The Evolution of Containerization and its Impact on Globalization James Frost, MA, MBA IOI, Dalhousie University July 9, 2010
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Introduction • Seminar based on three books – “Globalization of the Oceans” – “The Box” – “The Travels of a T Shirt”
• • • • •
History of containerization The globalization of shipping Global terminal operators Global supply chains The industry in 2010
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Personal background • Started career in 1980 • Containerization 20 years old but still evolving • Have seen 30 years of development • Travelled globally at young age • Experienced and saw early stages of globalization in Asian Tigers • Has fascinated me as both a historian and consultant in shipping industry TRANSPORTATION STRATEGY CONSULTANTS
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Containerization • “invented” by Malcolm MacLean, a US trucker, in 1956 – “Ideal X” between NY and Houston – A converted tanker
• But a similar concept used in Canada in 1953 on east and 1955 on west coast – Ferry William Carson – NS-NL – White Pass & Yukon – Vancouver-Skagway
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The Concept • It revolutionized liner shipping in all its physical, functional, organizational and human dimensions • It also coincides with the computer age • Based on homogenization of cargo into standardized units, multi-modalism and doordoor transport from producer to consumer • Improved productivity of ships – less time in port – 750 tonnes per hour vs. 30 • Reduced number of lifts • Contents remain intact throughout voyage – lessens pilferage TRANSPORTATION STRATEGY CONSULTANTS
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The Concept • Needed specialized facilities and vessels • 1961 American Standards Association adopts 8’x8’ x 10’, 20’, 30’ or 40’; soon known as a TEU • Changed waterfronts and skylines • Changed railway terminals • Really took hold after mid-1960s • First large vessels in 1972-73 – 2,960 TEU (P&O) • Sea-Land built 8x 1,086 33 knot ships in 1969
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The Concept • Fewer ships needed – 3.6 to 5:1 conversion rate • Ports needed to be reconfigured – Needed deep water; long quays; large flat, paved acreage; specialized container cranes
• Replaced or displaced finger piers and warehouses • Inland transportation became important in port selection and success of early investments • Also coincided with development of freeway systems in US and Europe • An example of “complex innovation” TRANSPORTATION STRATEGY CONSULTANTS
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Early development • Required lots of capital – First 6 OOCL 1,572 TEU ships cost $100M; containers $85M – 21 TRIO consortium ships cost $1B and containers $550M
• From 1966-1970 $2.4B invested in ships anc TEUs • Large capital requirements pushed older companies into consortia • New entrants – e.g. Sea-Land – McLean • Left out others – e.g. Grace Line in US TRANSPORTATION STRATEGY CONSULTANTS
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Early development cont’d • Sea-Land begins to expand globally • No subsidies but carries military cargo e.g. Vietnam & Europe (Cold War) • 7 ships carried 10% of all US cargo; 250 others carried the rest • Established liner operators esp. in Europe had difficulty adapting – Sea-Land rewrote the rules • ACL a consortium of 6 European lines – invested in roro container ships • Two German lines combined to form Hapag Lloyd TRANSPORTATION STRATEGY CONSULTANTS
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Early development cont’d • Dart included two European companies and Clarke of Montreal • Australian trade also containerized early – British companies • OCL founded – 4 lines incl P&O, Furness Withy • By 1970 – five trade routes containerized – – – – –
US (and Canada) – UK/Continent US-Japan UK/Continent – Australia Australia/NZ – US Japan- Australia
• Which one missing? TRANSPORTATION STRATEGY CONSULTANTS
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1970s • By late 1970s became a worldwide system of transportation • By 1978 83% of Europe-East Asia trade was containerized; 99% of Europe-Japan • Also invaded other less developed regions • Capacity of fleet grew 620%, 1973-83; total seaborne trade only grew 27% • Impacted by oil crises / price increases in 1973 and 1979 • Rise of mfg in Japan and East Asia; shift to Pacific trade – NY no loner biggest port by 1981 TRANSPORTATION STRATEGY CONSULTANTS
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1970s • Emergence of Kobe, H-K, Kaohsiung, Singapore by end of decade • East-west routes predominated; north-south lagged except Australasia • 4 big consortia e.g. TRIO – 5 European and Japanese lines combined investment of DM$2.7B – 17 ships – 2x weekly services – Europe-Asia • 26 knots; 63 day round trip; time in port 20% • Russians dabbled e.g. FESCO • Chinese MIA TRANSPORTATION STRATEGY CONSULTANTS
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1970s • Emergence of newcomers: OOCL, Evergreen, Yang Ming, NOL, ANL, MISC, NSCSA, KSC, TMM, CSAV, Zim and even Maersk
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1980s • Next stage took the box idea to its logical consequence through global services, intermodalism and logistics management • Decade marked by rationalization, consolidation and withdrawal of traditional companies • Total fleet capacity grew from 1.2m TEUs in 1980 to 3m in 1990 – 167%; port turnover from 33m TEUs to 84m • HK and Singapore take over from Rotterdam as largest ports • Top 20 companies increase market share TRANSPORTATION STRATEGY CONSULTANTS
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1980s • Vessel size grows from 3,000 TEU G3s to Panamax 4,000+ TEUs, and some post-Panamax • Intermodal integration – “logistics megacarriers” – NYK • Failure of UNCTAD Code of Conduct for Liner Operators – 40-40-20 – totally irrelevant in new world order • New capacity and new entrants had impact on profitability of the industry
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The RTW Concept • Two proponents • McLean - US Lines – 12 x 4,258 TEU slow steaming 18 knot ships in eastbound direction – Counting on expensive fuel (had built 33 knot ships in late 60s just before prices had increased)
• Evergreen – 24 x 2,728 TEU
• Evergreen enters N Atlantic market with RTW service; US Lines Far East-Europe • US Lines enters chapter 11 by 1986 TRANSPORTATION STRATEGY CONSULTANTS
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Intermodalism • East and west coasts of US had been served separately • East coast & interior (Chicago) could be served faster via west coast & landbridge • APL and Sea-Land pioneered landbridge in US • CN had been doing this since Day 1 in Halifax and Montreal • APL let railways use marine carriers for domestic use on return leg – lowered costs • APL time chartered trains to meet ship schedules • Seamless transfer between modes
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Intermodalism • Seamless transfer between modes • Started double-stack operations in 1985 – five corridors • Sea-Land acquired by CSX in 1986 • Europe had difficulty with intermodalism; short sea feeders seemed to work better • Russians tried Trans-Siberian Railway
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1990s • Advent of Globalisation • Relentless drive to lower costs • Objective to include all three east-west trade routes in their global networks – which ones? • Expansion by individual lines, global alliances (which replaced consortia) • Shipping lines now had to deal with large transnational companies such as ??? • Shippers preferred to deal with 2-3 companies for all their needs TRANSPORTATION STRATEGY CONSULTANTS
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1990s cont’d • Costs and rates declining in the decade • Overcapacity and more ships on order – nothing has changed! – Low cost shipbuilding – German tax advantages
• Slot capacity increased 9% per annum, from 3.2 to 5.3 m TEUs, 1990-1997; TEUs handled at ports rose from 84.2 m TEUs to 170.3 m • Imbalances beginning to appear as mfg shifted to East Asia TRANSPORTATION STRATEGY CONSULTANTS
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1990s cont’t • Enlargement of scale and concentration of power • Low economic returns for shipping companies • Resulted in consolidation – top 20 in 1990 had 39% of market; in 1994 46%; 50% in 1999 • Acquisitions – Maersk & Sea-Land + Safmarine; P&OCL + Nedlloyd; CP Ships + many • Emergence of alliances – e.g. Grand Alliance • Retained their own identities • Demise of US shipping lines and reduction in Japanese
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1990s cont’t • Emergence of alliances – e.g. Grand Alliance • Retained their own identities • Demise of US shipping lines and reduction in Japanese • Increase in frequency of sailings – from weekly to bi-weekly or more • Blanket coverage of globe; Higher frequency and denser coverage
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1990s cont’t • Needed to do this to offer global companies greater choice of sailings, destinations, direct service, intermodal service • Some remained outsiders – Maersk; Zim, Evergreen, COSCO (at first), MSC
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Top 20 operators 1999 • Needed to do this to offer global companies greater choice of sailings, destinations, direct service, intermodal service • Some remained outsiders – Maersk; Zim, Evergreen, COSCO (at first), MSC
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Top 20 operators 1999 Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
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top 20 operators Country Capacity (TEU)
Maersk Evergreen P&O Nedlloyd Hanjin/DSR COSCO Sea-Land MSC NOL/APL NYK CP Ships MOL CMA/CGM Zim Hyundai K Line Hapag Lloyd Yang Ming OOCL UASC Wan Hai
Denmark Taiwan UK/Netherlands Korea/Germany China USA Switzerland Singapore Japan Canada Japan France Israel Lorea Japan Taiwan Germany Hong kong UAE Taiwan
378,205 297,030 263,248 232,911 227,137 209,226 199,226 198,163 164,311 139,085 129,210 115,843 113,673 109,192 105,643 101,094 100,216 90,944 68,553 56,194
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2000s • • • • • •
BIG ships Asia-Suez services New hubs In NA – west coast congestion All water services Expansion of Panama Canal in 2014
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Ports • Revolutionary impact on ports, too • Emergence of new players e.g. Felixstowe in UK, Khor Fakkan, Dubai, Gioia Tauro, Algeciras • Rankings by late 1990s shows shift of manufacturing production and shipping to East Asia • Relative decline of US, Japan • Singapore a relay hub; HK the same + mfg • Waning of New York remarkable until import boom recently TRANSPORTATION STRATEGY CONSULTANTS
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Ports cont’d • HK has withstood new competition in Pearl River Delta + transfer to PRC • Shanghai has come out or nowhere to be #2 • Emergence of secondary ports near Singapore • India has yet to emerge – Colombo a relay point for much of its cargo • Middle East – Dubai a significant hub for containers and air cargo
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Largest container ports, 1990 and 2009 2009
1990
Port Name Singapore Shanghai Hong Kong Shenzhen Busan Guangzhou Dubai Ningbo
Total TEU 25866400 25002000 20983000 18250100 11954861 11190000 11124082 10502800
Qingdao Rotterdam Tianjin Kaohsiung Antwerp Port Klang Hamburg Los Angeles
10260000 9743290 8700000 8581273 7309639 7300000 7010000 6748994
New York/New Jersey Keelung Yokohama Long Beach Tokyo Antwerp Felixstowe San Juan
1871859 1828143 1647891 1598078 1555138 1549113 1417693 1381404
Tanjung Pelepas Long Beach Xiamen Laem Chabang
6000000 5067597 4680400 4621635
Bremen/Bremerhaven Seattle Oakland Manila
1197775 1171090 1124123 1038905
New York/New Jersey Dalian
4561831 4552000
Bremerhaven Bangkok
1030334 1018290
Bremen/Bremerhaven Tanjung Priok
4535842 3800000
Tacoma Dubai
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Port Name Singapore (PSA) Hong Kong Rotterdam Kaohsiung Kobe Los Angeles Busan Hamburg
Total TEU 5223500 5100637 3666666 3494631 2595940 2587435 2348475 1968986
937691 916363
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Global Terminal Operators • • • • • •
HPH - HK PSA - Singapore ICTSA – Phillipines P&O Ports (Australia) (now DPW) SSA – US APMT – (Denmark and Netherlands)
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Global Networks
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The Global Supply Chain •
• • • •
Modern supply chains the result of containerization Vertical integration had been the norm Containerization resulted in vastly reduced transportation costs “integrated” production led to “disintegrated” production Manufacturing inputs produced where it is cheapest or most efficient
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Just-in-Time • Originated by Toyota in 1980s • Suppliers manufacture in small batches and deliver in narrow time windows • Keeps inventories low; little margin for error • Required companies to deal with transportation in a very different way • They wanted large scale relationships with a smaller number of companies • Penalties for delays even for shipments between continents TRANSPORTATION STRATEGY CONSULTANTS
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Logistics • Before 1980s was a military term • By mid-1980s had become a routine business function, not just for manufacturers • Also retailers • Could design in US, transmit to Thailand, where it would use fabric made in China, buttons from Malaysia made of plastic made in Taiwan and decorations embroidered in Indonesia • All moved in 40’ container, delivered in 24 days from Singapore to New York (via Halifax) TRANSPORTATION STRATEGY CONSULTANTS
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Inventories • Containerization has helped reduce inventory cost • Companies obtain goods closer to the time they need them; save on financing • Prior to containerization companies had to hold large stocks of components to ensure production kept moving; delays at ports, moving cargo inland not as smooth • Cost of transportation a factor, but so cheap that mot a major one TRANSPORTATION STRATEGY CONSULTANTS
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Globalization • Not entirely new concept • Mercantilism in 17th and 18th centuries • Industrialization in 19th century i.e. Britain supported by colonies • Massive increase in industrial production in US after 1900 – railways • Even larger increase in productivity in US with Interstate highway system after WWII • The manufacturer or retailer now looking for the most economical place for each part of the process TRANSPORTATION STRATEGY CONSULTANTS
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Transportation costs • The container has vastly reduced transportation costs – had been a trade barrier, like tariffs • Labour intensive assembly done in lower wage countries than US, northern Europe or Japan • Distance matters, but not as much as before • Need well run and productive ports (and substantial volume) to be part of global supply chain • Places with lower demand or poor infrastructure will have a difficult time competing TRANSPORTATION STRATEGY CONSULTANTS
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Importance of infrastructure • Pacific Rim became the “world’s workshop” because large container ports and extensive shipping services gave it the lowest transportation costs • Conversely, African countries, with lower cost labour, do not have well developed ports and were slower to adapt to containerization • Shippers with access to ports and inland transportation also benefit from having the shortest shipping times • Landlocked countries also at a disadvantage TRANSPORTATION STRATEGY CONSULTANTS
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Shipping costs • Transportation from a port to inland destinations a concern is less well developed countries (as well as Canada) • Cargo imbalances also impact shipping costs i.e. Caribbean countries • As rates declined, volumes increased • Prices for electronics, clothing, consumer items dropped; helped bring inflation to an end in 1990s
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Impact on cities and regions • The revolution had ended by 1980s but after effects have been felt ever since • Had positive affect on some places, adverse on others • Of the 20 ports handling biggest volume in 2003, seven did not handle containers in 1990, and three did not exist before • New ports privately managed and financed • Massive ports in China, Malaysia and Thailand in 1990s were an investment in globalization TRANSPORTATION STRATEGY CONSULTANTS
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Containerization and globalization • Factories whose goods use those ports will have the lowest rates and lowest costs in lost time, saving money on imported inputs and gain a cost advantage in export markets • Manufacturers in poorer countries, where ports are less busy or less well managed, find their logistics costs make competing in foreign markets a difficult proposition • A country with outmoded or badly run ports is a country that faces great obstacles in finding a role in the global economy TRANSPORTATION STRATEGY CONSULTANTS
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Summary & Conclusions • “Without the container, the global village would only be a concept, not reality, because manufacturing would still be a local process” – C.C. Tung, 1997 • At end of century containers carried over 90% of non-bulk and 70% of all world trade • Containerization created global networks, enlargement of scale and worldwide investments by shipping lines and terminal operators • When studying the global economy, we need to look at transportation infrastructure TRANSPORTATION STRATEGY CONSULTANTS
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Thank-you! James Frost
[email protected] 902-429-3121 CPCS 72 Chamberlain Ave. Ottawa, Ontario K1S 1V9 Tel: 613 237 2500 Fax: 613 237 4494 www.cpcstrans.com TRANSPORTATION STRATEGY CONSULTANTS
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