Containers have been more important for globalisation than freer trade

THE humble shipping container is a powerful antidote to economic
pessimism and fears of slowing innovation. Although only a
simple metal box, it has transformed global trade. In fact, new
research suggests that the container has been more of a driver of
globalisation than all trade agreements in the past 50 years taken together.

Containerisation is a testament to the power of process innovation. In
the 1950s the world's ports still did business much as they
had for centuries. When ships moored, hordes of longshoremen unloaded
"break bulk" cargo crammed into the hold. They then
squeezed outbound cargo in as efficiently as possible in a game of
maritime Tetris. The process was expensive and slow; most
ships spent much more time tied up than plying the seas. And theft was
rampant: a dock worker was said to earn "$20 a day and
all the Scotch you could carry home."

Containerisation changed everything. It was the brainchild of Malcom McLean, an
American trucking magnate. He reckoned that big savings could be had by packing
goods in uniform containers that could easily be moved between lorry and ship.
When he tallied the costs from the inaugural journey of his first
prototype container
ship in 1956, he found that they came in at just $0.16 per tonne to
load—compared
with $5.83 per tonne for loose cargo on a standard ship.
Containerisation quickly
conquered the world: between 1966 and 1983 the share of countries with container
ports rose from about 1% to nearly 90%, coinciding with a take-off in
global trade.

The container's transformative power seems obvious, but it is
"impossible to quantify", in the words of Marc Levinson, author of a
history of "the box" (and a former journalist at The Economist).
Indeed, containerisation could merely have been a response to
tumbling tariffs. It coincided with radical reductions in global trade
barriers, the result of European integration and the work of
the General Agreement on Tariffs and Trade (GATT), the predecessor of
the World Trade Organisation (WTO).
Yet a new paper aims to separate one effect from the other. Zouheir
El-Sahli, of Lund University, and Daniel Bernhofen and
Richard Kneller, of the University of Nottingham, looked at 157
countries from 1962 to 1990. They created a set of variables
which "switch on" when a country or pair of trading partners starts
using containers via ship or rail (landlocked economies, such
as Austria, often joined the container age by moving containers via
rail to ports in neighbouring countries, such as Hamburg in
Germany). The researchers then estimated the effect of these variables on trade.
The results are striking. In a set of 22 industrialised countries
containerisation explains a 320% rise in bilateral trade over the
first
five years after adoption and 790% over 20 years. By comparison, a
bilateral free-trade agreement raises trade by 45% over 20
years and GATT membership adds 285%.
To tackle the sticky question of what is causing what, the authors
check whether their variables can predict trade flows in years
before container shipping is actually adopted. (If the fact that a
country eventually adopts containers predicts growth in its trade
in years before that adoption actually occurred, that would be
evidence that the "container" jump in trade was actually down to
some other pre-existing trend.) But they do not, the authors say,
providing strong evidence that containerisation caused the
estimated surge in trade.
What explains the outsize effect of containers? Reduced costs alone
cannot. Though containers brought some early savings,
shipping rates did not drop very much after their introduction. In a
2007 paper David Hummels, an economist at Purdue
University, found that ocean-shipping charges varied little from 1952
to 1970—and then rose with the cost of oil.

Put them in a container

More important than costs are knock-on effects on efficiency. In 1965
dock labour could move only 1.7 tonnes per hour onto a
cargo ship; five years later a container crew could load 30 tonnes per
hour (see table). This allowed freight lines to use bigger ships and
still slash the time spent in port. The journey time from door to door
fell by half and became more consistent. The container
also upended a rigid labour force. Falling labour demand reduced
dockworkers' bargaining power and cut the number of strikes.
And because containers could be packed and sealed at the factory,
losses to theft (and insurance rates) plummeted.
Over time all this reshaped global trade. Ports became bigger and
their number smaller. More types of goods could be traded
economically. Speed and reliability of shipping enabled just-in-time
production, which in turn allowed firms to grow leaner and
more responsive to markets as even distant suppliers could now provide
wares quickly and on schedule. International supply
chains also grew more intricate and inclusive. This helped accelerate
industrialisation in emerging economies such as China,
according to Richard Baldwin, an economist at the Graduate Institute
of Geneva. Trade links enabled developing economies
simply to join existing supply chains rather than build an entire
industry from the ground up. But for those connections, the
Chinese miracle might have been much less miraculous.
Not only has the container been more important than past trade
negotiations—its lessons ought also to focus minds at future
talks. When governments meet at the WTO's December conference in Bali
they should make a special effort in what is called
"trade facilitation"—efforts to boost efficiency at customs through
regulatory harmonisation and better infrastructure. By some
estimates, a 50% improvement in these areas could mean benefits as big
as the elimination of all remaining tariffs. This would not
be a glamorous outcome, but the big ones seldom are.
theeconomist