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The invisible industry delivering the world economy

The news of the container ship blocking the Suez Canal and bringing some 15% of world trade to a halt cast a spotlight on a shipping industry now accustomed to operating behind the scenes. Such was not always the case.

Blog of the week by John D. McCown

In the past, the comings and goings of cargo vessels were causes for mass excitement. A century and a half ago the expected arrival dates of clipper ships with exotic goods from faraway lands was front-page news. Vessels were most often greeted by cheering crowds. Almost everyone knew someone who sailed on, loaded cargo on and off those ships or was somehow connected with what was then one of the largest industries. Ships were in port for days or even weeks and were the main attraction in port cities. Over the years, the industry receded from public view, first slowly and then at a galloping pace in the post-war era.

Today, the shipping industry operates almost entirely out of popular sight. The great irony in this shift from top-of-mind awareness to almost no public awareness is that the modern shipping industry is more important to the world economy than ever before. In one way or another, this powerhouse industry is linked to the daily lives of just about everybody.

The cargo shipping industry moves $11.7 trillion in tangible goods annually, the equivalent of 41% of the gross goods product of the world. In other words, almost half of what can be touched in the global economy makes its way to where it is consumed in whole or part by ship.

This worldwide conveyance network is driven by 17,546 vessels more than 600’ long that spend 85% of their time at sea, continuously delivering goods and enabling the world economy.

Day in, day out, ships are quietly and efficiently traversing the globe. These out-of-sight ships move international cargo equivalent to 63.9 trillion ton-miles annually — twelve times the cargo equivalent moved domestically in the U.S. each year by all trucks, locomotives, barges and pipelines combined. When the 15% of international trade moving by land is excluded, air accounts for only .23% of international ton-miles. Ships account for the remaining 99.77% in what may be the ultimate tortoise versus hare story.

The post-war period saw a revolution in shipping cost efficiency through specialization and jumbodization of vessels, resulting in reductions of shipping costs from 50% or more of the value of products shipped to 2% or less in many cases. This extraordinary reduction in relative shipping costs was a prime catalyst in the explosion in world trade. In the U.S., total trade as a percent of GDP went from 6% to 27% in the post-war period. In many countries, the relative growth in trade was even higher. Container shipping is most responsible for this incredible growth.

The vessel that blocked the Suez Canal was large, but there are container ships more than 15% larger. The 3,048 container ships longer than 600’ move $7.0 trillion in goods per year, equivalent to $933 for each person on the planet. Total annual volume in the container shipping industry is running at 162 million twenty-foot equivalent containers. The industry has a volumetric output that makes almost all other industries pale in comparison. Strung end to end, the number of containers it moves each year would extend to 612,438 miles. Visualize a ribbon of steel containers, 8’ wide and 8’ high, circling the equator 23 times, filled with any and every product you can imagine.

In 1906, Joseph Conrad, the author of “The Mirror of the Sea” was prophetic when he wrote, “A modern fleet of ships does not so much make use of the sea as exploit a highway”. Back then, the sea was a relatively underutilized road. Today, it is more like a four-lane super highway connecting every navigable part of the globe. On that highway are the largest moving objects ever built by mankind, carrying the raw materials and finished products the world wants and delivering 24/7 the economic benefits that come from that trade.

Human Progress was a recent project of the Cato Institute focused on documenting the improving state of the world. Every few weeks the project recognized a “Hero of Progress” and profiled an individual whose life markedly improved human well being. People profiled included Johanness Gutenberg, inventor of the printing press, and Jonas Salk, the discoverer of the polio vaccine. The 17th Hero of Progress recognized by Human Progress was Malcom McLean, the inventor of container shipping and my mentor. In their profile, Cato referred to the lower cost of container shipping as the key to the growth in world trade that has lifted hundreds of millions of people out of poverty. Malcom was the only businessman chosen until the selections were closed out with the naming of Bill Gates as the 50th Hero of Progress. That’s quite a legacy for this unseen industry.

So when you’re buying or consuming any tangible product, remember there is roughly a 50/50 chance that part of its journey to you was by a ship. You won’t see the ship, but it’s doing the real heavy lifting behind all the smaller, quainter modes you may see. News reports on the now famous Suez vessel referred to it as “gargantuan” and “gigantic”, “leviathans” and “monsters” — words that describe not only the vessels size but also their importance to the world economy. Today, the shipping industry is largely invisible. However, when a problem occurs with its expected seamless efficiency, the pain of that problem is felt intensely and, often, widely. We may not see these giants at work every hour of every day on our behalf, but we sure do depend on them.

This blog of the week is shared by courtesy of John D. McCown. John is Co-founder/CEO of US flag container operator, transport sector investment leader at large hedge fund and holder of two patents, Harvard MBA. Visit his webpage here.

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