Have you ever thought about shipping containers? If you are like most people, you probably haven’t. But they are a remarkable accomplishment. They greatly simplify loading ships so longshoremen no longer need to manipulate odd-sized shipments. Throw in that they can be used across different modes of transportation so goods can be put on a train then a boat and then a truck without being unpacked and you have real game changer. As the chart below shows (from The humble hero, The Economist, May 18), the productivity gains they enable are remarkable.
So shipping containers have made shipping a lot cheaper, which should make longer supply chains more affordable. But are containers really responsible for the growth in global trade? That is, containerized shipping has risen dramatically over the last several decades but that period has also seen a significant reduction in trade barriers. Could it be that lower tariffs and such are what really drives trade while containers are, if you will, just along for the ride?
That is the question discussed in The Economist article. It summarizes the results of an academic article (“Estimating the Effects of the Container Revolution on World Trade“, by Daniel Bernhofen, Zouheir El-Sahli and Richard Kneller, Lund University, Working Paper 2013:4, February 2013) that evaluates the impact of containers on global trade. Here’s the paper in a nutshell:
Yet a new paper aims to separate one effect from the other. Zouheir El-Sahli, of Lund University, and Daniel Bernhofen and Richard Kneller, of the University of Nottingham, looked at 157 countries from 1962 to 1990. They created a set of variables which “switch on” when a country or pair of trading partners starts using containers via ship or rail (landlocked economies, such as Austria, often joined the container age by moving containers via rail to ports in neighbouring countries, such as Hamburg in Germany). The researchers then estimated the effect of these variables on trade.
The results are striking. In a set of 22 industrialised countries containerisation explains a 320% rise in bilateral trade over the first five years after adoption and 790% over 20 years. By comparison, a bilateral free-trade agreement raises trade by 45% over 20 years and GATT membership adds 285%.
It’s amazing that what is in some ways a straightforward process innovation — move stuff in standardized boxes — can have such a dramatic impact. Yet, containers have had a profound impact on supply chains and national economies.