CONTAINER SHIPPING REVISITED
HAPPY HOLIDAYS
To all of you (or as we Southerners say, “all y’all”), may this holiday season be a happy one. In a world filled with economic and political turmoil and war, I hope that you find peace and joy. And let us give thanks for our blessings – life, health, friends, and family.
CONTAINER SHIPPING CHALLENGES
In 2021, my post [LINK] gave a history of containerized shipping and the role that R. J. Reynolds Industries played in creating the worldwide economy and the supply chains we have today. This unusual investment for a cigarette company happened because RJR bought Sea-Land Industries, the original containerized shipper founded by Malcolm McLean.
McLean also realized that his business did not depend on the monopoly protection of his design. He released the patent for his container to the International Organization for Standardization, royalty-free. He understood that holding jealously to his patent would only slow trucking, railroad, and shipping companies’ adoption of his technology, and he did not fear competition.
McLean’s innovation helped entire economies—such as Singapore and Hong Kong—leap from preindustrial to modern, seemingly overnight. [Link]
McLean remains largely an obscure figure, despite being perhaps the single most important force behind the explosive growth in global wealth since the 1950s. Thanks to his idea, the cost of loading a ship fell from $6 per ton in 1956 to only $.18 by 2022 (adjusted for inflation, a reduction from $65.35 to $.18, in real terms, a decline of 99.7% in 66 years. As Marc Levinson put in the subtitle of his book, The Box, “made the world smaller and the world economy bigger.”
80% of global trade by volume and 70% by value is transported by oceangoing vessels. The key is safe, cheap transport. The ease and speed with which raw materials and finished products move around the world opened world trade that had never been dreamed of. Products are available to consumers from all parts of the world. (The East India Company traded 50 tons of tea a year in 1800 and 15,000 tons in 1900. Today 15 tons of tea is loaded or unloaded somewhere every 45 seconds.) And companies can reduce their inventories, improving their balance sheets and return on capital.
We cannot take for granted the role that this ‘box’ has played in creating a global economy. The world changes, and another look at this important business is timely.
Trouble is lurking. In September, I was fortunate to have dinner with Peter Zeihan. Peter is a geopoliticist who follows geographic and demographic influences on world events. In his new bestseller, The End of the World Is Just the Beginning, he raises questions about the stability of our world order. America created the world economy after 1945, guaranteeing everyone full access to the global ocean. Shipping became not only cheaper, but safer.
The U.S. Navy’s presence has limited shipping disruptions for many decades. But since 2015, the Navy presence has shrunk. Zeihan believes it is just a matter of time until pirates or privateers again become active, disrupting world trade. Even common items, like tea, will be much harder to get and much more expensive. Reducing transport costs 1% gives an increase in trade volume of 5%. Reverse that, and world trade drops quickly.[i]
I asked Peter Zeihan when he thought there would be a significant act of piracy. His answer was that this is a ‘Grey Rhino.’ A new term for me, so I looked it up.
Gray Rhino is a metaphor for the threats that we can see yet do nothing about: the giant thing that should be hard to ignore, but from which we look away even though it is in our interest to get away before it charges. It may be pawing the ground, snorting, and getting ready to charge us; or it may still be a way up the road when we still have time to manage things before they become urgent. But we will take no action until it is too late. The Gray Rhino metaphor is a way to get people to acknowledge an obvious risk, not just despite but because it is so obvious.[ii]
[i] Zeihan sees the disruption of world shipping as a blow to world economies. On this and other issues, his book gives details of how a new world order might develop, shattering the one we have known since 1945 - a world the U.S. created and maintained, but from which we are beginning to withdraw. Many of his projections are open to debate, but his material is worth reading. You can follow Peter Zeihan Here
[ii] The Gray Rhino by Michele Wucker