Containerisation, International Transportation and Trade

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Table of Contents

Introduction
Origins and Development of Containerisation
Advantages of Containerisation
Impacts on International Transport and Trade Chains
Conclusion
References

Introduction

Transportation has always been regarded as a crucial component of global commerce. For centuries, transportation managers and engineers had to use inefficient and expensive methods of transporting goods from one location to the other. This changed in the mid 1950s when the concept of modern containerisation was successfully implemented by an American entrepreneur. Since then, containerisation has led to a revolutionary change in the history of shipping technologies.

For these reasons, containerisation is hailed by many as the most significant and influential development in international transportation in modern times. This paper will set out to highlight the influences of containerisation with emphasis on the advantages that it has brought to trade. The paper will begin by providing a brief history of containerisation and its development over the years.

Origins and Development of Containerisation

While there is no standard definition of containerisation, most definitions embody the idea of efficiency and the use of standard sized containers to carry goods. Strom (1972) defines containerisation as the idea of placing goods in relatively large box containers common to all modes of transportation and therefore increasing the ease of handling between origin and final destination.

Containerisation can trace its origins to the 1800’s when large ship operators used containers to protect cargo from seawater and the weather. Some railroad operators also offered services where wagons could be moved without transferring their contents (Lan & Unhelkar 2006).

However, these services were scattered and irregular in nature and eventually they were discontinued. During the 1920s and 1930s, the New York Central and Pennsylvanian railroads offered a container service for their cargo clients but problems led to the services being discontinued.

The American trucking entrepreneur Malcolm McLean is credited with starting modern containerisation in the United States in 1956 (Wood, Barone & Wardlo 2002). This innovative entrepreneur hoped to increase the efficiency of his transportation business by moving entire truck trailers without unloading their contents. Advocates of containerisation regard it as one of the significant developments in transportation history (Stopford 1997).

Strom (1972) observed that for many, the application of containerisation to ocean transportation is “almost as significant an advance in global economy as the transition from sail to steam, from wooden to iron ships” (p.46). In spite of its revolutionary nature, containerisation was not widely embraced by all key players in transportation during its initial years. In the mid to late 1950s, organized labour agencies were greatly concerned.

Strom (1972) reports that there were incidents where longshoremen refused to unload the cargoes of ships that handled container cargo. This sabotage was based on the fear that containerisation would lead to a loss of work for the longshoremen. However, the union and labour leaders negotiated and a consensus was reached therefore ensuring the growth of container services.

A great innovation in the container history was the development of standards. At the onset, containers were made using variable dimensions and most could not fit on the diverse number of vessels used in multimodal transport. However, containerisation quickly grew into a highly standardized industry on a global scale.

Donovan (2004) documents that the standard container is “a rectangular metal box of 40 feet long, eight feet wide, and eight and a half feet tall” (p.10). By the early 1960s, most Ocean Carriers dealt with both containers and the usual break-bulk operations. This procedure meant that the carriers could not benefit from the container advantage of faster turnaround time. For this reason, new specialized ships that dealt exclusively in containers were implemented.

Advantages of Containerisation

A significant advantage of containerisation is that it made shipping cheap. Before the advent of containers, transporting goods was expensive. Donovan (2004) reports that before the introduction of containerisation, moving goods across oceans cost about 15% of the retail value of the goods leading to a significant increment in the cost that consumers paid.

Part of this cost was incurred during the loading and unloading process at the ports. Levinson (2010) explains that before containers, companies needed to make use of armies of workers who were responsible for loading and unloading operations.

The use of containers eliminated manual labour as machines were used to move the huge containers on and off ships. Donovan (2004) states that containerisation led to a reduction of up to 95% in the number of longshoremen needed to load or offload cargo from a ship.

Containerisation operations made it possible to increase the productivity of ships by increasing their turnaround time. Ships were forced to spend days at the dock being loaded or offloaded and this decreased the productivity of the ship. Through containerisation, loading and offloading operations could be undertaken at impressive speeds. Goldberg (1968) articulates that containerisation permitted the loading of 25tons of cargo in two and a half minutes.

If the same cargo were handled as break-bulk, it would take 20 man-hours. The tremendous increase in output of containerized cargo therefore led to additional savings through faster ship turnaround since the owners could use their ships more intensively (McKinsey 1967).

In addition to this, pier facilities could be used in a more effective manner due to containerisation. Since ships have a faster turnaround time when containers are used, they do not spend a lot of time at the pier facilities. These facilities are therefore able to serve more ships.

Consumers have benefited from the competition and variety of goods that the container-stimulated global trade has brought. Containerisation has increased trade by bringing the global market to the local scene (Long 2003). This has led to intense competition in the market place.

Many producers have been forced to keep their prices low in order to attract customers. In addition to this, the global trade has increased the varieties of goods available to the consumer. Statistics indicate that the US imported four times as many varieties of goods in 2002 as in 1972 (Levinson 2010). These greatly benefited consumers by giving them a wide range of products to choose from.

Containerisation increased the probability that the goods would transported with minimum damage or loss. Before containerisation, most goods had to be handled during loading and offloading operations. This led to the destruction of some goods as they were moved between different transport modes. There were also cases of pilferage as the work gangs transported the goods from the ships to the warehouse facilities at the piers.

Pilferage of alcoholic drinks and other high value products was common as the longshoremen unloaded these products. Containerisation decreases the instance of physical handling of goods while in transit. Strom (1972) observes that in most cases, containerisation makes it possible to move goods from origin to final destination with a minimum of actual handling of the goods themselves. Containerisation also offered greater protection to goods in transit.

The goods suffered from reduced damage as they were transported in the containers intact. This contributed to less physical damage and breakage during the transportation efforts. Strom (1972) admits that containerisation aided marketing and distribution efforts by ensuring that goods arrive in better condition than they did in the traditional break-bulk operations.

Before the introduction of containerization, many manufacturers were forced to locate their factories near ports in order to have efficient access links to the market. Levinson (2010) states that the use of containers freed factories from the need to be near a port to enjoy cheap transportation.

Due to the decreased cost of moving goods, manufacturers did were not forced to locate their factories in port cities or urban centres (Talley 2009). They could locate their plants in low rent areas and transport the goods efficiently and cheaply to the market through containers.

Another significant advantage of containerisation is that it has drastically reduced the cost of packaging products for exportation. Before containerisation, manufacturers had to incur significant costs in export boxing and crating (McKinsey 1967). The boxing and crating was necessary to protect the products from damage while in transit.

This made it hard for them to compete with local companies in the export country. Containers make it possible for manufacturers to transmit their goods without any additional packaging material since the containers offer the necessary protection.

Containerisation also led to a decrease in the amount of paperwork required for transportation. Since the container is shipped as a single unit, the number of documents requires for outbound and inbound containers was greatly reduced.

Donovan (2004) notes that the use of containers eliminated most of the numerous papers necessary for shipping goods from one country to the other. McCalla and Slack (2004) note that due to the prevalence of container use, many countries started to employ common handling operations and apply standardized documentation processing. This conformity increased the efficiency of shipping since less paper work was necessary at the ports of entry.

Impacts on International Transport and Trade Chains

Containerisation caused a phenomenal change in the waterfront area. The rapid growth of containerisation forced many ports to overhaul their construction plans to accommodate containers (Richter 1995). Ports had to be reconfigured to provide facilities that would meet the needs of containers.

Many port authorities set out to create large hub ports that could accommodate the container holding vessels (Richter 1995). Ports that could not be reconfigured to adopt containerisation witnessed a decrease in traffic as more traders embraced containers for their transportation needs. On the other hand, new ports that were able to provide better services emerged leading to rapid growth in previously unused ports.

The growth of containerisation necessitated the construction of expansive interlinked networks across ocean space. McCalla and Slack (2004) elaborate that with the expansion of containerisation, the deployment of vessels in many markets increased.

To increase the efficiency of this deployment, it was necessary to use comparable vessels and employ common handling operations. The global market therefore came up with standardized marketing and operational procedures that enabled them to carry out business seamlessly across disparate regions (Broeze 2002).

Containerisation contributed to international trade by making it easier for domestic companies to venture into the export business. Levinson (2010) confirms that companies that previously had purely domestic ambitions could become international, exporting their products as effortlessly as selling them nearby since containerisation dramatically compressed the time spent between products leaving the manufacturers premise to getting to the consumer.

Containerisation contributed significantly to a decline in the process of mass production. Mass production is a term that describes industrial productions carried out in massive factories that process raw materials obtained from various sources into finished products onsite (Rushton, Oxley & Croucher 2000). The defining characteristic of mass production is that all the major components of the product are made onsite and assembled into the finished product.

However, because of containerisation, manufacturers started engaging in a more distributed form of production. Mangan, Lalwani and Butcher (2012) state that containerisation enables a fast and reliable carriage of base materials, components, and semi-finished products to regions with attractive production facilities such as low labour costs.

Manufacturers changed their processes to take advantage of this. Instead of engaging in the entire manufacturing process at one site, they import semi-finished components from different parts of the world and then assemble them into the finished product.

Conclusion

This paper set out to discuss the significant influence that containerisation has had in the area of international transportation. It began by providing a brief history of containerisation in the shipping industry. The paper then documented how containerisation changed the shape of the world economy by increasing the efficiency of transportation while decreasing costs. It has highlighted the dramatic differences between containerisation and the methods of handling cargo in the earlier years.

The impact of containerisation on international transport and trade chains has also been discussed. The paper has shown how containers have changed not only how goods are transported but also how they are produced. For these reasons, containerisation can rightly be regarded as the most significant advance in global economy.

References

Broeze, F 2002, The Globalization of the Oceans: Research in Maritime History, International Maritime Economic History Association, Newfoundland.

Donovan, A 2004, ‘The Impact of Containerisation: From Adam Smith to the 21st Century’, Review of Business, vol. 25, no.3. pp. 10-15.

Goldberg, J 1968, ‘Containerisation as a Force for Change on the Waterfront’, Monthly Labor Review, vol. 91, no. 1, pp. 8-13.

Lan, CY & Unhelkar, B 2006, Global Integrated Supply Chain Systems, Idea Group Publishing, Melbourne.

Levinson, M 2010, The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger, Princeton University Press, New Jersey.

Long, D 2003, International Logistics: Global Supply Chain Management, Kluwer Academic Publishers, Boston.

Mangan, J Lalwani, C & Butcher, T 2012, Global Logistics and Supply Chain Management, John Wiley and Sons Ltd, London.

McCalla, R & Slack, B 2004, ‘Dealing with globalisation at the regional and local level: the case of contemporary Containerisation ’, Canadian Geographer, vol. 48, no. 4, pp. 473-487.

McKinsey, D 1967, Containerisation: the key to low-cost transport, British Transport Docks Boards, London.

Richter, WL 1995, Transportation in America, AB-CLIO, Santa Barbara,CA.

Rushton, A Oxley, J & Croucher, P 2000, The handbook of logistics and distribution management, The Institute of Logistics and Transport, London.

Stopford, M 1997, Maritime Economics, Routledge: London

Strom, H 1972, ‘Containerisation: A Pandora’s Box in Reverse?’, Transportation Journal, vol. 12, no. 2, pp. 46-57.

Talley, WK 2009, Port Economics, Routledge, Boston.

Wood, DF, Barone, MP & Wardlo, DL 2002, International Logistics (2nd Edition), Amacon Books, New York.

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