25 ibid. p120
26 ibid. p132
27 ibid. p128
28 ibid. p142
29 ibid. p133
30 ibid. p61
31 ibid. p94
32 ibid. p92
