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By | Tim Worstall 19th September 2011 12:14

The amazing shipping container: How it changed the world

The other reason everything says 'Made In China'

Keith Tantlinger has just died. He's someone you almost certainly haven't heard of and someone who – along with Malcolm McLean (no, not McLaren) – changed our world to the extent that it would have been almost unrecognisable to our forefathers. They also – if you want to squint at it – made the European Union redundant six months before it even started.

They did this by inventing the shipping container.

Shipping stuff around in boxes had been done before, of course, but Tantlinger's contribution was in the connecting and locking mechanisms which enables you to easily stack them, stick 'em on trucks and railway flatbeds, pile them up on ships' decks and so on. McLean was the trucking baron who wanted to be able to use sea transport to get his customers' stuff around by sea: far cheaper per tonne-mile than land transport, which is still the case now and has been for millennia.

The end result of this system is that we don't really have a geography-based system of trade any more, at least not in the manner we used to have. Or perhaps the geography which shapes our trade is now different.

Time was, plain old “how many miles away?” geography shaped trade networks. That didn't really last all that long, only until ships were invented and economic or trade geography became a thing of shipping routes. A millennia BC and Phoenicians were getting tin from Cornwall while people in Somerset weren't all that sure that Cornwall existed (a little extreme, yes, but not much). We're all aware of how the Portuguese navigators changed the spice trade, cutting out the various grasping hands in the Middle East looking for a slice, but the continuing superiority in cost of sea freight over land, even with railways, can astonish. It certainly astonished me to find that in the 1860s, getting wheat from Chicago to New York cost 17 per cent of the Chicago wheat value, while getting it from New York to London only cost 12 per cent of that Chicago value of wheat*.

What the shipping container has done is just about entirely take away geographical distance as a determinant of freight costs. It really doesn't cost much more to ship something from China to Europe than it does to ship something inside Europe. Beijing, Brisbane, Brindisi and Birmingham, they're really all just nodes on the container shipping routes and getting from one node to another costs about the same amount, wherever in the world they are.

OK, this is not entirely and strictly true, there are slight differences in shipping costs, but near enough as to make no difference. It's near impossible to pay more than $5,000 to get 40 tonnes in a container from any one node to any one other. it costs $125 a tonne to get stuff from Shenzhen to Sheffield or from Santiago to Savannah.

The flip side of this is that if you're not on the network, not able to plug into one of those nodes, then in economic terms you're pretty much screwed. If you're on a Pacific Island on a shipping route, say Fiji, then you can export bottled water (as they do) and compete with any other company for the custom of the crazed loons who won't drink tap water. If you're on a Pacific Island off a shipping route (Tuvalu say) then you're just not going to get much of anything exported nor imported. As they don't in fact get much in or out. A village on the Trans-Siberian where you can load a container is plugged in. One 30 miles away without the paved road necessary to get the lorry to the railhead might as well be 500 miles away.

Was it really free trade that screwed America?

There's a fun little economic point to this as well (yes, I know, “fun economic points” are going to be a matter of taste) in that a lot of things get blamed on this free trade thing at the moment. There's an especially vociferous movement in the US which tends to blame near everything on the way that the “free trade zealots” have screwed over America. And it's certainly true that the rebalancing of production and consumption around the world has led to relative declines in the standard of living of the American working man (although I would stoutly insist not absolute declines). But this is much less to do with the reduction in tariffs and trade laws than is generally thought. For trade barriers are the combination of such tariffs and laws with transport costs. And transport costs have been falling so far and so fast that even if tariffs had doubled, tripled, the total trade barriers would still have fallen.

We saw this same thing happen in the 19th century with the invention of steam-powered ships. Around and after the Civil War, US import tariffs doubled in many cases: yet trade kept going up and up as the reductions in shipping costs were even larger than those increases in formal trade barriers. The shipping container has done this again over the past 50 years: there is almost no level of legal or tax trade protection that could have stopped foreign goods getting ever cheaper as the costs of hauling things from country to country fell ever lower.

Which brings us to that squinting at the EU thing. Immediately post-war trading patterns were of course depressed: we'd just had a war. But as things picked up, everyone continued to trade with their own overseas possessions, their empires and cultural hinterlands. One of the aims of the EU was to deliberately get people trading more locally, on the basis of geographic closeness, not just past cultural or legal ties. Yes, of course, part of this was to bind the European countries together: as Frederic Bastiat pointed out, if goods don't cross frontiers then soldiers will. So if we get the goods crossing maybe we won't the soldiers?

But a goodly part of it was also people pointing out that it is far easier and simpler, as well as cheaper, to trade with the bloke 200 miles away than with that colony 2,000-such. And at the time, they were right: it is a little like Malthus' predictions about populations expanding geometrically, and food only arithmetically. Nothing wrong with his point, it had been true for all of history up to the point that he wrote it down. It pretty much hasn't been true since he did though. So it is with transport costs. The container has made geographic distance almost irrelevant in determining the terms of trade.

The great little joy of this, the little irony if you like, is that McLean's first shipping load, carrying Tantlinger's first stackable containers, set sail six months before the High and Mighty met to found the European Economic Community in 1958. The technology which would sweep away one of their justifications had just been born as they made their speeches and signed their treaties.

Tantlinger didn't invent the shipping container, didn't build the whole international system, but he did come up with the one little refinement that made the system we have today possible. The Sir Tim Berners-Lee of the physical shipping world if you like. ®

* Power and Plenty, Findlay and O'Rourke. A marvellous book on trade for those sad people like me interested in such things.

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