The 'humble hero' of the global economy: containers

Globalization may have inadvertently spread the belief that goods appear on the shelves of retail stores spontaneously, or at least without much effort. For an average consumer, the ease of each purchase, particularly an online purchase, is also a convenient illusion.

This is similar to a cargo cult — a belief among Melanesian tribes upon contact with the abundance of trade goods during the colonial era that material wealth will be available to them pending traditional rituals. Followers of this cult, who did not grasp the complexity of manufacturing and distribution, performed rituals in the hope that commercial cargo ships would bring them modern goods. Our ease of purchasing and access to abundant goods in today’s global economy are reminiscent of the cargo cult practice.

However, the modern global cargo cult is made possible not through some rituals but by various trade agreements that are designed to reduce international transaction costs and by maritime container transportation that makes long-distance trade an affordable proposition. Yet the ubiquity of goods produced overseas at our supermarkets masks these efforts that go into ensuring that freight is delivered in the right quantity, at the right place, at the right time and in good condition.

As more companies outsource manufacturing jobs to areas with lower production costs, the distance at which cargo moves has considerably expanded. Still, very few people understand the complex process of global freight distribution. To paraphrase the French economist Frederic Bastiat, there is what is seen and what is unseen in the global movement of goods. Consumers may see the goods, their availability and convenience, but the linchpin of globalization remains unseen by most people.

Maritime shipping supports about 90 percent of the volume of global trade and 72 percent of its value. As such, the organization and smooth operation of this industry is very important. The most obvious aspect concerns its geography, as most maritime shipping depends on relatively narrow transoceanic passages of strategic significance. Continued availability of these routes is essential to global trade, which tolerates few interruptions and disruptions.

Some of these passages — such as the Strait of Malacca, a narrow waterway between Malaysia and Indonesia that connects the Pacific and Indian oceans — are natural. Others, like the Suez and Panama canals, are artificial creations that are now being expanded to accommodate a growing global shipping industry. These locations are connected by high-density maritime shipping routes attempting to use the shortest possible distance (see map).

These routes are organized along a series of ports of call carefully selected to make sure that ships remain fully loaded throughout their voyage. Large liner ships look to big ports (which are usually far between), since they generate a lot of cargo, while smaller ports are serviced by feeder ships that cater to smaller, sometimes niche markets. In maritime shipping, the term “small” is a relative concept, especially since the arrival of ships much larger than those that plowed the oceans just a decade ago.

The construction of oversize cargo ships in recent years is a result of the principle of economies of scale (the bigger, the cheaper, the better). For instance, the Explorer Class container ship Christophe Colomb, which Harvard historian Maya Jasanoff is taking from Hong Kong to Southampton, England, through the Strait of Malacca and the Suez Canal, made its debut in 2009. It has a capacity of about 13,000 20-foot-equivalent units (TEUs). To put this in perspective, in 2000 the largest container ship had a capacity of about 8,000 TEUs. Earlier this year a new class of container ships with a capacity of 18,000 TEUs, named Triple-E, entered into service. This raises the question, is there enough trade to fill these gigantic ships?

Known as the “humble hero” of the global economy, containerization is practically synonymous with globalization. Any type of merchandise can be carried in a container, a standard load unit used to easily transfer goods across the world. If you can stuff it, you can transport any good using maritime shipping lines. Toys, apparel, car parts, meat, fruit, coffee, lentils and lumber are some of the products carried around the world by container ships. Containers come in a few sizes, but 40-foot and 20-foot boxes are the most common. That is why 20-foot containers are used as a unit of measurement in the industry.

Historically, wherever there was sea trade, there was a temptation for pilferage. But recently, the massive size and perceived value of what is transported in container ships has incited the resurgence of piracy, particularly off the coast of Somalia and around the strait of Bab-el-Mandab, which links the Red Sea to the Gulf of Aden. In spite of these risks, container transportation remains safe and reliable. The main challenge, however, is the movement of “empty air,” given global trade imbalances. For instance, in 2011 there were about 2.2 times more full containers being transported from Asia to Europe than the other way around. A container ship sailing back from Europe toward Asia carries half the load it moved on its way to Europe. The ratio of transpacific trade between Asia and North America is about the same.

Cargo shipping is an industry that is as globalized as the commercial interests it supports. However, in recent years, large multinational interests have been set up to support global container trade. Two distinct but interrelated classes of actors handle maritime trade: maritime shipping companies and global terminal operators.

Judging by where the largest companies involved in global maritime shipping are headquartered, one can conclude that a sizable portion of global trade is carried by Danes and handled by Singaporeans. As the world’s largest container shipping company, Denmark-based Maersk Group controls 15 percent of global container-ship capacity, about 580 ships. One of the world’s largest terminal operators, PSA International — formerly known as the Port of Singapore Authority — handles more than 60 million TEUs per year in 40 terminals across the world. Both PSA and the Dubai Ports World, a major competitor, are controlled by sovereign wealth funds, which means they are backed by strong financial interests looking at the long term — an interconnected world where trade plays a crucial role.

While global powers have the ability to project violence around the world, the titans of the container shipping industry are the true masters of the global economy. Like Atlas, they have broad shoulders, and their influence is far-reaching. They diligently carry the load of global trade and the wealth of the nations imbedded in this trade. Beware if they shrug.