Door to Door: The Magnificent, Maddening, Mysterious World of Transportation (4 page)

In the end, the iPhone has a transportation footprint at least as great as a 240,000-mile trip to the moon, and most or all of the way back. The wonder of this is compounded by the fact that this transportation intensity is a strategy to
increase
efficiency and lower cost.

On the face of it, that seems absurd. Yes, entrepreneurs and empires have traded goods across long distances for thousands of years: the ancient seafaring peoples of the Mediterranean, the merchants on the Silk Road, the classical Romans with their
empire-wide network of paved highways larger than the U.S. Interstate Highway System. But back then, every mile added cost and risk. So only certain goods—rare fabrics, wine, art, jewelry, exotic foods, and bulk goods that simply could not be sourced locally—were worth global trading. Peppercorns were the original “black gold,” not petroleum, and were once so rare and valuable that they stopped being merely prized goods and were used as currency, collateral, and even ransom in the ancient world.

The customer base for global goods in centuries past was almost as rare as the goods themselves. The vast majority of people until very recently consumed local and regional goods for most if not all of their needs. Sourcing everyday apparel, food, or common tools from distant locations—routine today—was out of the question and would have been outside the budget of all but a wealthy few. As much as such devices as the iPhone are the result of advanced design and engineering, they are also creatures of a supply chain that could only be imagined and afforded in this unique era of logistics and outsourcing in which traveling great distances for choice parts and processes is no longer a barrier. The real breakthrough that makes the iPhone possible—along with most of today's consumer goods, right down to the cheapest pair of boxers in your drawer or the salt-and-pepper shakers (and their contents) on your table—is a breakthrough of transportation.

It has not been this way very long. The dominant technology company of its era, the Radio Corporation of America, operated very differently. For decades after World War I, RCA defined the consumer electronic business with category-dominating products: radio, phonographs, and television (both as a manufacturer and a broadcaster). The company's labs also played a pivotal role in developing such other important technologies as radar, color television, the electron microscope, liquid crystal displays, and early computer systems. RCA grew to become one of the most
recognizable brands and valuable companies in the world, investing its profits by scarfing up other companies and brands, including Random House publishing, Hertz car rental, and Banquet frozen foods (investments so far outside RCA's core competence that this “conglomerate strategy” eventually helped bring the company down). A promotional film,
The Reason Why
, details in classic 1959 newsreel deadpan how and why an RCA still at the top if its game made nearly every part of a television set in-house. RCA designed, prototyped, tested, and mass-produced all the major components for that era's most prized home technology: its vacuum tubes, the printed circuits, the cathode ray tube that formed the TV display, the tuners, the speakers, and even the finely finished, furniture-grade wooden cabinets that were the hallmarks of old-school TVs. In RCA's era the vertically integrated company—which controlled its supplies and components and thereby avoided paying another company's markup and the added cost of time, distance. and shipping—held a distinct advantage in the technology and consumer electronics sector.

A major competitor of RCA's, Motorola, pursued a similar strategy and was well-known for its early use of solid state components in place of vacuum tubes, culminating with its space-age-named “Quasar” line of TVs—an expertise that led to a new business: making computer microprocessors. Motorola, which designed the communications system used by astronaut Neil Armstrong to phone home from the moon, provided the processor cores for Apple's early computers as well. And Apple itself was much more vertically integrated in the past, sourcing components from other manufacturers (as the personal computer industry has done since its formative years) but also operating its own factories in the U.S.

Until the 1970s and 1980s, this strategy remained the norm for American industries. International trade of consumer goods was
minuscule by today's standards,
¹²
often more trouble and expense than it was worth. The direct monetary cost of shipping, far higher in that era in real dollars, was just one barrier. Arrival times were unreliable, communication and tracking atrocious, and moving goods in and out of ports was notoriously slow and costly. Large gangs of longshoremen were needed to take cargo on and off every ship, with forklifts and nets but also by hand, in a painstaking style of cargo management known as “break-bulk” shipping, which differed little from the methods employed by ancient traders aeons ago. Cargo holds were loaded as a vacationer would pack a car trunk with suitcases, cramming in the various shapes and sizes of boxes and crates in vast jumbles. This was labor-intensive in both directions, slow, inefficient, and costly: a ship could spend ten days docked just to unload and reload. Combined with tariffs, breakage, and rampant cargo pilferage owing to so many loose items floating around holds and docks, international trade easily added 25 percent or more to the costs of consumer goods.

But then came the big breakthrough, a world-changing invention that would be both boon and disaster, making most of our modern and common products, not least the smartphone, possible. It was not some new ship design or propulsion system that launched the revolution, nor the advent of some exciting new high technology or manufacturing process. The breakthrough was as low-tech as could be: a steel box or, as American longshoremen call it, “the can.” It's best known away from the docks as the shipping container.

In retrospect, the idea seems so simple, so obvious: Put everything in identical big metal boxes the size of semitrailers, stackable and uniform, each marked with a universal ID number. Make the containers the same everywhere in the world, design ships and docks specifically to accommodate them, and then sit back and watch the world change.

Simple or not, that innovation transformed—and exploded—global trade.
¹³
And it doomed companies such as RCA that could not adapt.

A big part of the magic was the fact that containers could be packed with anything and everything—televisions, furniture, coffee beans—
before
the ship that would carry them away even reached dock. The loaded containers could sit there and wait for the ship to come, not even requiring a warehouse to protect them from the elements: they are watertight. They could be sealed and locked to deter theft as well, the actual cargo never touched until the container arrived at the customer's doorstep to be unsealed. Tons of “containerized” goods could be piled on and off ships in one move, with a crane operator and a small ground crew instead of large gangs of longshoremen marching on and off ships, carrying a box at a time. Containers could then be placed right on semitrucks with empty chassis, with the already-packed container becoming the trailer. Or they could be stacked on flatbed rail stock: instant boxcars, fully loaded. Instead of spending more time docked while being loaded and unloaded than they spent sailing, the new breed of container ships were moving in and out of ports in a fraction of the time. Ships in motion make money. Ships sitting in port lose money. The value in time and money was apparent from the first.

In 1966, one of the first true container ships—the
Fairland
, owned by now-defunct America-based shipping giant Sea-Land—completed the first international container ship delivery, launching a successful weekly service between Port Elizabeth, New Jersey, and Rotterdam. The
Fairland
's capacity of 236 containers was a tiny fraction of what modern container ships now carry, but it sparked the revolution nonetheless. The ships have grown spectacularly in size ever since.

The era of containerization coincided with a global movement
to reduce tariffs to encourage free trade, and suddenly a $700 TV or a ton of iron ore cost only $10 to move halfway around the world. A $150 vacuum cleaner: $1. A $50 bottle of Scotch: 15 cents.
¹⁴
Containerization also came to air freight, and competition—in the air and on the ocean—drove down the cost of flying goods, particularly small ones, by an order of magnitude. This kind of pricing nullified the home-court advantage that companies such as RCA had enjoyed for so long by building the whole widget. The value of having a garment district in New York City or a tuna cannery in Los Angeles, a TV factory in Indiana or a vertically integrated car-making operation in Detroit, no longer seemed so compelling simply because it was close to the market for a product. The allure of low-wage workers eager for factory jobs in developing nations with little or no environmental regulation now seemed much more compelling as a source for car parts and computers and pretty much everything else. Although it was neither intended nor anticipated, the advent of containerization didn't just make shipping lines more efficient and profitable. Containers ushered in and made possible—perhaps inevitable—the modern era of offshoring.

At the same time, the complexity of new technology in the emerging digital age also undermined the RCA style of manufacturing. RCA had built an empire mastering the design and creation of mechanical, analog, and vacuum-tube technology. One of the company's first signature products, the phonograph, had been an entirely mechanical (and nonelectrical) device for a half century before electronic amplifiers and speakers were added to the hand-cranked devices. Significant parts of early TVs were mechanical as well. The first remote controls for TVs activated a motor that turned the mechanical tuner to another station with a series of impressive and loud
ka-chunk
s.

The economics of making digital technology, however, were
different, requiring large investments in highly specialized fabrication equipment to forge processor chips, circuit boards, disk drives, and other complex components. It no longer made sense for a big electronics or technology company to invest in making the whole widget; the market favored factories focused on churning out large quantities of one major component to supply multiple and competing tech companies. The RCA do-it-all in-house style became a liability even as its technology became obsolete.

Soon the market leaders in American television and electronics manufacturing were exiting the business: first Motorola, and then RCA. Hand-polished wooden televisions had become just another plastic-encased commodity. With the magic of containerization ushering in a new era of globalization, Japanese companies took the U.S. electronics market by storm with such iconic products as the Sony Walkman (the iPod of its time) and the Trinitron TV, which set a new standard for image quality and reliability. In 1974, Motorola sold its Quasar brand and television business, once its most profitable endeavor, to Japan's Matsushita Electric Industrial Company, Ltd., maker of Panasonic electronics, and turned to the semiconductor business, which it later dumped to pursue the emerging cell phone business. The last of the old-school big American TV brands, Zenith, inventor of the modern remote control we all know and despise, sold off control of its brand and assets in 1995 to South Korea's LG Electronics.

The final piece needed to set the stage for globalization of consumer electronics and other goods was China's designation in 1979 of a “special economic zone” in a backwater town of 30,000 near the Hong Kong border called Shenzhen. It would be the first of six such zones, and foreign investment poured in, embracing the decision by China's communist government to make its country's immense and inexpensive rural workforce invaluable to the capitalist world. China's leaders had asked themselves a shrewd
question: Why try to dominate the world—and bankrupt their country—with millions more men under arms when putting millions of men and women on factory lines and in engineering classes would tame world adversaries far more effectively and make the country rich to boot? Shenzhen today is a city crammed with skyscrapers, factories, and nearly 12 million residents, more than half of them migrant workers living in factory dormitories. Parts and products flowing out of China's special economic zones are ubiquitous now in America and the world, found on every aisle of every Walmart, every product category on Amazon.com, every device made by Apple, every car on the road, every restaurant, bar, power station, radio station, gas station, and train station; the list is book length itself.

When Apple CEO Steve Jobs hired Tim Cook in 1998 to run the company's worldwide operations—and eventually succeed him as CEO—it was not because of Cook's computer genius, but for his transportation acumen, his skills as a supply chain savant. Soon after his arrival at the company's Cupertino, California, headquarters, Cook proclaimed that Apple had to treat computers—then Apple's main product—like milk, a commodity that must be transported and sold quickly before it soured. This approach, now widespread, was made possible by the effects of the container revolution. Cook's goal was to have inventory cleared out in days instead of months, because idle inventory, like an idle cargo ship, is a costly drag on the bottom line. Such a strategy, Cook said, could never succeed with an Apple that owned its own factories. So he orchestrated their closure, along with most of the company's warehouses. Apple switched to a “just-in-time” manufacturing strategy that could only be achieved through outsourcing components and finishing products just days before they would be sold to Apple customers. The component suppliers, not Apple, would worry about inventory, but as they served many
high-volume customers, their inventory cleared out far more quickly, which meant their parts manufacturing costs were lower than Apple's could ever be. In the era of containerization, the cost of sourcing across greater distances paled in comparison to the savings of manufacturing just in time. When Apple's most important lines of business shifted from a few million computers a year to tens of millions of iPods, then hundreds of millions of iPhones, this strategy paid off handsomely. Variations on this theme have transformed the entire consumer products industry, from toasters to sneakers to cereal.