The Box

Last post’s exploration of “the way things work” was “Infrastructure”, Brian Hayes’ photo survey of industrial infrastructure. This week’s episode of “Richard-Scarry-for-grownups” is The Box, by former Economist editor Marc Levinson, which delves into the history of container shipping.
The Box is compelling history of things and people. It dives into the details of industry structure, finance and technology and assembles an intricate picture of transformative change. And recounts the adventures of the competing entrepreneurs racing to get the system working, beat competition, and outwit regulation.
Container shipping appears inevitable from the perspective of technological determinism. Boxes, trains, trucks, motorized ships, cranes, none of the technology was dramatically new. Container systems had been tried in the railroad shipping since the 1920s. The old system, where each item needed to be loaded, unloaded, and reloaded with manual labor, was costly and slow. But, a clear view is not the same as a short distance, to quote Paul Saffo.
The incumbent industry had strong incentives to preserve the status quo. Shipping, trucking, and trains were regulated industries with centrally set prices and terms of service, established cartels, and a focus on the mechanics rather than on the service of transport. It took an innovative entrepreneur and some well-timed government handouts to break the logjam. Malcom McLean, a trucking magnate, envisioned the system in his minds eye, drove the engineering for the interlocking containers and the fast-loading cranes, put together aggressive debt financing, and benefited from the US government’s giveaway of WWII surplus transport ships. Far-sighted port agencies in New Jersey, Long Beach, and Singapore invested heavily in container ports, securing early leads. When change came, it was rapid. Levinson writes, “Three years after containerships first sailed to Europe, only two American companies were still operating breakbulk ships across the North Atlantic.”
But even the folks who saw change coming had very imperfect foresight. Many cities invested in ports, but only a few succeeded, and others invested heavily without return. After making a fortune in his first container ventures, McLean himself bet badly, on a fast, fuel-guzzling container ship that hit the market during the 1970s oil crisis, then on a huge slow ship that was introduced just in time for the 80s oil price crash. From a distance, the transition to container shipping seems orderly and logical, like water flowing downhill. Close up, it’s rapids.
And its attention to evidence shows a more complicated picture of the relationship between labor, capital, and government than would be predicted by ideology. Much economic writing in the popular press has a clear ideological slant. The free market generates the most efficient economic outcomes, while regulation, government subsidy, and labor protection reduce economic growth. Alternatively, regulations protect against excessive corporate power, subsidies protect infant industries and local economies, and unions empower workers.
Levinson’s history of the rise of container shipping uncovers a more mixed and subtle story. The early innovators in container shipping got a jumpstart from a government fire sale of surplus WWII ships. WIthout the gift of lowcost ships, the capital costs of ships would have been higher than the entrepreneurs could carry. Early on, some port cities and agencies invested heavily in the creation of container ports. The government investment paid off spectacularly well for some, and badly for others.
At the same time, the shipping, trucking,and rail industries were highly regulated. Players were attuned to manipulating the regulatory agency rather than competing. Much later on, the successful container industry helped drive deregulation. Levinson doesn’t touch the reasons that the railroads got regulated in the first place; they had been an overly powerful oligopoly that abused their market power. So, when does it make sense for government to subsidize or regulate industry? Sometimes, in the cases of early industries, very high capital investments, and to combat market power. And sometimes regulations and subsidies outlive their usefulness.
The biggest expense in shipping was not the transport itself, but the repeated loading and unloading of every item. Longshoreman’s unions arose to protect workers against an abusive contingent labor system, where workers scrambled every day for the chance to unload the days ships. The union policies provided steady work, but also created work rules that mandated more workers than were needed to do the job. The longshoreman protested containerization vehemently. In some regions, protracted labor conflicts kept the port from adapting to the new technology; by the time the union lost, the container ports had been set up elsewhere. But in the US west coast, the union negotiated a settlement where longshoremen whose jobs were made obsolete received retirement payouts. The benefit of containerization was shared with the workers.
The Box tells a story that is more complicated than an ideolog would prefer. Unions and government actions are sometimes helpful and sometimes harmful, and helpful structures can outlive their usefulness and need replacing.

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