Creative destructive and the container

I did a presentation to a group of school children last month. The presentation was designed to introduce them to logistics and hopefully to encourage them into the logistics and the supply chain industry. I am not sure if I succeeded but at least I gave them some food for thought. I started my presentation with the question ‘what is the most important invention or innovation of the last 50 years?’. The answers the children gave included the internet, the computer, and the mobile phone.

All good answers but I argued that it was actually a metal box – the shipping container. I then illustrated why by giving them a history of the container and its effects and in doing so illustrated the importance of logistics.

Frameworks for industry analysis such as Porter’s famous 5 forces model assume that industry structure is relatively stable and that structure determines behaviour in a relatively predictable way. Such models ignore the dynamic forces of innovation. The Austrian economist Joseph Schumpeter (1883–1950)  developed the term creative destruction to describe the process of competition were favourable industry structures contain the seeds of their own destruction by attracting firms who deploy innovative strategies and or products to unseat the incumbents and unleash the ‘gale of creative destruction.’ We can clearly see his gales of creative destruction in the case of the shipping container whose introduction caused widespread job losses within dock operations, within shipping and within manufacturing whilst at the same time it allowed people, at least in the western world, previously unimagined luxuries, shorter working weeks,  and higher living standards.

So in what ways did the shipping container cause this gale of creative destruction? It did so by:-

• Dramatically improving the speed that ships can be loaded &  unloaded. Before the shipping containers everything was loaded & unloaded by hand (often using a dockers hook ) it could take weeks to unload one ship with as many as 50 being in port at one time
• Dramatically reducing the cost of unloading / loading a ship. Pre containerisation it would take approximately 100 people to unload each vessel and vessels would spend far longer at dock.
• Dramatically reducing the labour employed within port operations. Pre containerisation Britain had 130000 dockers and they were one of the heavily unionised in the world, by 1995 only around 11000 people were employed on the docks (not all of these losses were caused by containerisation)
• Allowed the development of new ports in towns such as Felixstowe. Before containerisation Felixstowe could not have been a significant port due to its rural nature however its rural location was not an issue after containerisation as it could unload 5 ships and transport all the goods to liverpool in the time it took liverpool dockers to unload one ship.
• Destroying union power at the dockside. In the 60’s strikes brought the UK ports to the standstill, this and old technology made UK ports the slowest in the world. Liverpool dockers were reluctant to accept containers but as work flooded to Felixstowe they had no choice so tried to negotiate better deals for the workers.
• Dramatically improving the working conditions of dockers who remained. Pre-containerisation the work was physically very hard, unpleasant and dirty, containerisation allowed the movement of unit loads therefore dockers no longer had to handball product in difficult and dangerous conditions
• Allowed the development of globalised supply chains by significantly reducing transport costs due to economies of scale (a container ship can carry approximately 14000 twenty foot equivilent units each of which can carry 25 tonne) and due to more efficient port operations. Due to the reduced transport costs many traditional constraints on manufacturing location were removed this had led to production being moved to low costs countries and even to componants being made in multiple comtinents and then being assembled in another country ( in the 1960s freight costs where usually around 30% of the cost of goods, the shipping container has helped to reduce this to 1%)
• Helped to destroy mass manufacturing in “developed” countries as work could now be done in lower cost countries. Before containerisation 50% of people in the UK worked in manufacturing, it is now around 15% (not all of this is due to the container). This reduction in manufacturing jobs released people to work in our service based economy.
• Dramatic reduction in supply chain costs and the increase in supply chain speed has caused a revolution on the high street with it allowing fresh food to appear and it has enabled the masses to afford consumer goods such as flat screen TVs.

The story of the shipping container illustrates some core truths about innovation in that it shows the harsh reality that society cannot enjoy the benefits of creative destruction without accepting that some people such as the dockers who lost their jobs will be worse off. Whilst attempts to reduce the damage of creative destruction via protectionism lead to stagnation and decline as shown by the experience of non container ports. Creative destruction reminds us that pain and gain are  linked and that to create new industries the old order must be swept away.

So who was the innovator who caused this wave? Containerisation began with Malcolm McClean, McClean was a trucker who was frustrated by the long delays his vehicles faced when they unloaded at the docks . McClean realised that picking up 50 units at a time would be much quicker than doing it one unit at a time. His breakthrough came in 1955 when he and an engineer drew up a blueprint for the shipping container. He is similar to the inventor of the world wide web, Tim Berners-Lee, in that he made the patent “opensource”.

Berners-Lee & McClean

This donation meant that it was easier for rival companies to use the McClean design than to design their own therefore bringing the standardisation the industry needed. The first containers were lifted onto the ideal x in 1956, and soon international services were established and the rest is history