Canadian Shipper

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Can containerization avoid becoming a victim of its own success? (May 07, 2006)


It’s 50 years since the maiden voyage of Malcolm McLean’s Ideal X carrying 58 containers between Newark and Houston and there’s no debate about the impact containerization has come to have on driving supply chain efficiency, reducing costs and paving the way for our global trading system.

Shipping breakbulk was considerably more expensive, less efficient and subject to a much greater degree of damage, not to mention pilferage. For companies shipping breakbulk prior to the sailing of the Ideal X on April 26, 1956, the cost of their export packaging alone would have accounted for 20% of the final retail price. And the joke on the Manhattan waterfront prior to containerization was that longshoremen’s wages were $20 a day and all the Scotch whisky they could carry home. It was by no accident that shippers of wines and spirits were among the first converts to containerized trade.

Prior to containerization, transportation costs and uncertainties provided too strong a barrier to international trade. Containerization changed that and by doing so allowed companies to think differently about just how far away they could source their raw materials, manufacture parts and market their finished products. Supply chain management would never be the same.

The rapid success of containerization was not possible without shipping lines being able to overcome a series of obstacles — from convincing the US Coast Guard and the American Bureau of Shipping that carrying 33-foot aluminum containers on decks installed over the pumps and piping of the tanker Ideal X was safe and developing proper cranes and automation systems to convincing regulators to remove legislation that restricted the efficient movement of goods not only through the North American continent but around the world.

With profits in the market for container shipping services at an all-time high, more efficient post-Panamax ships coming online and the long-term forecast for global trade looking strong, the most important question left unanswered may be whether containerization can escape becoming a victim of its own success.

It’s a fact not often remembered but it was containerization that led to the deregulation of rail and trucking. Increasing efficiencies at sea didn’t make much sense if product movement inland remained handcuffed by regulated rail and trucking industries. Legislators in North America came to see this and eventually removed the regulatory yoke.

Yet today’s global transportation system can be just as easily handcuffed many would say it already is — by much more benign legislators than the hawkish protectionists it endured in the past.

Continuing market growth combined with the opposite of legislative restriction legislative apathy are putting considerable strain on the existing infrastructure. The efficiencies gained at sea by the move to 10,000 TEU or larger ships can be quickly eroded by a congested inland intermodal system unlikely to be much improved without greater government support, which at this point does not seem to be forthcoming. As pointed out at the recent Transportation Outlook Conference put on by the Chartered Institute of Transport and Logistics in Ottawa, the general public’s lack of notice of the marine industry is surpassed only by its lack of understanding about the industry’s needs. In other words, there’s little to persuade politicians to take action.

Nor can the threat of over zealous legislation be considered completely behind us, as evidenced by the Sail Only If Scanned legislative proposals recently circulated again US Capitol Hill and which aim to suspend trade with any nation whose ports do not undertake 100% inspection of containers before vessel loading. These kinds of proposals have made the rounds on Capitol Hill since 9/11 and it’s unlikely they will pass into law. But they do serve as a stern reminder that the mood in Washington since 9/11 has been towards more restrictive Customs policy. While that mood may be understandable, transportation analysts are starting to wonder out loud if the resulting Customs and security programs are meeting the dual goals of making trade with the globe’s largest economy (and the source of more than 85% of Canadian exports) both safe and efficient.

Of course, shipping companies themselves have long-term challenges to their corporate cultures and strategic positioning to overcome if containerization can continue delivering the impressive supply chain efficiency gains it has in the past. More on that in next month’s column.

WORTH REPEATING
“In Hong Kong and the Far East, the world is not round. It is a box. The box is a container.”
— C.Y. Tung, founder and former chairman OOCL