The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger (54 page)

17.
Ibid., p. 12 and March 1985, p. 4.

18.
Daniel Machalaba, “McLean Bets that Jumbo Freighter Fleet Can Revive Industry,”
Wall Street Journal
, September 26, 1986; Ron Katims interview, COHP.

19.
Broeze,
The Globalisation of the Oceans
, p. 95.

20.
Ibid., p. 84;
Lloyd’s Shipping Economist
, April 1984, p. 7, and March 1986, p. 3; UNCTAD,
Review of Maritime Transport 1989
, p.
25; JOC
, October 15, 1986.

21.
Bruce Barnard, “Evergreen Set to Drop Felixstowe,”
JOC
, October 22, 1986; Machalaba, “McLean Bets”; Kuby and Reid, “Technological Change,” p. 279.

22.
Lloyd’s Shipping Economist, January
1987; Gibson and Donovan,
The Abandoned Ocean
, p. 218; Susan F. Rasky, “Bankruptcy Step Taken by McLean,”
NYT
, November 25, 1986.

23.
The bankruptcy filing,
in re McLean Industries, Inc.
, was in the Southern District of New York, case numbers 86–12238 through 86–12241. This paragraph draws on docket nos. 106, 107, 111, 133, and 163. On the vessel sale, see Daniel Machalaba, “Sea-Land Will Buy 12 Superfreighters Idled by U.S. Lines Inc. for $160 Million,”
Wall Street Journal
, February 9, 1988.

24.
Author’s interview with Gerald Toomey, May 5, 1993; Daniel Machalaba, “Container Shipping’s Inventor Plans to Start Florida-Puerto Rico Service,”
Wall Street Journal
, January 31, 1992. For the views of a former U.S. Lines employee, see “McLean Doesn’t Deserve Award,” letter to the editor,
JOC
, September 16, 1992.

25.
R. M. Katims, “Keynote Address: Terminal of the Future,” in National Research Council, Transportation Research Board,
Facing the Challenge: The Intermodal Terminal of the Future
(Washington, DC, 1986), pp. 1–3.

1.
Comment of Karl Heinz Sager cited in Broeze,
The Globalisation of the Oceans
, p. 41.

2.
UNCTAD,
Review of Maritime Transport 1975
, p. 43.

3.
Fairplay
, July 15, 1971, pp. 47 and 53. UNCTAD’s estimated shipping costs were:

Average Cost of Handling One Cubic Meter of Freight, 1970

4.
Matson Research Corp.,
The Impact of Containerization
, pp. 40–41;
Fairplay
, February 1, 1968, p. 8.

5.
OECD, “Ocean Freight Rates as Part of Total Transport Costs” (Paris, 1968), p. 24.

6.
Antwerp data taken from Bremer Ausschuß für Wirtschaftsforschung,
Container Facilities.
Dart Container Line spent nearly $300,000 in 1973 on a computer to keep track of its 20,000 containers.
Fairplay
, April 5, 1973, p. 40. By 1974, U.S. Lines was spending $1.7 million a year to operate its computers; see
Fairplay
, April 4, 1974, p. 76.

7.
Broeze,
The Globalisation of the Oceans
, pp. 55–56. Worldwide, the containerships entering the fleet in 1973 traveled at an average speed of 25 knots, compared with 20 knots or less for almost all breakbulk and containerships built before 1968. Wallin, “The Development, Economics, and Impact,” p. 642. The 85 percent breakeven point is cited in U.S. Congress, Office of Technology Assessment,
An Assessment of Maritime Technology and Trade
(Washington, DC, 1983), p. 71. Three ship lines surveyed by J. E. Davies in 1980 reported that their fixed costs were between 53 and 65 percent of total costs, implying much lower breakeven points; “An Analysis of Cost and Supply Conditions in the Liner Shipping Industry,”
Journal of Industrial Economics
31, no. 4 (1983): 420.

8.
Fairplay
, February 4, 1971.

9.
Sletmo and Williams,
Liner Conferences
,
chap. 5
; Benjamin Bridgman, “Energy Prices and the Expansion of World Trade,” Working Paper, Louisiana State University, November 2003. Fuel cost as a share of operating costs are given in Office of Technology Assessment,
An Assessment of Maritime Technology and Trade
, p. 71. The International Monetary Fund cites the increase in market concentration in shipping following the introduction of containers as another reason for the failure of shipping rates to fall. However, it is not at all clear that pooling agreements and other anticompetitive practices succeeded in holding shipping rates above competitive levels for extended periods. International Monetary Fund,
World Economic Outlook
, September 2002, p. 116; Sjostrom, “Ocean Shipping Cartels,” pp. 107–134.

10.
Fairplay
, July 15, 1974, p. 50. In principle, it should be possible to quantify transport-cost saving over time by comparing a country’s imports under two different definitions, free on board (f.o.b.), which represents the value of merchandise at the point of export, and cost of insurance and freight (c.i.f.), which is the value at the point of import, including transport costs. In practice, however, the difference between c.i.f. and f.o.b. imports provides little guidance concerning freight-cost trends. The accuracy of the underlying data is questionable; if IMF figures are to be believed, insurance and freight accounted for a mere 1 percent of Switzerland’s imports as long ago as 1960. Data for countries with large-scale trade in bulk products, such as coal and oil, may not reflect changes affecting manufactured goods. More problematic, the use of aggregate c.i.f. and f.o.b. data assumes that the composition and origin of imports have not changed over time. Scott L. Baier and Jeffrey H. Bergstrand, “The Growth of World Trade: Tariffs, Transport Costs, and Income Similarity,”
Journal of International Economics
53, no. 1 (2001): 1–27, show that for 16 wealthy nations, transport fell from 8.2 percent to 4.3 percent of import value between 1958–60 and 1986–88, but the various factors cited above make this conclusion unpersuasive.

11.
Indexes of “tramp” charter rates were compiled during the 1960s and 1970s by several sources, including the
Norwegian Shipping News
and the British Chamber of Shipping. The price for a single-voyage charter, adjusted for the capacity of the vessel, yields a vessel cost per ton shipped. Japanese shippers were the tramps’ main customers. The tramp market was somnolent in the early 1970s, and it appears that most tramp charters involved bulk freight rather than breakbulk freight of the sort that would have been competitive with container shipping.
Fairplay
, July 1, 1971, p. 73.

12.
The German Liner Index did not purport to measure rates on freight in other parts of the world. As UNCTAD pointed out, it did not fully reflect changes in rates or surcharges and was “rather narrowly based and greatly influenced by declining currency exchange ratios of the Deutschmark versus the United States dollar.” See UNCTAD,
Review of Maritime Transport 1972–73
, p. 81, and
1984
, p. 42. It also appears that the index as published in the 1960s and 1970s did not clearly distinguish liner freight rates overall from container shipping rates. The index as published in the 1990s did make this distinction, revealing very different trends. The index for all liner rates, for example, fell from 101 in January 1994 to 96 in June 1997, whereas the subindex for container rates fell much more steeply, from 101 to 90, during the same period. See UNCTAD,
Review of Maritime Transport 1997
, p. 50. For more discussion of both indexes and an attempt to adjust them for inflation, see Hummels, “Have International Transportation Costs Declined?”

13.
For the Hansen index, see
Fairplay
, January 15, 1981, p. 15.

14.
Tursi, White, and McQuilkin,
Lost Empire
, p. 185.

15.
UNCTAD’s annual
Review of Maritime Transport
provides data on container shipping in developing countries; see also Pearson and Fossey,
World Deep-Sea Container Shipping
, p. 27. The containerized share of U.S. imports appears in the
Review
for 1974, p. 51.

16.
Sletmo and Williams,
Liner Conferences
, p. 80.

17.
According to Pacific Maritime Association data, base wages for longshoremen on the U.S. Pacific Coast nearly doubled, from $3.88 per hour in July 1966 to $7.52 in July 1976. Data available at
www.pmanet.org
. At U.S. North Atlantic ports, longshoremen who were entitled to four weeks’ vacation and eleven paid holidays in 1966 were eligible for six weeks’ vacation and thirteen paid holidays by the early 1970s.
Longshore News
, November 1969, p. 4A.

18.
OECD, “Ocean Freight Rates as Part of Total Transport Costs,” p. 31.

19.
Hummels, “Have International Transportation Costs Declined?”;
Fairplay
, May 16, 1968, p. 49.

20.
On New Zealand, see
Fairplay
, February 19, 1976, p. 3.

21.
No accurate measures of insurance-rate changes are available. Insurers initially resisted lowering rates for container shipments, mainly with the reasoning that container shipping might lead to less frequent but larger losses if an entire container were stolen or damaged. In addition, a full container was usually handed off from one carrier to another without being opened, making it difficult to determine which carrier was responsible if damage did occur.
Fairplay
, September 2, 1971; Insurance Institute of London, “An Examination of the Changing Nature of Cargo Insurance Following the Introduction of Containers,” January 1969. By 1973, an insurance expert was ready to admit that “[c]argoes carried in containers appear to be bringing improved claims experience.”
Fairplay
, July 5, 1973, p. 55.

22.
Marad, “Current Trends in Port Pricing” (Washington, DC, 1978), p. 19.

23.
Real oil prices in dollar terms rose until 1981; see U.S. Department of Energy,
Annual Energy Review
(Washington, DC, 2003), Table 5.21. The German liner-freight index discussed above also began to decline in the late 1970s, after adjustment for inflation.

24.
Pedro L. Marin and Richard Sicotte, “Exclusive Contracts and Market Power: Evidence from Ocean Shipping,” Discussion Paper 2028, Centre for Economic Policy Research, June 2001; comment from J. G. Payne, vice chairman of Blue Star Line, in
Fairplay
, April 11, 1974, p. 7.

25.
The former competitors involved in the North Atlantic Pool were American Export-Isbrandtsen Line, Belgian Line, Bristol City Line, Clarke Traffic Services, Cunard Line, French Line, Hamburg-American Line, Holland-America Line, North German Lloyd, Sea-Land Service, Seatrain Lines, Swedish American Lines, Swedish Transatlantic Lines, United States Lines, and Wallenius Line. On shippers’ councils, see U.S. General Accounting Office,
Changes in Federal Maritime Regulation Can Increase Efficiency and Reduce Costs in the Ocean Liner Shipping Industry
(Washington, DC, 1982),
chap. 5
. UNCTAD encouraged the formation of regional shippers’ councils, which were formed in Central America, East Africa, and Southeast Asia.

26.
Fairplay
, July 1, 1971; UNCTAD,
Review of Maritime Transport 1972–73
, p. 80, and
1975
, p. 44.

27.
Office of Technology Assessment,
An Assessment of Maritime Technology and Trade
, p. 72.

28.
U.S. General Accounting Office,
Centralized Department of Defense Management of Cargo Shipped in Containers Would Save Millions and Improve Service
(Washington, DC, 1977).

29.
Author’s telephone interview with Cliff Sayre, former vice president of transportation at DuPont, January 24, 1992.

30.
According to Sayre, DuPont had more than fifty loyalty agreements and had relationships with more than three hundred individual ocean carriers in 1978.

31.
Prior to containerization, Evergreen Line operated as a nonconference carrier on the Japan-Red Sea route, pricing 10 to 15 percent below conference rate. On the Japan-India route, however, Evergreen decided to join the conference after finding that Japanese steel mills would not use its services because they had loyalty agreements with the conference. See
Fairplay
, August 9, 1973, p. 60.

32.
Broeze,
The Globalisation of the Oceans
, p. 65.

33.
Fairplay
, September 21, 1972, p. 11; November 23, 1972, p. 59; and June 28, 1973, p. 44; Eric Pace, “Freighters’ Rate War Hurting U.S. Exporters,”
NYT
, September 11, 1980;
Fairplay
, February 12, 1981, p. 9.

34.
James C. Nelson, “The Economic Effects of Transport Deregulation in Australia,”
Transport Journal
16, no. 2 (1976): 48–71.

35.
U.S. General Accounting Office,
Issues in Regulating Interstate Motor Carriers
(Washington, DC, 1980), p. 35.