Monday, June 3, 2013

"What's in the Box?!"

Being a frontline supervisor in the freight industry, I was pleased to read the following in a recent article of The Economist:

The humble shipping container is a powerful antidote to economic pessimism and fears of slowing innovation. Although only a simple metal box, it has transformed global trade. In fact, new research suggests that the container has been more of a driver of globalisation than all trade agreements in the past 50 years taken together.

Researchers looked at 157 countries from 1962 to 1990 and "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 [General Agreement on Tariffs and Trade (GATT)] membership adds 285%." Far more than cutting costs, containerization increased efficiency. Within five years, there was a massive increase in productivity (tonnes per hour) and average ship size, while insurance and theft costs dropped.

In summary,

Over time all this reshaped global trade. Ports became bigger and their number smaller. More types of goods could be traded economically. Speed and reliability of shipping enabled just-in-time production, which in turn allowed firms to grow leaner and more responsive to markets as even distant suppliers could now provide wares quickly and on schedule. International supply chains also grew more intricate and inclusive. This helped accelerate industrialisation in emerging economies such as China, according to Richard Baldwin, an economist at the Graduate Institute of Geneva. Trade links enabled developing economies simply to join existing supply chains rather than build an entire industry from the ground up. But for those connections, the Chinese miracle might have been much less miraculous.

All that from a box.

Networks and innovation (no matter how simple): the essential ingredients to a more prosperous world. 

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