One Book Explains the Rise of Globalization: Peter R. Orszag

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By Peter R. Orszag (Bloomberg Opinion) — At the top of my most interesting reads this year was Marc Levinson’s “The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger,” the second edition of which was published in 2016. The book tells the story of container shipping, which revolutionized international trade over the past 60 years.

How container shipping came to dominate global trade may not sound like a gripping read, but Levinson intersperses the story with colorful business characters like Malcom McLean and exacting operations researchers such as Foster Weldon. And the story itself is both historically important and also central to many of the ongoing debates still raging about globalization.

Before containers were standard, shipping was more expensive and time of arrival more uncertain. Moving cargo from ship to truck or train and vice versa was a surprisingly large component of the problem. Some estimates suggest that about half the overall cost of transporting goods by sea involved laborious loading and unloading at the originating and recipient ports. Moreover, ships were often tied up in ports for a week or more in the helter-skelter process of moving cargo on and off.

Into this chaos entered several attempts at standardization. One early idea of McLean’s was to drive truck trailers onto ships and transport the whole trailer to the next port, where it could be attached to a new truck and driven away. The wheels on the trailers, however, would have consumed valuable space, and the trailers couldn’t be stacked on top of one another. Thus came the idea of putting only the trucking container on board; the containers could be stacked on the ship to carry even more cargo.

Although scattered efforts at container shipping existed in the U.S. and elsewhere earlier, Levinson points to the May 1956 arrival in Houston of McLean’s Ideal-X as the start of the modern container era. The Ideal-X carried 58 33-foot aluminum containers. Massive innovation and experimentation, on everything ranging from terminal cranes to the sizes and latching systems of the containers, followed its maiden journey.

Containers were more efficient than the alternatives, but growth was slow and unsteady both because it was a new technology and because different shippers used different types and sizes of containers. That lack of standardization was solved by the war in Vietnam. The military, facing the need to supply troops in Asia and logistical breakdowns at Vietnamese ports, developed a massive container port at Cam Ranh Bay and in 1967 awarded a large contract to McLean’s Sea-Land Service Inc. The 20-foot container preferred by the military became the norm, and container shipping exploded. (The 20-foot container was eventually supplemented by 40-foot ones.)

The military boom created a civilian one also, as the infrastructure needed for military shipping was repurposed for commercial trade. The results are dramatic. In 1965, container shipping was still mostly in its infancy. By 1968, U.S. ports were handling an average of 3,400 20-foot containers each week. Civilian container shipments passing through Oakland’s port rose to 3 million tons in 1969 from 365,000 tons in 1965.

The military shipments to Vietnam also spurred growth in trade with Asia, because the Defense Department paid for the round trip — and so any goods carried back from Asia to the U.S. were effectively pure profit for the shipping companies. The result was rapid growth in exports to the U.S., first from Japan and then ultimately other parts of Asia.

In the midst of this shipping boom, New York’s ports were bypassed. New York spent the equivalent of billions in today’s dollars rebuilding piers in the late 1950s and early 1960s, but they were not designed to handle the rapid growth in container shipping that was about to occur and in any case they still faced two structural problems that made New York unattractive as a recipient port: inadequate rail capacity and crowded lanes for trucks. Across the Hudson, by contrast, Port Elizabeth was imagined from the beginning as a container port.

The result? In 1960, over 75 percent of all cargo entering the New York area was offloaded in Manhattan or Brooklyn. By 1970, almost two-thirds was instead entering through New Jersey’s ports. The four-pier west-side terminal near 14th Street — reconstructed at significant cost in 1963 — was effectively unusable by the mid-1970s because it didn’t make sense to use New York as a commercial port for containers. Today it is the Chelsea Piers Sports & Entertainment Complex.

Trade has become controversial in this political moment, so much so that we see cognitive dissonance like support for deepening ports paired with opposition to new trade deals. But politics only does so much: The story told in “The Box” shows that the rise of container shipping and the decline in transportation costs may well have done more to promote globalization and international trade than all the trade agreements signed since the 1960s combined.

Peter R. Orszag is a Bloomberg Opinion columnist. He is a vice chairman of investment banking at Lazard. He was director of the Office of Management and Budget from 2009 to 2010, and director of the Congressional Budget Office from 2007 to 2008.

© 2018 Bloomberg L.P

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