Epic Story of containerisation and its impact
Context
If there was one book that changed the way I thought about the containerisation and its impact on globalisation, it is a book called "Box" by Mark Levison. This is one of the most comprehensive books on Container’s innovation.
When we started talking about Pipehaul, we often alluded to commodity logistics. We were very focused with our narrative about Subjimandi.app being our first mandi of the many yet to come. The basic premise and thesis behind building multiple mandis will be a topic for an another post but broadly what we wanted to build is a standardised layer of logistics for commodities trade.
The importance of standardisation is often mis-appropriated. It sounds simple but it is not simplistic to envision and execute this approach to an existing marketplace. It is not given that the company which succeeded in adoption of standards benefits out of it. In recent times, such movements are led by consortium of companies getting impacted by it.
One such example is DCSA for standardisation)of digital handoff between all stakeholders involved in global Container operations.
In this post, you will also read snippets of a review of “Box” book written by Venkatesh Rao. He writes a blog called Ribbonfarm. He is a prolific writer who has words that can define complex topics poetically.
In the Beginning
Through this review post , I would like to conceptualise the work we were doing at Pipehaul and Subjimandi.app.
Prior to containerisation of cargo. The cost of shipping goods was very expensive. Major component of it was the cost of handling cargo at port when unloading and loading the vessel.
For many goods then, shipping accounted for nearly 25% of total cost for a product sold beyond its local market. Fast forward to today: the book quotes economists Edward Glaeser and Janet Kohlhase: “It is better to assume that moving goods is essentially costless than to assume that moving goods is an important component of the production process.”
Mclean was the founder of Sea-land, first transportation company that ventured into container trade. Containerisation seemed obvious, like how we were doing grading in produce marketplace with Subjimandi.app.
The problem and solution was obvious and many people were working on it simultaneously, Mclean was the most ambitious and tactical of all of them to scale it fast and build a narrative around it.
There was an another person, Matson who spent time on operational research and developing the components to enable containerised trade. Like, hooks, racks and other systems to secure containers when loaded on the vessel.
While McLean and Sea-Land were improvising on the East Coast, a West Coast pioneer, Matson, involved primarily in the 60s Hawaii-California trade, drove this storyline forward. The cautious company hired university researchers to throw operations research at the problem, to figure out optimal container sizes and other system parameters, based on a careful analysis of goods mixes on their routes. Today, container shipping, technically speaking, is primarily this sort of operations research domain, where systems are so optimized that an added second of delay in handling a container can translate to tens of thousands of dollars lost per ship per year.
This is what we would have liked to accomplish with Pipeahul operating in produce Logistics. The level of research we were doing on the ground like labour deployment, packaging, post harvest processes and storage would eventually build a robust business of logistics that will generate newer post harvest supply chains.
Like the movement of Tomato from the production region and consumption regions which we shifted to boxes instead of crates.
Moving back to the book, to provide us some background about the complexity of operations and why the shipping cost were so expensive.
If you are wondering how port operations involving longshore labor could have been that expensive before containerization, the book provides an illuminating sample manifest from a 1954 voyage of a C-2 type cargo ship, the S. S. Warrior. The contents: 74,903 cases, 71,726 cartons, 24,0336 bags, 10,671 boxes, 2,880 bundles, 2,877 packages, 2,634 pieces, 1,538 drums, 888 cans, 815 barrels, 53 wheeled vehicles, 21 crates, 10 transporters, 5 reels and 1,525 “undetermined.” That’s a total of 194,582 pieces, each of which had to be manually handled! The total was just 5,015 long tons of cargo (about 5,095 metric tons). By contrast, the gigantic MSC Daniela, which made its maiden voyage in 2009, carries 13,800 containers, with a deadweight tonnage of 165,000 tons. That’s a 30x improvement in tonnage and a 15x reduction in number of pieces for a single port call. Or in other words, a change from 0.02 tons (20 kg) per “handling” to about 12 tons per “handling”, or a 465X improvement in handling efficiency (somebody check my arithmetic… but I think I did this right). And of course, every movement in the MSC Daniela’s world is precisely choreographed and monitered by computer. Back in 1954, Brando time, experienced longshoremen decided how to pack a hold, and if they got it wrong, loading and unloading would take vastly longer. And of course there was no end-to-end coordination, let alone global coordination.
The packages from individual components became one unit(1 CNTR) which is similar to every other unit and the goods inside it become immaterial for port handling. And, this was how they could build efficiency.
Our focus on the processing aspect of produce with respect to packaging is also similar. You will have to look the process we are doing is similar to what containerisation did to ship unloading at port, individiual boxes to standardsised containers. By containerisation, the operations of loading and unloading pivoted and became streamlined.
First, in the early part of the century, dock labor was a truly Darwinian world of competition, since there were spikes of demand for longshore labor followed by long periods of no work. Since it was a low-skill job, requiring little formal education and a lot of muscle, there was a huge oversupply of willing labor. Stevedoring companies — general contractors for port operations — picked crews for loading and unloading operations through a highly corrupt system of mustering, favors, bribes, kickbacks and loansharking. The longshoremen, for their part, formed close brotherhoods, usually along ethnic lines (Irish, Italian, Black in the US) that systematically kept out outsiders, and maintained a tightly territorial system of controls over individual piers.
History of how we reached here is fascinating. The following prose talks about the time when shipping had a complex regulatory model.
To those of us who have no rich memory of regulated economies, the labyrinthine complexities of regulation-era industrial organization are simply incomprehensible. The star of this thread was the all-powerful Interstate Commerce Commission of the US (ICC), and its sidekicks, the government-legitimized price-fixing cartels of shipping lines on major routes. The ICC controlled the world of transport at a bizarre level of detail, ranging from commodity-level pricing, to dictating route-level access, to carefully managing competition between rail, road and sea, to keep each sector viable and stable. And of course, there was a massive money-chest of subsidies, loans and direct government infrastructure investment in ports to be fought over. The half-century long story can in fact be read as the McLean bull in the china shop of brittle and insane ICC regulations, simultaneously smashing the system to pieces, and taking advantage of it.
The unraveling of this regulation led to new regions being developed as hubs for different functions of a supply chain. The places shifted to deeper hinterlands as now only a container needs to move closest to their facility. It made sense to move away from expensive port cities which were overly crowded and congested.
This geographic churn had a pattern. Not only did old displace new, but there were far fewer new ports, and they were far larger and with a different texture. Since container ports are efficient, industry didn’t need to locate near them, and they became vast box parking lots in otherwise empty areas. The “left-behind” cities not only faced a loss of their port-based economies, but also saw their industrial base flee to the hinterland. Cities like New York and San Francisco had to rethink their entire raison d’etre, figure out what to do with abandoned shorelines, and reinvent themselves as centers of culture and information work.
Globalisation was only possible at scale because containerisation became the norm. Just to re-emphasise. Without containerisation, none of our global corporations and just in time supply chains would have been possible.
Anything he could fill his boxes with was pure profit, and Japan provided the contents. With that, the stage was set for the Western US to rapidly outpace the East Coast in shipping. Entire country-sized economies had their histories shaped by big bets on container shipping (Singapore being the most obvious example).
What does this disruption look like in action. It completely changed the way trade takes place. The cost of moving the cargo across the globe fell drastically.
Let’s wrap up by looking at how the narrow world of container shipping ended up disrupting the rest of the world. The big insight here is not just that shipping costs dropped precipitously, but that shipping became vastly more reliable and simple as a consequence. The 25% transportation fraction of global goods in 1960 is almost certainly an understatement because most producers simply could not ship long distances at all: stuff got broken, stolen and lost, and it took nightmarish levels of effort to even make that happen. Instead of end-to-end shipping with central consolidation, you had shipping departments orchestrating ad hoc journeys, dealing with dozens of carriers, forwarding agents, transport lines and border controls.
In short, container shipping, through its efficiency, was a big cause of the disaggregation of vertically integrated industry structures and the globalization of supply chains along Toyota-like just-in-time models. Just as the Web (1.0 and 2.0) sparked a whole new world of business models, container shipping did as well.
The innovation of container shipping changed an another attribute. It provided an avenue to manufacture products in segments. You could now manufacture a product in stages.
The deepest insight about this is captured in one startling point made in the book. Before container shipping, most cargo transport involved either raw materials or completely finished products. After container shipping, the center of gravity shifted to intermediate (supply chain) goods: parts and subassemblies. Multinationals learned the art of sourcing production in real time to take advantage of supply chain and currency conditions, and moving components for assembly and delivery at the right levels of disaggregation. Thanks to container shipping, manufacturers of things as messy and complicated as refrigerators, computers and airplanes are able to manage their material flows with almost the same level of ease that the power sector manages power flows on the electric grid through near real-time commodity trading and load-balancing.
In one sense, commodity supply chain logistics by Pipehaul is our approach to making the movement of commodities efficent. We set out to do this by creating a market based approach to logistics of commodity trade. But, the first step was to standardise the logistics of commodities.
Rationale of Picking one Mandi
When we started produce logistics segment, it was with the notion of tapping the ocean sized opportunity. Where else will you find distributed producers and consumers with multiple commodities falling under the same segment. There was no barrier to entry and the supply chains were not as long as global supply chains.
In produce post harvest supply chain, you are expected to move the produce from production region to consumption. If it is perishable commodity, this will be well within a few days of harvest. We contrast this with a car manufacturing supply chain where the ancillary components take long durations(6-8 months) due to their different geographic locations. These locations may be in different continents all together. This provided us ideal conditions to test out our hypothesis and show impact of our approach.
Though the entry in produce market was without any barriers but the way trade takes place is what dictates the logistics of the post harvest produce supply chain. This was a stark realisation that led me to focus most of time on making a marketplace for produce where standardised produce is bought and sold. We moved the innovation of Pipehaul into our own logistics movements for Subjimandi.app.
The only regret if there is one is that having gained the understanding of trade. I should have invested in building a network of people who could be part of us and build the other mandi(s) simultaneously while we build the underlying logistics marketplace. Before we could think beyond produce, we stopped mid-way. This problem still remains to be solved and I am bullish as hell that the team that was part of Pipehaul and Subjimandi.app will take stab at it in their future.
Signing off till next
Vivek, nursing regrets for the time being.