The boom of the 60s led to a bust in the 70s. Just as fuel prices spiked, too many container ships flooded the market.
It seemed like container shipping was dead, but the boom was back in the 80s.
Companies & governments dredged deeper harbors, fuel prices dropped, and ships grew bigger. Manufacturers made the ships so big that they could no longer fit through the Panama Canal.
The trucker who started it all, Malcolm McClean (who we discussed in pt. 2), found himself in trouble. When fuel was rising he doubled down on slow fuel efficient ships. McClean was caught off-guard by a 50% drop in fuel prices in 1986. His company lost $237M off $854M in revenue. McClean’s company filed for bankruptcy with $1.2B in debt. The largest filing in U.S. history at the time.
Around this same time in 1986 companies began to emulate Toyota’s “just in time” manufacturing. Today this method is estimated to save companies $100B annually.
Before the container, everything was more vertically integrated: everything made in one place.
With just in time shipping, production became more spread out. Companies ship many containers with parts of products for finishing at other locations.
Using Barbie as an example:
- Molds might come from the US, Japan, or Europe.
- The hair from Japan
- Body from Taiwan
- Cotton from China
This is all a direct result of container shipping. With more predictable timing of arrival companies can work with specialized suppliers who themselves gain scale economies by servicing multiple companies.
Toyota has strict quality standards, delivered in small batches, with a narrow delivery window (just-in-time). (Which, as we learned in 2020, can be a fragile strategy – albeit good for cash-flow when times are good).
Companies like Walmart & Costco – founded around the time of containerization – have made this a core strategy (as have many companies since).
But it isn’t all sunshine and rainbows
Landlocked countries, and inland areas, pay significantly more for goods than coastal areas.
Some countries that have rock-bottom labor costs haven’t gotten the same economic boost from containers if their ports are not equipped to handle them (dredging the harbors and adding cranes is a large capital outlay).
There are stacks of abandoned containers littering landscapes around the world.
Finally, these enormous ships use tons of fuel.
In the end the cost savings have been so enormous that the momentum was not going to slow down. 60 years after McClean watched the Ideal X set sail from Newark, NJ there were 300 million containers crossing the ocean annually.
The story of the container is a story of how a simple idea executed well can change everything. It sometimes takes an outsider with a different perspective.
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