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The Impact of Technology Change

[Originally published 2013-08-09, now re-published in a more prominent position.]

A recent article here discussed how smoking is being radically affected by a technology change, and how this factor is far more important than any other such as regulations or resistance from established players (which is essentially the same thing).

Why e-cigarettes can't be stopped

It could be argued that a technology change from inhalation of burning vegetable matter to electronic nebulising is so unimportant that it has little effect on anything else, or that it affects such a small market that the impact will not be significant. This might be true if the market is small enough; but since the smoking economy is at least $1 trillion annual value, it's not that small; and an important factor is the number of other markets it affects. For example a quick calculation shows that smoking generates at least 10% of all pharmaceutical industry income [1]; this is one of many significant contributions to the smoking economy, and a route by which a change in smoking habits affects other industries and eventually many other things too.

Even something that appears to be a very small technology change can end up dramatically changing the world. What follows is an example.

The boxes are coming

In 1956, Malcom McLean of N Carolina [2] invented the modern version of the shipping container. He had a trucking company, and for long-distance journeys that could be done cheaper by putting the truck on a ship and taking it around the coast, he wanted to ship the trucks intact - but there was too much wasted space and other costs, so he started thinking about just shipping the truck bodies, and this would benefit from standardisation. At the same time, loose cargo was problematic for international shipping as costs were too high, and too much got damaged in transit (which was another reason he wanted to ship his trucks intact); and he also saw that the shipping system was a bottleneck, as trade volume was being massively restricted by dead slow cargo handling and the artificially high cost. So he had several good reasons for finding an alternative cargo transfer method.

In order to make a new form of boxed cargo system more prominent, and have it take as much of the cargo trade as possible, he gave the patents for the container to the industry - he made it open-source, if you like [3]. He figured this would expand the market much faster, and his company Sea-Land was positioned to do extremely well from the business in any case. It was a good decision because in order for his company to do well, he needed a lot of changes: he needed loose cargo handling ('break-bulk cargo') to change over to containers, he needed the ports' design and operation to change, and ship design ideally had to change as well - most ships could carry some containers as deck cargo already, but ideally they would need to be designed from scratch for this purpose.

Going open-source, as we call it now, was the best answer to the problem. We now know that a mix of open-source and commercial involvement is the best way to supercharge any market; but at the time, McLean was a visionary in multiple respects.

Resistance to progress

At first, everyone ignored the box. No one believed it would catch on; loose cargo had been the way of trade for 3,000 years since the Phoenicians and it had worked OK for all that time. Hardly anyone thought that the huge changes to cargo handling, ports and ships required by a changeover to boxes would ever come about: it was impossible; and clearly the people backing the change were crazy and/or had their own distorted commercial motivations.

But despite the perceived negatives, some trade did move to the boxes. Those who used the new system liked it.

Then, people started to ridicule the container. Who needed ships with boxes? All ships had cargo holds, that's what ships were for. They'd always been like that and it worked fine. Boxes were silly and would cost too much. Nobody needed them and it was madness. Look at all the jobs that would be lost, for a start. And who was going to rebuild all the ports? How could they, in any case, because ports were in cities, and there was simply not enough space for the vast box yards needed. It was impossible and no one needed it, things were fine as they were. So what if ships were held up in port for days or weeks while cargo was unloaded in bits and bobs and processed slowly through customs. This was the way it had always been and the world had worked fine up till now, hadn't it?

But soon enough there were ships built for boxes and ports built for boxes. At that point the dockers and their unions knew they were in a fight for their very survival. And fight they did: they fought as hard as they could, any way they could, for as long as they could. Others joined the fight against the boxes because their livelihoods were threatened: shipowners with old ships, most of the existing ports, all the politicians owned by the existing industries and unions, and many more.

The battle raged for more than two decades. Eventually the boxes won, and the docker's unions had so few members in work they could fight no longer, and no one was using their old ports, and the public had finally realised that the dockers and the old ports were killing trade and that their argument was entirely self-centred compared to their protestations that the box was evil.

It took 25 years for the boxes to win and 40 years before the issue was clear enough that everyone could see the problem for what it was: the medieval age versus the modern world. Nowadays people think of loose cargo as madness: imagine suggesting now that cargo should move to a system where everything is loose, is loaded and unloaded in nets, it takes days or even weeks at each end, and it needs dozens of men per ship. Crazy? Yes - but it took a huge fight over several decades for that to be clear to everyone.

Loose cargo is still the way for local trade in remote areas: on the Nile, or between Polynesian islands; though in 2002 while I was living on the small island of Faial, way out in the Atlantic, the local harbour even built a container depot. The boxes got everywhere in the end; even an island a thousand miles from anywhere has a box depot. It's kind of bijou, like the little harbour of Horta it's in - but it's there.

The box won

What followed was a change to world trade and even people's basic living standards of such a scale that it would have been absolutely impossible to envisage at the time. In fact it changed the world.

Shipping costs had been 30% or more of product cost - this changed to under 1%, a reduction of more than 30 times in cost. Five container ships could be unloaded in the time it took to unload one loose cargo ship. As an example of the impact on just one product: 30% of all whisky shipped from Scotland to the USA disappeared in transit due to thefts and/or breakages, but this changed overnight to under 1%; whisky transit insurance fell by 90%. All transit insurance costs fell through the floor as there was no longer a 'tax' on cargo handling.

How it changed UK shipping

McLean convinced Grangemouth port in the UK to change over to container-only, with non-union labour; then Felixstowe in 1976; soon every port had to follow suit or die. Felixstowe became the UK's #1 port as a result; plus the fact it opens directly onto the sea unlike most of the old city ports, has a 1.4 mile long continuous quay, is dredged to take the world's largest ships, and has no real restrictions on the size of the container yards backing it up.

The old docks could not cope because large land areas were needed for the box storage facility, ship movements were now so fast that the old gated dock systems could not cope, the old city ports were often some way up a river, and finally ships became so large that pilotage in the rivers became problematic and they could not fit in the old docks anyway. Every dock in London gradually closed, one after the other; in the end the main dock area was flattened and became the Canary Wharf financial area, one of the world's largest financial centres. Because a large area very close to the city centre came free, and it was a brownfield site so that rebuilding was easier and cheaper than with open land, an area of entirely new office blocks and modern facilities was able to be created very close to the City of London financial centre; the financial services industry was able to expand massively, and eventually came to earn millions of times more than the docks did.

In the UK, there were previously 129,000 dockers; the boxes changed that to 11,000. From needing 30 dockers per ship, it changed to just one 1 docker, and on top of that ship handling speed increased by 5 times, and ships could carry double the cargo as well. The huge unionised workforce previously had a stranglehold on the country as essentially they controlled all international trade: when they had a dispute, the entire country was shut down. All that disappeared.

How life in the UK was changed forever

Let's look at the effect on UK life caused mostly by containerisation.

1. Because goods could now be transported rapidly and cheaply, it no longer mattered where the factory was. Additionally, long-distance transport was now so cheap, fast and efficient that different factories could build different parts of a product, ship the components, and the final product could be assembled in the end-user country; this also beat trade barriers and high import taxes on finished products because the destination country could now be the 'manufacturer' of any composite product.

2. As a result of cheap, fast shipping, manufacturing moved from the UK to Asia; the cheapest place to make something could now be used because economies that were previously masked by huge transport costs now became active. In effect, the factories moved from Sheffield to Shenzhen.

3. Before boxes, about 45% of the UK workforce were in manufacturing; this fell to 15%.

4. It caused a huge trade deficit as the UK no longer made all goods; they could be made anywhere in the world and be in Croydon within six weeks instead of three months, and cheaper. Due to reefer boxes (self-contained refrigerated containers) and very fast overall transit times almost all food could be produced elsewhere. As a direct result, the UK had to change from a manufacturing economy to a service economy.

5. Before the boxes, UK consumers had very little indeed. The average household had little in the way of what we would describe as modern consumer goods, or the foods we now consider normal; it was simply impossible under the old system. The inside of an average British house in the 1950's probably resembled the average house in central Africa now. The UK consumer went from having very few consumer goods to a limitless choice.

The consumer vs the old industries

So the consumer won, people's lives changed dramatically in multiple ways due to the changes in working and home life, several industries lost, new industries grew, old ways died and new ways were learnt, Britain moved from general manufacturing to service industries and high-quality manufacturing only. Even the cities changed dramatically because previously the cities were the ports but this was no longer the norm; and the entire country changed in one way or another.

It can now be seen that the change to shipping was about the smallest change that containerisation brought. Nevertheless, this is how it started.

Nobody foresaw any of this at the time the boxes were being introduced. In fact, if someone had guessed at any of these changes - and especially the scale of them - they would simply have been dismissed as a lunatic.

In 1975 when the boxes were taking over, it would have been far more believable and acceptable to state that man would be living on Mars by 2000 than to speak any of the above out loud.

The end result

The container changed the the world and it changed the UK beyond recognition. You might say, justifiably, that many other contemporaneous factors contributed; but the catalyst was the box. You might also have to take into account whether other changes could have occurred in any case without the box.

Malcom McLean is one of the people who changed the world.

And now...

In the late 1990s, a Chinese pharmacist named Han Li invented an electronic nebuliser that was designed to replace the cigarette [2]. He patented it in 2003 but never really tried enforcing the patent; the device was cloned everywhere.

People initially didn't think it would have any effect on anything much; they ignored it.

After a time they could no longer ignore it, because a couple of million people were using it, and instead they began to ridicule it. After all, anyone knows that people really like inhaling a toxic bonfire that tastes grim and they always have done. These new electronic doodads with their strawberry flavours and such are just a gimmick, surely?

Well, eventually they had to give up on that because tens of millions of people were vaping instead of smoking. Then, they started to fight against it as hard as they possibly could: everyone had woken up to the fact that trillions of $$ and thousands of jobs and multiple other industries were threatened: the gravy train itself was under threat for the first time in centuries.

I wonder what happens next?

A couple of little things to ponder

"All truth passes through three stages. First, it is ridiculed; second, it is violently opposed; third, it is accepted as being self-evident."
- Schopenhauer

"First they ignore you, then they laugh at you, then they fight you, then you win."
- Gandhi


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Notes

[1] In 2008 global pharma income was estimated at around $500 billion. (Total tobacco sales including tax was about the same.) It is impossible that smoking did not generate at least 10% of those revenues ($50bn), due to the huge market for smoking disease treatment drugs and the overall boost to other drug sales. For example diabetes, cholesterol and blood pressure drugs all get a boost from smoking: smokers have a 44% greater chance of diabetes, 61% for 1 PAD smokers. It is more likely that smoking generates 15% of pharma's overall income.

Today, global annual turnover for the pharmaceutical industry is $1 trillion, and for tobacco sales overall, $850 billion (which is mostly tax, though, and the industry's receipts are estimated at around $50bn). Pharma revenues are taxed at a considerably lower rate.

[2] Malcolm McLean changed his name to the older version without the 'L', Malcom.
Han Li now spells his name this way in Latin script (see list of directors of Dragonite); it was previously written Hon Lik.

[3] Eventually the boxes were standardised to 10 foot, 20 foot and 40 foot units, with ships being built to carry ever more thousands of TEU's (twenty-foot equivalent units). They're still getting bigger as simple trans-ocean journeys (Asia - N America) don't need the canals, and the savings are starting to look as if they might even marginalise canal transit cost savings; political instability also affects the desirability of canal routes.

And now, even the canals are being expanded in size to allow passage of the enormous boxships of mega scale taking the millions and millions of boxes around the world.

It all started with one fruitcake wanting to ship his truck body intact.
 


Created 2013-08-09