Ann: Firstly, can you talk a bit about yourself?
Marc: I am an economist, a former economist journalist, and interested in globalization for my whole career.
Ann: How did you come up with the concept for this book?
Marc: I think people have a serious misunderstanding on how global trade came about. They see it as people getting cheap stuff in all the stores, and that’s how people see international trade. They see the story as merely wage arbitrage, and that is just too simple… that is not how my desire to do this story came about. I wanted to tell a
richer story about the acceleration of international trade.
Ann: Yes, having worked at a large international corporation, the orientation seemed to be about sourcing and labor, and placing facilities in trading blocks in order to trade there, as well as hedge global currencies. That certainly was our orientation. I guess our view was not complete.
Marc: Right. I have a background of being familiar with the shipping industry and transportation. And as one who has followed international economics for a very long time, I was aware that economists had simply neglected this whole area. In general, economists like to work on subjects where there is a lot of data, and here there isn’t good data on what happened to the costs of international trade goods through the 1950s to the 1970s. Economists spend a lot of time talking about what the government had done… economists like to talk about tariffs and trade. But they did not focus on transportation costs—they regarded them as irrelevant.
Ann: You did a great job of painting a picture of how the world used to be, as well as how the world changes.
I thought the issues around the displacement of the work force, changes in the municipal infrastructure—moving factories from cities to the county etc.—and the story of the long shoremen was interesting.
Marc: Actually, the longshoreman is a subject of enormous public sympathy. But actually the longshoreman, at least in the US, came out of this really well. Longshoremen are the only aspect of the story that got attention. No question that lots and lots of jobs were lost at the docks, but they did get some compensation for that. No question that they came out of this every well. Did we lose low skill, high wage jobs? Yes, we did. Did a lot of people have to change their lifestyle because of that? Yes. But that is what happens in economic change of any sort. In fact, they faired better than today’s workers who get laid-off with only two weeks severance pay.
Ann: With each new innovation, we can get painful change. Infrastructure change was also profound.
Marc: Well, in the old days, and that was less than 50 years ago, a lot of the facilities of trade just needed to be near the dock. Port facilities and feeder systems need the dock. That was what the transport costs required. People forget, now, that Brooklyn used to be one of the great manufacturing centers in the United States. Even Manhattan, East London in the UK, and those businesses were there for the physical proximity to the docks. When the container offered an alternative way to move cargo, that constraint was no longer there, and business could make their decisions on where to locate based on other considerations. In some cases, those were transport driven, like highways, taxes, proximity to customers. Other factors became more important as transport costs became less important.
Ann: Most Americans are not aware of the huge changes (over my life time) in the shipping and transportation industry, and how that is the key factor that has opened the door to global outsourcing. Any comments on how to make this better understood by the public?
Marc: I spend a lot of my life dealing with this issue! One problem in this area is that the shipping infrastructure is now largely out of sight and out of mind. When the docks were in lower Manhattan, you had millions of people walking past the docks every day. They could see the ships, they could see what was going on. People they knew where involved in the industry in some way. Today these facilities are off city, fenced in and unapproachable—people are not meant to be there, so your average person has no idea what goes on at a container terminal. I think the industry would be very well served to make it more visible to people. For example, Oakland has created a park where there are a few container terminals, so you sit there and see the ships. I think it is very desirable to do this, like air force bases find ways to invite the public in. They have open houses for the general public to see what they do. I think the shipping industry would be very well advised to do this at some of the ports and terminals.
Ann: Yes, after the Dubai Port Holdings issue this year, it became obvious that few of the public—as well as business people—actually understand what goes on at ports!
Reading this history and the role that a small group of people played as the catalysts for change, reminded me
of the early 1900s in the US—for good or ill—the role of people like Rockefeller, Ford, Carnegie,
JP Morgan—names more or less forgotten today by many, but major organizers of major economic sectors. Malcom McLean, “the father of containerization” appears to have played a similar role here. One person’s force can make such a huge impact.
Marc: The world needs the obsessive entrepreneur. I think this kind of behavior is much more acceptable today. In the 1930s, when McLean built his trucking company, and then in the 1950s when he focused on containers, it was not normal to be a risk taking entrepreneur. This was truly exceptional behavior. These days, everyone wants their own internet start-up! But that was not how the world was in McLean’s day. He was very much going against the trend. These days it is understood that you may have to destroy your business model in order to save it. Definately, that was not the conventional wisdom during McLean’s day. And it was critical to his success in containerization that he was not in the shipping industry.
People who were insiders had no interest in a technology that would hurt their business!
We had a lot of people in the transportation industry who were trying to protect the status quo. Most of them are out of business at this point. The transport industry was regulated for so many years, and that kind of regulation framed the competition… you do your competing in front of the regulators rather than in the market place. So there was very little desire to break the status quo. In the old regime… the scheme was that we wanted a little competition, but not too much, sort of like Japanese competition. A little competition was good—but not harmful competition… and that was the general attitude all around. And in that environment nobody wanted to take risks or put somebody out of business, because they would get slapped on the wrists for it.
Ann: In your section on the shipper’s revenge, you talk about the huge reduction of freight rates. It has hit a truly low rate, not withstanding energy price increases. The major transportation companies still seem highly profitable. Do you think other innovations can lower costs more? What economic impact might that have on the poor balance of trade in the US?
Marc: I guess there are two areas where there still is the opportunity:
- The cost of short distance transportation is still expensive. A container from Asia to Indiana is fairly cheap. But moving goods in local markets is relatively expensive. What is needed here is for technology development to have an impact.
- The domestic transportation structure is quite stressed, and there is a need to rethink how this will be done. My sense is that shippers have not weighed in on this discussion of what ideas will ensure on time delivery, and other quality and cost issues around this. Are we talking about toll roads, so that their shipments will arrive in time? Are we talking about rail to fund improvements? However, the shippers need to get involved, since they are the ones who are in need of this outcome.
Ann: You stated that the Box is the link-pin to the explosion of global trade. Yet at the same time, air freight was also growing as a form of transportation, as well as other innovations and changes in cultural attitudes, openness to travel, etc. Do you think you were a bit exuberant on the impact the container had on supply chain performance? The container probably did not cause JIT and things like that. Any rebuttal?
Marc: The impact on inventory is quite clear. Related to volume trade today, which keeps growing on a global basis, the ratio of inventory and GDP is quite a bit lower! The fact is that the ability of the supplier’s factory supporting the flow of the supply chain would not have been possible without the container. For example, if you had info tech, but were still doing brake bulk, you would still have the slow physical process taking months instead of weeks… not just the container, but the shipping network, as well.
In the book I provide some data which you might find interesting, of the ratio of inventory to shipment. There is a lot less stuff sitting around in US warehouses, and that has to do with much more effective systems in moving goods.
Ann: Public and Private Investment on a global scale was a unique moment in history. This was an era, certainly in the US on major infrastructure investments. This is what the Chinese are doing now. Since you are an economist, I was wondering what your thoughts are on whether we will ever see these kinds of investments again? And what lessons can we draw from these types of investments to improve the economy, global trade, etc?
Marc: Again, we are talking about different ages. All of the public investments that were required in early containerization introduction were necessary, because the firms were small then, and not well capitalized. It is different today, since these are very large companies and they have access to capital, so there is a lot less reason for government to be involved. Today they are in a position to pay more of the cost. In the case of rail, they have perverse reason to under invest in their rail systems! And that is something government can do to improve services to the public like Almeleda in California, which benefited both business and the public. There is a project proposed but not started, like that in Chicago. This is the sort of thing that the government should get involved in to improve our transportation infrastructure and reduce its long term costs to the public. But there are huge obstacles with these projects. It takes a lot of money, but more importantly, an enormous amount of coordination across so many organizations to get these done. It took Alameda years, with coordination between federal, state, several municipalities, port commissions, 2 rail lines, etc. So, the issue is to have more focus on the politics, administration and the budget contributions of these groups.
Ann: Thanx Marc!
Meet Marc in Bermuda this November at ChainLink’s annual conference: Parallax Views 2006
Read The Box