The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger (29 page)

Another huge containership brought 600 or so containers to Cam Ranh Bay every two weeks. One-fifth of them were typically refrigerated units filled with meat, produce, and even ice cream. The remainder held almost every type of military supply except ammunition, which was not approved for shipment by container. Sea-Land’s trucks carried about half the food to nearby bases, and the rest was transshipped to Saigon or other coastal ports on the rusty vessel Sea-Land used as a feeder ship. Sea-Land’s state-of-the-art computer system at Cam Ranh Bay used punch cards to keep track of every container from loading in the United States to arrival in Vietnam to its return to America. Supplies flowed in, and the cargo backlog dissipated. “The port congestion problem was solved,” the army’s history of 1967 declared triumphantly. The seven Sea-Land containerships, MSTS Commander Lawson Ramage estimated, moved as much cargo as twenty conventional vessels, going far to alleviate the chronic shortage of merchant shipping.
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Just like commercial shippers, military shippers needed to learn how to use the container to best advantage. At first, they treated it simply like a big, empty box. Much of the initial load on Sea-Land’s Okinawa service consisted of the smaller steel Conex containers. Four Conex boxes were loaded into each 35-foot Sea-Land container, meaning that a quarter of the weight inside the big container was nothing more than the steel of the smaller boxes. Logistics officers were uncertain how to make efficient use of the 45,000-pound load limit of an unrefrigerated container while utilizing all of its 2,088 cubic feet, so containers were frequently shipped underweight or with only half of their volume utilized. On the runs to Okinawa and to Subic Bay in the Philippines, for which the government had guaranteed a minimum number of containers, “It has become common practice … to take cargo that should go break-bulk and stuff it into Sea-Land’s containers to fulfill the guaranteed minimums,” an MSTS administrator complained. Military record keeping often was inadequate to take advantage of the container’s efficiencies: in early 1968, after MSTS started shipping from California to Hawaii in Matson’s containers, it found repeatedly that the containers listed on ships’ cargo manifests were not necessarily the ones arriving in Honolulu.
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Such adjustments notwithstanding, in 1968, the first full year of container operations, one-fifth of all military cargo in the Pacific was shipped in containers. The containerized share of nonpetroleum cargo was probably closer to two-fifths. On-time performance was spotty—the shipboard cranes on the vessels serving Da Nang were continual problems, and repair often required delaying the ship—but Sea-Land managed to deliver between 1,230 and 1,320 containers to Cam Ranh Bay every month in its first year of operation. By June 1968, the army’s supply operation in Da Nang was asking the MSTS for more container capacity. In October, Sea-Land added a fourth large C-4 containership to its Vietnam fleet and expanded its delivery area to fourteen interior locations. With other ship lines clamoring to enter the market, the Joint Chiefs sought to double container service to Vietnam at the end of 1968, only to run up against the fact that Sea-Land controlled the only deepwater container piers on the coast. Sea-Land itself offered to revise its contract and increase service. “Potential for multi million dollar cost reduction … is visualized,” reported the army’s assistant chief of staff for logistics.
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Indeed, evidence of lower costs and reduced damage was already mounting impressively. McLean estimated in 1967 that loading a containership, sailing it to Vietnam, and unloading it there cost about half as much per ton as carrying the same cargo in a navy-owned merchant ship, not counting the reduction in loss and damage. Looking back from 1970, Besson calculated that the armed forces could have saved $882 million in shipping, inventory, port, and storage costs between 1965 and 1968 if they had adopted containerization when the buildup began.
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The military, hesitant to adopt container technology, now became its greatest advocate, and containerization became a tool for reform. MSTS chief Ramage warned in October 1968 that the potential of the container system could not be fully realized until supply agencies and military traffic managers revamped their procedures. The army instructed its depots to stop combining shipments that would need to be sorted in Vietnam and to abide by the Three Cs: one container, one customer, one commodity. In 1968, McNamara named Besson, containerization’s most ardent military supporter, to head the Joint Logistics Review Board that would evaluate supply-system performance in Vietnam. Besson, with the support of McNamara’s successor, Melvin Laird, used the opportunity to push for a more centralized system of military logistics, run by the army and built around land-sea transportation of intermodal containers. The venerable Conex container, designed for the days when the cranes on oceangoing ships could lift only five tons, would be phased out. The army bought its first commercial-size containers, twenty feet long, able to hold six and a half times as much freight as Conex boxes, and fully compatible with the newest containerships and cranes.
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Once the commitment to containerization was made, the transition was swift. Half of military cargo going to Europe was containerized by 1970. Military engineers drafted plans for portable terminals to unload containers in underdeveloped locations on short notice. The army and the navy tested containerization of ammunition by loading containers at factories and shipping them aboard a dedicated vessel to combat units in Vietnam; containers were a perfectly safe way to transport ammunition, the studies concluded, although artillery shells were so heavy that shipping them in containers longer than twenty feet left a lot of empty space. “Containerization cannot be considered just another means of transportation,” Besson told Congress in 1970. “The full benefits of containerization can only be derived from logistic systems designed with full use of containers in mind.” It was a conclusion that shippers in the private sector were only beginning to reach.
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Malcom McLean’s persistence in pushing containerization was vital to the U.S. war effort in Vietnam. Without it, America’s ability to prosecute a large-scale war halfway around the world would have been severely limited. The U.S. military would have experienced extreme difficulty feeding, housing, and supplying the 540,000 soldiers, sailors, marines, and air force personnel who were in Vietnam by the start of 1969. Continual headlines about theft, supply shortages, and massive waste would have caused domestic support for the war to erode even faster than it did. Containerization enabled the United States to sustain a well-fed and well-equipped force through years of combat in places that would otherwise have been beyond the reach of U.S. military might.

Containerization was vital as well to the growth of Sea-Land Service. Defense Department contracts had long been life-or-death matters for U.S.-flag ship lines with international routes. Until 1966 and 1967, when military transportation agencies first put their shipping needs up for competitive bidding, the military’s freight on a given route had been divided up among all the U.S.-flag lines serving that route, guaranteeing every carrier a piece of the pie. The Defense Department’s involvement with container shipping had been minimal, and it had never tendered freight to Sea-Land, even on domestic routes to Puerto Rico and Alaska, because the military was not equipped to use 35-foot containers. Vietnam broke the barrier. From almost nothing in 1965, Sea-Land’s Defense Department revenues rose to a total of $450 million between 1967 and 1973. In the peak year, fiscal 1971, $102 million of Vietnam-related contracts accounted for 30 percent of the company’s sales.
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Like everything else Malcom McLean did, venturing into Vietnam entailed considerable risk in hopes of large reward. The cost and risk of reinforcing the pier at Cam Ranh Bay, assembling the cranes, floating equipment and vehicles across from the Philippines, and building the truck terminals were entirely Sea-Land’s. The U.S. government was liable only for damage to Sea-Land’s trucks and equipment caused by enemy fire. It did not furnish men or material to help Sea-Land get its operations up and running. In a place where replacement parts could not simply be ordered from a nearby distributor, the chance that something would go wrong, blowing budgets and cost calculations, was very high. McLean was running a commercial operation in a war zone, and betting that he could control costs well enough to make a profit from his fixed-price bid.
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The gamble paid off hugely. In return for his willingness to bear risks on the cost side, McLean negotiated contacts that assured Sea-Land’s revenue. The MSTS guaranteed a minimum number of containers on each trip to Okinawa and the Philippines. To Vietnam, the rate per container was fixed, but Sea-Land’s contract required the government to offer it “all of its containerizable cargo” outbound from Seattle and Oakland, leading to extremely high utilization: in 1968, 99 percent of the container slots were filled.

No figures are available on profits from the Vietnam service, but high capacity utilization must have translated into robust profitability. Each round trip from the West Coast to Cam Ranh Bay brought Sea-Land more than $20,000 per day, and each smaller vessel sailing to Danang took in about $8,000 per day, at a time when MSTS was paying $5,000 per day to lease large breakbulk ships. Sea-Land was also protected against the risk that its containers would vanish into the jungles of Vietnam. A central control office kept track of each container, and containers had to be emptied and returned within specified time limits or the unit holding them had to pay extra charges.
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The contracts also permitted Sea-Land to make some extra profit. The Philippines service was supposed to call at both Manila and Subic Bay, but after Sea-Land threatened to charge $500 an hour for port delays in Manila, the air force decided it could pick up its spare parts just as easily at Subic Bay; the contract remained unaltered, and Sea-Land was able to save $6,800 per trip by skipping the stop in Manila. Sea-Land collected additional revenue any time an army unit in the field restuffed a container with material to be “retrograded” to the United States, because its MSTS contracts were westbound only. These payments for eastbound freight were pure profit and were high enough that in March 1968 the U.S. command revoked permission to retrograde freight via container because, it was explained delicately, Sea-Land’s charges were “not rate-favorable.”
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Malcom McLean was not one to pass up an opportunity for profit. Now, an obvious one awaited. He had six ships, three large and three small, sailing between the U.S. West Coast and Vietnam. Westbound, they were loaded nearly full with military freight. East-bound, they carried little but empty containers. The rates paid by the U.S. government for the westbound haul covered all costs for the entire voyage. If Sea-Land could find freight to carry from the Pacific back to the United States, the revenue would be almost entirely profit. Thinking the situation through, McLean had another of his brainstorms: why not stop in Japan?

Japan was the world’s fastest-growing economy during the 1960s: between 1960 and 1973, its industrial output quadrupled. Already the second-largest source of U.S. imports, by the late 1960s Japan was quickly moving up the ladder from apparel and transistor radios to stereo systems, cars, and industrial equipment. It took little imagination to envision the potential for container shipping. The Japanese government had used a typical industrial policy exercise to endorse containerization in 1966, when the Shipping and Shipbuilding Rationalization Council urged the Ministry of Transport to eliminate confusion and excessive competition in order to derive maximum national benefit from the new technology. The council called for container service between Japan and the U.S. West Coast to begin in 1968, with services to the U.S. East Coast, Europe, and Australia to begin by 1970. It asked the government to build container terminals initially in the Tokyo/Yokohama and Osaka/Kobe areas. The government, the council said, should require Japanese and foreign shipping lines to form consortia to operate the containerships and terminals, but should structure that cooperation to avoid undermining Japanese ship lines. If all went as planned, the council said, half of Japan’s exports would be containerized by 1971, traveling on 12 huge ships carrying 1,000 containers each.
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The government acted with unusual speed. Delegations visited Oakland and other U.S. ports to learn how a containerport should be run. New port legislation was approved in August 1967, and Japan’s first two container cranes began operation in Tokyo and Kobe by the end of the year. Matters on the land side were not quite so easy. Standard trucks in Japan hauled loads smaller than 11 tons, and in any case highway regulations barred full-size containers, except on a handful of new toll roads. The Japanese National Railway was not equipped to carry containers longer than 20 feet. The type of intermodal transportation being practiced in North America and since 1966 in Europe, with containers transferred almost seamlessly from a ship to a truck or railcars to the recipient’s loading dock, would not be simple to replicate in Japan.
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The first to try was Matson Navigation. In February 1966, Matson won U.S. government approval to operate an unsubsidized freight service between the West Coast, Hawaii, and the Far East. The company’s management had visions of fast ships racing across the Pacific with television sets and wristwatches, discharging cargo at Oakland directly to special trains that would carry it east. On the return trip, there might be military cargo for the U.S. bases in Japan and South Korea. The key assumption was that Matson would have two or three years to capture the business of Japan’s leading exporters before other ship lines entered the market. Matson sent two of its C-3 breakbulk ships to a Japanese shipyard to be converted into self-unloading ships able to carry 464 containers and, in recognition of Japan’s rapidly growing auto exports, 49 cars. It ordered two high-speed containerships in Germany for delivery in 1969. To encourage Japanese customers, it entered a joint venture with a Japanese ship line, Nippon Yusen Kaisha (N.Y.K. Line). In September 1967, before a single container crane was operating in the country, Matson began service to Japan.
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