Unforeseen outcomes

It has fuelled Asia's economic growth and devastated large ports - meet the humble shipping container.

by Paul Ormerod, World Business magazine
Last Updated: 23 Jul 2013

Marc Levinson's book is a remarkable account of how a seemingly mundane invention, the shipping container, transformed the world. Almost 50 years ago, in April 1956, a tanker made the first container voyage from Newark to Houston. From this modest start, the container has revolutionised economic geography, devastating large ports such as New York and London, and enabling massive growth in obscure ones such as Oakland and Felixstowe.

Shipping costs have fallen so dramatically that the structure of world trade has been altered. Most trade used to be raw materials or finished products. Now it is mainly intermediate goods, with manufacturers able to source from almost anywhere, thanks to cheap transport costs. In turn, this has facilitated Asia's massive economic growth. The container has enabled global supply chains and just-in-time production to become routine.

How could a simple box have had such dramatic consequences? Levinson writes in impressive detail and assembles a huge amount of evidence in support of his claims. He avoids mathematical models and the tortuous prose of economic theory, and has a direct and accessible style. Much of his basic material may seem dull - for example, the minutes of the meetings of the committee of experts set up in 1958 by the US Maritime Administration to recommend standards for container sizes. Yet Levinson manages to impart them with the suspense and excitement of a detective novel.

Attention to detail is part of the book's attraction for a business audience.

Here are people taking real decisions, negotiating with unions, discussing with government regulators, worrying about supply problems, agonising over investment plans, and all the time facing huge uncertainty about what the best strategy might be. The industry used to illustrate these points is container shipping, but the process of decision-making - its doubts, triumphs and regrets - will be familiar to all.

The importance of the book goes far beyond the particular details of the industry. The most powerful and general insight of the book is set out in the final chapter: "Time and again, even the most knowledgeable experts misjudged the course of events ... almost nothing (the container) touched was left un-changed, and those changes were often not as predicted."

For example, the leader of New York's longshoremen warned in 1959 that containers would eliminate 30% of his members' jobs. Within 15 years, 75% had gone. Even the inventor of the container himself, Malcolm McLean, made colossal misjudgements. He ordered a new fuel-guzzling fleet just before the 1973/74 oil price shock, and built a squadron of slow but fuel-efficient ships just before fuel prices fell sharply in the 1980s. Governments in the US and Britain invested heavily in reconstructing traditional ports, yet the investment was obsolete almost before the last of the concrete had dried.

American economists predicted that containerisation would be good for manufacturing in the metropolitan north-eastern states, enabling them to ship more cheaply to the south than could the landlocked Midwest. No one foresaw that the collapse in transport costs would enable entirely new competitors from elsewhere in the world to decimate the region's traditional industries.

This huge uncertainty about the future is an inherent feature of the world, which permeates both public and private-sector decision-making. A hundred years ago, for example, in the first two decades of the 20th century, more than 2,000 firms attempted to make cars for the new American market - more than 99% of them failed. Skip forward to the closing dec-ades of the century, and in the 1980s IBM and Microsoft jointly developed OS/2, proclaiming it to be the PC operating system of the future.

No more development of Windows would be done. Yet Windows 3 was a stupendous and entirely unexpected success.

Of course, it is worth doing research and investing in ways to lift the veil of uncertainty around the future. But if planning really worked, the Soviet Union would have been a spectacular success. The key is to be able to react quickly and flexibly to unforeseen outcomes. Levinson's book is an excellent case study of how this basic principle has operated in one particular industry, an industry that has its own fascination.

The Box: how the shipping container made the world smaller and the world economy bigger, Marc Levinson, Princeton University Press, $27.95, ISBN: 0-691-12324-1

Paul Ormerod is a director of Volterra Consulting and author of Why Most Things Fail, published in the UK by Faber & Faber, April 2005, and in the US by Pantheon, February 2006.

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