CHAPTER ONE

INTRODUCTION

1.1. Background of Study

Before the advent of containerization, the technology for unloading general cargo through the process of break-bulk shipping had hardly changed since the Phoenicians traded along the coast of the Mediterranean. The loading and unloading of individual items in barrels, sacks and wooden crates from land transport to ship and back again on arrival was slow and labour-intensive. Technological advances through the use of ropes for bundling timber and pallets for stacking and transporting bags or sacks yielded some efficiency gains, but the handling of cargo was almost as labour intensive after World War II as it was during the beginning of the Victorian age.   

A major cost in break bulk shipping is time and labor spent loading and unloading ships at portside in ways that avoid damage to the goods. One analysis in the late 1950s concluded that 60-75% of the cost of transporting cargo by sea was made up of portside costs, while another study of a specific ship voyage found cargo handling made up about 37% of total costs (Levinson 21, 33-34). These costs included not only labor, but losses of time and damage (including theft) to cargo waiting to be loaded onto a ship while other material was unloaded. Cudahy (Container Revolution5-6) reports that a “cargo ship typically would spend as much time in port being loaded and unloaded as it did sail.”
The exception was in shipping to carry a single type of good, such as oil. For such goods, both ships and port facilities had been specialized to allow more rapid loading/unloading, at lower costs. This specialized bulk shipping had become industrialized, in contrast to break bulk shipping of more diverse or finished goods, the loading/unloading of which had changed little in decades (Broeze 9-11). The high costs of ocean shipping inhibited international trade.

In 1961 ocean freight costs made up 12% and 10% of the value of U.S. exports and imports respectively, and were so high for some goods that international sales were impossible. These costs contributed to the remarkable situation of international trade in 1960 making up a smaller proportion of the U.S. economy than in it did in 1930 (Levinson 8-9).
Some attempts had been made to overcome these challenges. For example, the U.S. Military had begun using 8’6″x6’3″x6″10″ metal shipping containers during World War II and continued to do so into the 1950s (“History & Development”). Commercial attempts, which were to have far greater impact, were made by shipping companies in the United States, particularly those led by a former trucking company magnate, Malcolm McLean. The concept was simple: by using metal shipping containers similar to those used by the U.S. Military but in sizes that were larger yet still capable of being transported by truck or train (thus “intermodal”), the loading of goods onto ships could take place in two locations – one closer to the point of manufacture or assembly (possibly hundreds or thousands of miles away), in which the goods are put into containers, and the second at dockside, where the containers are loaded onto ships. Unloading is similar, with goods removed from containers at a point of distribution or even sale, far removed from the docks. McLean’s companies and another firm, the Matson Navigation Company, successfully used this technology along a number of shipping routes in the late 1950s and early 1960s (Levinson 54-68). The container revolution had begun

The introduction of containers in the second half of 1950s marked a major innovation in transportation: the box improved efficiency by allowing automation in cargo handling, connecting sea transport with intermodal inland transport, and reducing spoilage/pilferage on and off the ship. All these benefits generated economies of scale and slashed transit times (Levinson, 2008; Hummel’s, 2007).

An inter-modal container is a large standardized shipping container, designed and built for inter-modal freight transport, meaning these containers can be used across different modes of transport, from ship to rail, to truck-without unloading and reloading their cargo.

The container help reduces the global supply chain cost; however, the management of container inventory has become a serious concern with its gradual increase in volume over the past decades. Worldwide, empty containers account for approximately 20% of container flows at sea.

From a shipper’s perspective, often two-thirds of a ship’s productive time was spent in port causing port congestion and low levels of ship utilization.  Following the spread of the railways, it became apparent already during the first era of globalization that the bottleneck in freight transport was at the interface between the land and sea transport modes.  Before World War II, US, British and French railway companies experimented with methods of sealing goods in different sizes and shapes of boxes before transporting them. However, the lack of specialized capital equipment like specialized cranes for loading and unloading combined with union resistance to changes in work practices at the docks delayed the development of container shipping until the mid-1950s.

The intermodal shipping container became the preferred way of shipping most ocean freight in the 1960s for two reasons. One was the success of particular companies, such as McLean’s (which had been renamed Sea-Land Service, emphasizing the intermodal nature of its business). Sea-Land’s growth benefited from being able to demonstrate its cost efficiency servicing the U.S. Military during the Vietnam War, where dockside break bulk unloading bottlenecks were a major problem that the container helped overcome (Levinson 176-188).
The other was standardization of container sizes across the shipping industry, which allowed for more aggressive investment in ships and container-handling equipment. In the first few years of use, different companies had used containers suited to their particular industry or circumstances, with factors affecting container size including the ships they owned, the type of goods being transported, legal limits on the length or weight of loads carried on roads in markets they served, and similar limits for rail travel. However, industry-wide and international agreements on principal container sizes were reached rapidly in the early 1960s. Agreements were also reached on container strength, to allow containers to be stacked and also to allow transportation not only by ship and truck, but also by train. (The ends of containers must be strong enough to withstand the forces produced when train cars bump, which are much higher than typical forces on ships and trucks.) Standards for fixtures to allow containers to be lifted and connected were also specified (Levinson 127-149; Broeze 12-16). The compromises developed at that time are among the most common sizes today. After the container proved to be successful, ports warmed up to containerization and a race started among ports to attract the most shipping lines by building new terminals and providing the infrastructure to handle containers. Containerization required major technological changes in port facilities, which often led to the creation of new container ports.