The Shipping Container innovation dropped shipping costs from $5.83 a ton to 16 cents. It made the world a smaller place.
Dave Young:
Welcome to the Empire Builders Podcast, teaching business owners the not so secret techniques that took famous businesses from mom and pop to major brands. Stephen Semple is a marketing consultant, story collector, and storyteller. I’m Stephen’s sidekick and business partner, Dave Young. Before we get into today’s episode, word from our sponsor, which is, well, it’s us, but we’re highlighting ads we’ve written and produced for our clients. So, here’s one of those.
[Tappers Jewellers Ad]
Dave Young:
Welcome back to the Empire Builders Podcast. Dave Young here with Stephen Semple, and we’re telling you stories about empires and things that changed the world. And man, today’s topic changed your world. It changed your-
Stephen Semple:
Oh God, yeah.
Dave Young:
It changed everybody’s world, and it’s probably simpler than you think it ought to be. And it is the story of the shipping container, right? The big metal sea cans, the boxes that now people are living in them.
Stephen Semple:
It’s true.
Dave Young:
What can we turn this into? But for most of mankind’s history, ships were loaded by burly men lugging things up ramps.
Stephen Semple:
Well, we see those old movies where there’s a net with stuff in it being lowered down to the-
Dave Young:
Yeah. A big net lowered into a hole in the ship to get it down into the hold. And that’s just how it worked for forever.
Stephen Semple:
Well, it’s estimated that this innovation dropped shipping costs from $5.83 a ton to 16 cents. And this is-
Dave Young:
16 cents a ton.
Stephen Semple:
Yeah. Which, all of a sudden, made it possible. There were all sorts of products that just you couldn’t ship because the shipping costs were just too high.
Dave Young:
Yeah.
Stephen Semple:
Right?
Dave Young:
That changes Tennessee Ernie Ford’s song completely, right? You load 16 tons, what do you get? $2.56 is what you get. It’s not another day older and deeper in debt, $2.56.
Stephen Semple:
So this is really the unsung story of globalization, and it’s funny. It’s funny how the world works because you just shared with me that somebody else is about to do something on this nonsense topic.
Dave Young:
Story, yeah.
Stephen Semple:
So just for the record, I didn’t-
Dave Young:
Yeah, here we are.
Stephen Semple:
Here we are. We’re ahead of them. So, what we’re going to be talking about is Malcolm McLean who founded Sea-Land in 1960. Now in 1969, he sold it to R.J. Reynolds for $530 million.
Dave Young:
When he’d…
Stephen Semple:
1969.
Dave Young:
’69 for half a billion.
Stephen Semple:
Half a billion, yeah. For half a billion in 1969. Not bad.
Dave Young:
I mean, it had taken off in ’69, but it nowhere near what it’s today.
Stephen Semple:
No. It was nine years after the launch, right? So, it was crazy.
Dave Young:
Yeah. So, R.J. Reynolds?
Stephen Semple:
Yeah, R.J. Reynolds bought it.
Dave Young:
The tobacco people on…
Stephen Semple:
Yeah. But remember, there was that time where tobacco companies were getting into absolutely everything under the sun.
Dave Young:
They were? Because people were starting to realize things. Okay.
Stephen Semple:
So, Malcolm McLean grew up in Northern California and he had started a trucking business in the 1930s, and he began with a single-use truck that he eventually built into McLean Trucking, and it was one of the largest trucking companies in America. So, he was already a successful trucker. And basically, there’s a famous story dating back to 1937 where McLean was delivering cotton bales on a New Jersey pier, and he spent hours waiting while dock workers were unloading cargo piece by piece. And this was simply how shipping worked. Truck arrived at the dock, cargo is unloaded, cargo went into the warehouse or onto the dock. Later, it was moved on the pallets. It was hoisted aboard a ship, removed from the pallets, stowed in the hole. And at the destination, the entire process happened again in reverse.
Dave Young:
Back into warehouses where later, you could put it on trucks and send it on its merry way.
Stephen Semple:
Right. So, McLean asked himself this question, “Why are we unloading the truck at all?”
Dave Young:
Why aren’t we just shipping the truck?
Stephen Semple:
Why not put the trailer on the ship? And that question is basically what changed everything. So initially, like initially, McLean imagined putting an entire truck trailer aboard the ship. That was-
Dave Young:
Mm-hmm.
Stephen Semple:
But what he also then realized, that wouldn’t work because wheels and chassis take up an enormous amount of space.
Dave Young:
Yeah, that’s a lot of wasted space.
Stephen Semple:
Right. So then it became, don’t ship the trailer, ship the box. Separate the box from the wheels, lift the box onto the ship, stack the boxes. And at the destination, lift the box onto another chassis and drive away. Seems so simple, doesn’t it?
Dave Young:
Right, right. It’s a giant problem to take care of.
Stephen Semple:
Yes.
Dave Young:
Because none of the equipment, none of the technology for doing that actually exists.
Stephen Semple:
So, here’s the interesting thing. He wasn’t the first person to come up with the idea of standardized boxes because container-like systems kind of existed a little bit in railway transportation because what happened is each rail line had their own system at that point. And what he decided to do was to develop a completely integrated system. So in other words, one that could be used on truck, ship, rail. Right? Everything.
Dave Young:
Yeah, put the box wherever you need it to move it somewhere else.
Stephen Semple:
At the time, government regulations made it very difficult for trucking companies to simply become a shipping company, because McLean wanted to test this idea a little bit. So in 1955, he sold… Here’s how much he bet on this idea because he had created the designs and the patents, the whole nine yards, but he needed to prove it. So in 1955, he sold his trucking business and bought a shipping operation.
Dave Young:
Okay. It’s commitment.
Stephen Semple:
Right? He bet his entire fortune on this idea. He acquired Pan-Atlantic Steamship and began developing the containers, the cranes, and the ships to make his idea work. And in April 26th, 1956, he converted the tanker Ideal X and left Port Newark for Houston, and on its deck was 58 containers. Five days later, arrives in Houston where the trucks could pick them up and continue on their journey. And the economics were staggering. Again, 1956, 583 a ton, McLean system, 16 cents a ton. 97% reduction in loading costs.
Dave Young:
The handwriting is now on the wall.
Stephen Semple:
And that doesn’t even include the other benefits. Cargo moves faster, ships spend less time sitting in port, theft becomes more difficult, damage declines, warehouse requirements change. The entire economics of shipping fundamentally changes in that moment. But here’s the really brilliant move. Different shipping companies saw this and started developing their own containers, different sizes, different fittings, different equipment, which threatened the entire idea because the container belonging to one company might not work with another ship.
Dave Young:
Might not work on a truck, yeah.
Stephen Semple:
Right.
Dave Young:
Stay tuned. We’re going to wrap up this story and tell you how to apply this lesson to your business right after this.
[Using Stories To Sell]
Dave Young:
Let’s pick up our story where we left off, and trust me, you haven’t missed a thing.
Stephen Semple:
Here’s the really brilliant move. Different shipping companies saw this and started developing their own containers, different sizes, different fittings, different equipment, which threatened the entire idea because the container belonging to one company might not work with another ship.
Dave Young:
Might not work on a truck, yeah.
Stephen Semple:
Right, right. And what happened was he helped the industry move towards an international standard because guess what he decided to do? Because he had patents on all this stuff, right? He basically allowed the ports to use the patents royalty-free.
Dave Young:
Okay. The ports.
Stephen Semple:
The ports, right. Because if you think about it, now all of a sudden, what system is everybody going to use if that system is in at a port?
Dave Young:
Whatever the port uses, yeah.
Stephen Semple:
Yes. So, he sacrificed a potential license revenue to make the system bigger.
Dave Young:
Smart move.
Stephen Semple:
Right. So suddenly, a company could economically manufacture components. One country, sell them another, sell a finished product somewhere else, right? And McLean, Sea-Land subsequently, they expanded internationally. Lots of things happened. But the big breakthrough happened in the 1960s because a major US Defense Department contract during Vietnam War really helped demonstrate how container shipping could work across the Pacific because now, all of a sudden, taking things across Pacific. And now, Japanese exporters started to build, to modernize and build these things. McLean died in 2001, but I’ll tell you, he radically transformed the shipping industry, and he was a trucker.
Dave Young:
Truck guy.
Stephen Semple:
But asked the question, how do we load ships more efficiently?
Dave Young:
So, there’s just so many ways you could take this, and they’re all good. I guess the only negative would be a lot of longshoremen found themselves unemployed because they didn’t need stevedores to haul things up and down the planks into ships.
Stephen Semple:
Yeah, true. Oh, and the thing I forgot-
Dave Young:
But-
Stephen Semple:
Sorry. And the thing I forgot to mention here, his shipping company basically became the largest shipping company in the world, and economists estimate that shipping container increased globalization by 790% over 20 years. Sorry, I forgot to mention those things.
Dave Young:
That’s all right. 790%. When you think about… When you remove the friction of dollars to 16 cents, all of a sudden, it seems like a pretty good idea to ship stuff and sell it to other people around the world.
Stephen Semple:
Well, there’s things that now the economics work.
Dave Young:
Yeah, absolutely. Because that was the big cost barrier. And the idea that… How do I put this? When you’ve got a system that’s so backed up that things have to go in a warehouse… And yeah, there were things that were falling through the cracks. There were things that were being outright stolen, whether it’s from the warehouse, from the ship, from… Right? Because everything’s just packed on. And there were probably a lot of people making money because if you didn’t want your truck sitting around all day waiting to be unloaded, you could probably grease the palm of somebody to speed it up.
Stephen Semple:
Oh God, I’m sure. Yeah.
Dave Young:
Right?
Stephen Semple:
I’m sure.
Dave Young:
And that’s not even figured into the $5 cost.
Stephen Semple:
No. So, the real cost was probably higher.
Dave Young:
The corruption that was involved in all of these drops significantly when we’re just talking about cranes unloading boxes, moving boxes around, and the boxes are locked and all of that. You take away the opportunities for the corruption.
Stephen Semple:
Oh, absolutely. And one of the things that I thought was brilliant with this whole idea of giving away the technology to the ports is whenever you’ve got a piece of technology where I’ve got several users and we’ve all got to agree to use the same thing, you all of a sudden have got multiple points of friction. In other words, as the port, I have to agree to use it. Dave, you as the shipper in New York have to agree to use it, and the person in London has to agree to use it. We’ve got to get three parties to agree to a standard.
Dave Young:
Everybody, yeah.
Stephen Semple:
Going to the port and saying, “Here it is for free,” and all of a sudden as a port, I announce I’m putting this technology in place, you are immediately going to go, “And that’s the one I’m going to use.”
Dave Young:
Yeah. You’re the trucking company. You say, “Well, let’s use the one that the ports like.”
Stephen Semple:
Let’s use the one that the ports like.
Dave Young:
And the railroads, if you didn’t give it to them, they’d be saying the same thing, right?
Stephen Semple:
Right.
Dave Young:
“Let’s use the one that the ports use.” It’s just brilliant all the way around. This is…
Stephen Semple:
And the port’s the key because there’s one port, many truckers into the port. So the one the port decides is the one that’s going to win, so let’s give it to the ports for free.
Dave Young:
Yeah. Now, this guy’s brilliant. You got to hand it to him, and you wouldn’t have half the stuff that arrives in a box from Amazon. Amazon wouldn’t exist without this.
Stephen Semple:
No.
Dave Young:
They could, but they’d probably just still be selling books.
Stephen Semple:
Yeah. But think about his commitment. So he built up one of the largest trucking companies in the United States, sells it, buys a shipping company and goes all in on this idea. Like, holy smokes.
Dave Young:
How much did he sell the trucking company for?
Stephen Semple:
I don’t know. I wasn’t able to find it. I wasn’t able to find it.
Dave Young:
I mean, it’s the biggest trucking company in the country, probably not nothing. Could have just lived his life happily.
Stephen Semple:
Yeah. That’s commitment, man. That’s commitment. And the other thing I do like is also we should just lift the entire trailer up in and then realize, “Well, that’s not a good idea.” And then-
Dave Young:
And the technology that you’re talking about are really, it’s the little connection on the corner of the shipping container, correct? The…
Stephen Semple:
It’s the way the posts and the connections are put together. That’s where the technology sits.
Dave Young:
There’s a little device that locks into the hole in the corner. You can lock them vertically, you can lock them horizontally, and it ends up meaning that when you see these big container ships with thousands of containers stacked on them, it’s not really acting like a whole bunch of things. It’s acting like one giant block because they’re all locked together tighter than Legos.
Stephen Semple:
Correct. Yes. So it’s the way the posts and the connections at the corners, that’s where the technology sits.
Dave Young:
Yeah. And so if you had a hundred different trucking companies inventing different techniques for locking boxes together, the boxes didn’t have the uniform corners with the right-sized holes and the right lengths, it wouldn’t work. So, there’s multiples of that. And gosh, it really makes business easier for… I had a client that invented and sold little bikes for kids and had them manufactured in China. So, you really just needed to take a trip to China, find a factory, and then decide how many containers you want.
Stephen Semple:
Right.
Dave Young:
It’s not ship each bike individually. It’s how many can we fit in a container? I’ve seen so many YouTube stories about people starting a business. They decide to use a product that they find somewhere else in the world, China, for example, and it’s how many containers full of that stuff can we get here?
Stephen Semple:
That’s it.
Dave Young:
And the shipping price is the container and the weight.
Stephen Semple:
The economics today is filling a container.
Dave Young:
And it’s almost… In some ways, it’s like the post office stole the idea of the single flat-rate shipping box. If it fits, it ships.
Stephen Semple:
Right, yeah.
Dave Young:
Right?
Stephen Semple:
Right, yeah.
Dave Young:
So if you can fit it into a container, you can get it anywhere in the world.
Stephen Semple:
Yes. Yeah, absolutely.
Dave Young:
That determines the size and the shape of things that are manufactured now.
Stephen Semple:
Yeah. Yeah, very much so. Very, very much so.
Dave Young:
It’s mind-boggling when you stop to think about the effect that that’s had on the world.
Stephen Semple:
Oh. You think about what was that economic number I shared in terms of how much economists believe that this impact, this alone impacted the increase of global trade?
Dave Young:
Yeah.
Stephen Semple:
Changed the world. Changed the world.
Dave Young:
Yeah.
Stephen Semple:
And I have to give credit where credit is due. Dave sent me this idea and I was like, “Oh, okay.” And I…
Dave Young:
I don’t even remember where I read it, but it was like, “Oh, that’s so cool.”
Stephen Semple:
And then I started to look into it more, and I was like, “Holy smokes, this is crazy. This is crazy impact.”
Dave Young:
That’s an empire. I mean, that’s the quintessential empire and the generosity of it. So, building an empire and giving away the technology to make it grow and make it work, that’s a beautiful thing.
Stephen Semple:
Yeah.
Dave Young:
I love this story.
Stephen Semple:
Yeah, it’s awesome.
Dave Young:
All right.
Stephen Semple:
Yeah, cool. Thanks for bringing it to my attention.
Dave Young:
Now, I got to go see Anthony. Let’s go to China, Steve, and see if we can find something to fill a container, and bring it back and sell.
Stephen Semple:
All right, let’s do that.
Dave Young:
You and me, let’s go.
Stephen Semple:
Thanks for the story.
Dave Young:
All right. Thanks, Stephen. Bye.
Stephen Semple:
All right.
Dave Young:
Thanks for listening to the podcast. Please share us, subscribe on your favorite podcast app, and leave us a big, fat, juicy five-star rating and review at Apple Podcasts. And if you’d like to schedule your own 90-minute empire building session, you can do it at empirebuildingprogram.com.
