Containerisation Ate the World

What do shipping containers and Big Tech have in common?

Welcome readers old and new. This is one of Thomas Hollands’ notes in his search for ideas which are surprisingly general, or generally surprising. The first issue explains the project, and you can find all past issues here.

In the good old days, consumption was local. People shopped local, ate local, and spent local.

There was no alternative, because it was too expensive to transport goods. What little shipping occurred was "breakbulk". Cargo was stored individually on boats, and carried one at a time off them by dockworkers. The cargo came in different shapes, sizes and weights. Dockers could find themselves carrying big bags of grain one minute, and small boxes of jewellery the next. Petty theft was common. Dockworkers had strong unions, and often managed to coerce their employers into giving them higher wages, or letting them work fewer hours. Mid-day trips to the pub were common.

Ships only make money when they are moving goods. Back then, it would take several of the good old days just to load and unload cargo ships, in highly inefficient ways. Ships often spent more time in port than they did at sea, bleeding cash while waiting to take on new cargo. Long distance transport was very expensive. We bought local because we had no other choice.

The shipping container overturned the entire industry. It’s based on an idea which seems obvious as soon as you hear it: Instead of moving lots of small things individually, why don't we put all the small things inside of a big thing, and move that instead?

Containers were very big, which resulted in vast labour reduction. They enabled standard sizes and weight ranges of goods. Cranes brought automation to the docks. Instead of teams of dockers carrying hundreds of bags of grain over hours, one operator could use a crane to unload a container full of grain in minutes. Transportation costs plummeted.

Container ship - Wikipedia

Container ships are big bois

Container ships made large scale globalisation possible. For the first time, how much it cost to produce something mattered more than how much it cost to transport it. It became cheaper to buy Japanese electronics made thousands of miles away, than American electronics made down the road. Some people started to think global, and the world started to buy global.

Containerisation ate the world

Container shipping reshaped global trade, in ways reminiscent of the tech industry today.

Like tech, container shipping had increasing returns to scale. "Get big fast", Amazon's early motto, could've been a motto for many of the early shipping companies, who also took on enormous amounts of debt to build distribution networks. Instead of fulfilment centres, they built big ships, and rented expensive crane crenellated shipping terminals.

Prior to containerisation, shipping had low barriers to entry. It was possible for small cargo vessels to call port-to-port, picking up odds-and-ends from merchants all the while. But after containerisation, the biggest ports were better automated, had more warehouse space, and better processes. Bigger ports became far more efficient than smaller ones.

Calling port-to-port ended, as shippers only travelled to the most efficient hubs. Goods would be sent from these hubs to their final destinations via trucks, which, thanks to standardised trailers, also became much cheaper to operate.

Containerisation opened up a new business model for ports — becoming a distributer. Backwaters like Felixstowe and Singapore, far away from large populations, didn't suffer from labour disputes and were able to build container ports quickly. As a result, they saw trade boom.

Older ports, like Liverpool, which were slow to react to the changing industry due to labour disputes and mistrust of technology lost out on loads of trade. The Liverpool docks today have been turned into gentrified fluff. The docks of Felixstowe are a sprawling leviathan of international capitalism.

The original aggregators

Ben Thompson of Stratechery calls tech platforms like Google "aggregators", because they own customer demand. Ports like Felixstowe were the original aggregators. Although they had small populations themselves, they offered container-friendly gateways to local markets. Containership companies had no choice but to ship to them.

Adapted from Ben Thompson's Aggregation Theory.

Before containerisation, the hardest problem for companies was getting their physical goods to consumers. Due to high transportation and labour costs, they vertically integrated, keeping factories near big cities to cheaply access local markets.

After containerisation's big decline in transportation and labour costs, a small number of container ports "aggregated" consumers together, providing access to much larger markets. Instead of calling at London, Liverpool, Cardiff, Hull and Bristol, to access the British market ships only needed to call at Felixstowe.

The aggregation of customer demand made total market sizes for goods much larger. But it also meant that more consumer goods companies had to compete for the same pool of end customers. Tech platforms like Google today have created similar dynamics. Just like container shipping meant Japanese cars could be sold next to American ones, Google's platform means Indian tech companies can advertise next to American ones. This puts massive pressures on companies to reduce prices and differentiate themselves.

Because markets became so much bigger, the rewards for winning this competition were massive. Japanese car manufacturers like Toyota rode the wave of containerisation, selling millions of vehicles in the US every year. Like tech, containerisation created a few big winners, and many losers.

The shipping container was the missing puzzle piece which slotted in perfectly, making truly global trade possible. But it also enabled the accelerated pollution and exploitation of our environment - the 15 biggest container ships emit as much CO2 as all of the world's cars. We are now so addicted to riches of globalisation that there is no going back. And we shouldn't. But we need to stop fouling our atmosphere or else rising sea levels will leave many of our ports underwater.

Next week I'll discuss a hare-brained scheme to have our cake and eat it. A way to enjoy the fruits of globalisation without the accompanying pollution. I hope you'll join me.

Containerisation 2.0: A double header!

Delian Asparouhov runs a good podcast called Operators, where he interviews the non-founder, non-VC people working inside tech companies. The people below the radar who get shit done and make things work. This week he released an excellent episode with Sanne Manders, the COO of Flexport.

Flexport are a modern freight forwarding company. Freight forwarders organise the distribution of goods from producers to consumers, but (usually) don’t actually run the ships themselves. Most freight forwarding is still a cripplingly manual, paper process (often the only thing identifying a shipping container is a piece of paper taped to its’ door). This is a big problem, and Flexport are building a software platform to solve it.

If you’re interested in the future of globalisation, or how tech can improve the material world, I recommend checking it out.