Shipping

The idea of shipping as the catalyst of economic development is not new. AdamSmith, often regarded as the father of modern economics, saw shipping as one ofthe stepping stones to economic growth.

The Wealth of Nations, heargued that the central economic force in a capitalist society is the division oflabour, and the extent to which this can be practised depends crucially upon thesize of the market. A business working in a country town without links to theoutside world can never, he argued, achieve high levels of efficiency because itsvery small market will limit the degree of specialization.Adam Smith saw shipping as the source of cheap transport which can open upwider markets to specialization, by offering transport for even the most everydayproducts at prices far below those that can be achieved by any other means. Thisproved to be a profound insight. Economic development has gone hand in handwith sea trade for sound economic reasons, a process which Adam Smith explainsin the following way:

As by means of water carriage a more extensive market is opened to every sortof industry than what land carriage alone can afford it, so it is upon the sea-coast, and along the banks of navigable rivers, that industry of every kind naturallybegins to subdivide and improve itself, and it is frequently not until a long timeafter that those improvements extend themselves to the inland parts of thecountry…a broad wheeled wagon attended by two men and drawn by eighthorses in about six weeks time carries and brings back between London andEdinburgh nearly 4 tons weight of goods. In about the same time a ship navigatedby six or eight men, and sailing between the ports of London and Leith, frequentlycarries and brings back 200 ton weight of goods. Since such, therefore, are the advantages of water carriage, it is natural that the first improvements of art andindustry should be made where this conveniency opens the whole world to amarket for the produce of every sort of labour.

Technology has moved on since Adam Smith wrote these words in 1776, and theeconomically developed countries now have a massive inland transportinfrastructure, but technology in the shipping industry has more than kept pace.Since the mid-1960s, two dramatic developments in the economic organization ofthe shipping business—unitization and bulk shipping—have played a major partin opening up a truly global market for both manufactures and raw materials.

The most important technical development was the unitization of the liner shippingbusiness. During the 1960s the traditional system of ‘break bulk’ liner shippingbecame increasingly unable to cope with the escalating volume of world trade, andindustry observers could see that ‘the old methods had reached the end of theline’.

To overcome these problems, palletization and containerization wereintroduced to speed up the flow of cargo. Putting general cargo into standard unitshad more wide-ranging effects than even its most ardent advocates anticipated. Inthe early 1960s, goods shipped from Europe to the United States could take months to arrive, but twenty years later, just a few days after leaving the factory in theMidlands of England, a container wagon could be arriving at its destination in East Coast USA with its valuable cargo safe from damage or pilferage and readilytransferable to rail or barge with the minimum of delay or manual effort. In short,the shipping industry used organization to solve its own fundamental problemsand, in doing so, opened the floodgates for the development of the global economy.The bulk shipping revolution was no less wide-ranging in its effects. Bulktransport of raw materials by sea was, for the first time, viewed as part of anintegrated materials handling operation in which investment could improveproductivity. By employing economies of scale, investing in high speed cargohandling systems and integrating the whole transport systems, bulk transport costswere reduced to such an extent that it is often cheaper for industries to import rawmaterials by sea from suppliers thousands of miles away than by land from suppliersonly a few hundred miles away—for example the rail freight for a ton of coal fromVirginia to Jacksonville, Florida, was almost three times the sea freight fromHampton Roads to Japan, a distance of 10,000 miles.

Bigger ships played a centralpart in this process. Over a period of 50 years from 1945 to 1995 oil tankers became twenty times bigger and dry bulk vessels ten to fifteen times bigger. Improved cargo handling in ports and better integration with land transport completed thetransformation.