The Shipping Container Disruption Helped End Famines (The Pattern of Disruption, Part 6)

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Images from Unsplash by Spencer Davis and Avel Chuklanov

 

The basics of life – energy, minerals, water, food – are not evenly distributed around the world, so peace and prosperity depend strongly on the ability to move goods and people quickly and cheaply. That’s how a seemingly obscure technology revolution starting in the mid-1950s created the foundations for the international trade on which the modern economy depends today – in the process dramatically reducing the risk of famines.

With the world on the brink of another global food crisis, this is a story with crucial lessons for our times – which should prompt us to ask: how can we leverage technological capabilities today to continue to ensure distributed access to the world’s most important food commodities?

Our story takes off in April 1956 at Port Newark, New Jersey, where forty-two-year-old entrepreneur Malcom McLean loaded fifty-eight giant, steel shipping containers onboard a modified tanker ship, the Ideal-X, and then that ship set sail for Texas.

Before then, ships had been loaded and unloaded the same way for thousands of years, literally since the time of the Phoenicians, with crews of men carrying boxes and bags and jugs onboard or off. But little did McLean know that his seemingly simple innovation was about to change the world.

At the time of that first voyage, McLean was not a maritime shipping industry expert. In fact, he was, in the words of Marc Levinson – author of The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger – “an outsider who had no experience with ships”.  This is part of the ‘pattern of disruption’ we have identified from studying dozens of examples – it is usually outsiders (in this case, a trucking executive) who precipitate technology revolutions in other industries (like maritime shipping).

McLean’s expertise was in trucking. After graduating high school in 1931, McLean bought a used truck. By 1954, according to Levinson, McLean Trucking “had become one of the largest trucking companies in America”.

But McLean’s business had always been hampered by the inherent inefficiency of loading and unloading goods and by the lack of direct highways, which were not built in the US until the fifteen-year period from the late 1950s to the early 1970s. McLean started thinking about solutions. Standardized ‘intermodal’ containers which could rapidly be loaded onto trucks, rail cars, or ships might be the answer to his problems. So in 1955, America’s best-known trucking magnate sold off his business to try building a new one based on what Levinson describes as “untested ideas about shipping.”

 

Bigger, better, cheaper, faster

Containers were not a new idea, but at the time they were often small, mostly smaller than three cubic meters. But the containers McLean had built were different. McLean’s first containers were 33 feet (10 meters) long, at least seven times the size of most containers in use at the time And they were made largely of steel. Unlike loaded railroad cars or wooden boxes with canvas tops, they could be stacked on top of each other, connected together, and lifted easily by cranes, eliminating the need for slow and extensive human labor power.

The result was a system that was dramatically more efficient than what had ever been done before. After just two years of operation, McLean Industries told shareholders that “a containership can be loaded and unloaded in almost one-sixth of the time required for a conventional cargo ship and with about one-third of the labor”. But loading was only one step in the shipping process. According to Levinson, “Analysts for the Port of New York Authority calculated that sending [a load] to Miami on board a traditional coastal ship… would cost four dollars a ton” while “the container alternative… was estimated to cost twenty-five cents a ton,” a sixteen-fold difference.

As we mentioned in the previous post in this series, ‘The Coming Fertilizer Crisis’, a large cost saving as the precipitator is a major element of our ‘pattern of disruption’. As RethinkX co-founder Tony Seba has said, “10X has always caused a disruption. I’ll repeat: a 10X difference in cost for the same product or service has always caused a disruption – every single time in history.”

The result, understandably, was a rapid and profound reorganization of the global shipping industry. The period from 1967 to 1981 saw 80% of the maritime countries of the world adopt at least one containerized port.

The revolution McLean kicked off was not a one-for-one replacement of loose ‘breakbulk’ freight with containerized shipments: it unleashed an exponential expansion in global trade, with the amount of global trade today, both in absolute terms and as a percentage of global economic activity, higher than ever.

This too is a key feature of the ‘pattern of disruption’ we have noticed: the new technology does not simply replace the old one, it causes an extraordinary growth of the overall industry. Today, about 90% of global international trade goes onboard a ship at some point in its journey, and maritime shipping costs are so low that they are often treated by economists as negligible compared to the value of the goods transported.

Percentage of countries with container ports

 

The conditions for disruption

So why did Malcom McLean’s containerization revolution happen when it did, and not a few decades sooner or later? Like all disruptions, shipping containerization in both the US and around the world was enabled by a convergence of factors.

First among them, of course, was an unparalleled post-War era of global peace and sustained economic growth which created a new possibility space for the expansion of trade.

Secondly, a there was the growth in number of motorized heavy vehicles, something that lagged the growth in cars. Carrying containers onboard a ship was only one segment in a vast logistics chain that often included the containers traveling as well by rail and by truck. In fact, McLean himself played an important role in the development of truck capabilities. As Levinson reports, “at a time when most trucks had gasoline engines, McLean Trucking was the first major company to install diesel engines in its tractors”. And, as we mentioned above, the rise of containerization both benefited from and coincided with the development of the Interstate Highway System from the late 1950s to the early 1970s.

A third key component of the containerization revolution was the availability of cheap steel, not only to make the trucks, trains and ships that would carry containers, but also the cranes at ports to load and unload the ships, and of course, the containers themselves.

During the decades of the 1950s and 1960s, there was a revolution in steelmaking driven by the oxygen blast furnace. Professor Lauri Holappa of Aalto University in Finland estimates that essentially no global steel production was by oxygen blast furnace (OBF) in 1950 and still only about 5% of global steel production was from OBF in 1960. The traditional Bessemer and Siemens processes supplied 70% of global steel production at that time.

But by 1970 – just ten years on –  the oxygen blast furnace made up almost half of all US steel production. This newer, cheaper, better means of producing steel literally provided the raw material for the containerization revolution.

Steel production by method

The containerization disruption, in other words, was based on a convergence of previous disruptions across multiple sectors.

 

Winners and losers

The reduction in shipping costs brought about by containerization resulted in winners and losers in different parts of the globe. The biggest immediate losers, of course, were businesses tied up with the incumbent industries. The containerization revolution thus illustrates in stark terms how disruption tends to turn conventional economic expectations of winners and losers upside down. What were once massive advantages for incumbent industries become their greatest liabilities, and the very cause of their collapse in the face of the disruption.

The docks in Brooklyn and Manhattan, for instance, were immediate losers from the opening of the Port Elizabeth container port outside New York City. Levinson reports that “by the middle of the 1970s, the New York docks were mostly a memory. Lighters carried a grand total of 129,000 tons of freight to waiting ships in 1974 – less than one-tenth of the load moved in 1970, one-fiftieth as much as in 1960,” a 98% drop in fourteen years.

What was once an advantage, Manhattan’s dense development, became a liability. Levinson says, “containerization eliminated one of the key reasons for operating a factory in New York City: ease of shipment. A New York City location had long offered transport-cost advantages for factories serving foreign or distant domestic markets, as local plants could get their goods loaded on ships with much less handling than could factories inland. The container turned the economics of location on its head.”

What had begun for McLean as simply a way of saving a few dollars when sending trucks between New York and North Carolina, accelerated into a exponentially declining cost curve that wound up overturning entire economies in the process.

 

Cascading effects, and the aversion of the great global famine

As with many other new technologies, shipping containers resulted in unexpected consequences that their proponents could not have foreseen. One of the most important and yet little recognise ones appears to be how the ‘negligible’ cost of transport dramatically reduced the risk of famines around the world.

Famines by decade

That’s why the cascading second- and third-order effects of a disruption can easily overturn seemingly robust conventional forecasts based on extrapolating existing trends into the future in a simplistic linear fashion, which is how widespread fears of a looming, global, catastrophic famine at the time ended up being badly mistaken.

In his blockbuster 1968 book The Population Bomb author Paul R. Ehrlich warned that “in the 1970s the world will undergo famines – hundreds of millions of people are going to starve to death.”

At the time, this was a reasonable expectation. If you only had the historical data available to Ehrlich in the 1960s, just a few years after the end of China’s ‘Great Leap Forward’ that had killed perhaps tens of millions of people in the deadliest single famine in human history, his prediction seemed plausible. In the century prior to Ehrlich’s writing, no decade saw fewer than about fifteen people die per 100,000 due to famine.

But the 1970s did not become a decade of famines and starvation. Quite the opposite.

Per capita deaths from famine worldwide fell more than 90% over the single decade of the 1970s. Even as the world population grew dramatically, from about two billion in the 1930s to three billion in the 1960s to five billion by the 1990s, only about half as many people died from famine from 1970 to 2016 as died during the 1960s alone.

The website Our World In Data suggests that increased food supply, improved health, reduced poverty, the spread of democracy, and the demographic transition (fewer children per woman) all played key roles in the reduction in famines. But the fact that the drop happened so quickly, over the span of less than ten years, suggests that another key factor might have been a disruptive technological innovation like containerized shipping, which spread rapidly in that time.

Lower cost and higher reliability of transportation would have played a key role in enabling the innovations in food production to translate into more widespread and rapid distribution. Here is a not-entirely-accurate theory as to why famines have largely disappeared: No country has experienced a famine after they adopted containerized port infrastructure. We can compare the list of famines compiled by Our World In Data to the year each country established its first containerized port.

For example, the USSR’s last famine was in 1946 in Ukraine and Belorussia. The USSR adopted containerization in 1971 and experienced no famines after then.

Ethiopia experienced famines in 1957 (Tigray), 1966 (Wallo), 1972 (both Tigray and Wallo), and 1983. Ethiopia, according to Our World in Data‘s sources, adopted containerization in 1983 and has experienced no famines since then.

Only three reported famines have happened after adoption of containerization: Nigeria had one in 1968, one year after containerization. India had a famine in Maharashtra in 1972, one year after containerization officially began. And Congo had a famine in 1998 after adopting containerization in 1979. (In Congo’s case, there was a war in the late 1990s and early 2000s that was fought in the eastern part of the country, far from the coast.)

All four famines that have happened in the first two decades of the 21st Century have been in non-containerized countries.

It’s worth noting that Yemen got its container terminal in 1978, right in the middle of the containerized shipping revolution. But a Saudi-led blockade starting in 2015 effectively shut that down. Yemen is now in the grip of a food crisis that will see famine-like conditions rise five-fold over the coming year according to the UN.

It is understandable why Ehrlich, writing before the cusp of the most dramatic decline in famine deaths in human history, was so pessimistic, but his pessimism proved to be mostly misplaced.

However, the Russian invasion of Ukraine is precipitating another global food crisis. But as with the 1970s, we can now recognize that new opportunities to leverage technology to end food crises in their totality, for the foreseeable future. We are on the cusp of new disruptions in food and agriculture that will see the production of food, fibers, and materials produced locally, without need for extensive transport, at a fraction of today’s costs. And that could bring about not only the end of famines, but also abundance of water, energy, and all of the basics of life.

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This is Part 6 in our series ‘The Pattern of Disruption’. Part 1 is available here. Part 5, “The Coming Global Fertilizer Crisis – and How to Solve it” is here.

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