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By Root 997 0

many vessels resulted in a quantum jump in capacity. The basic economics of containerization dictated as much. Once a ship line had made the decision to introduce containerships on a particular route, other carriers in the trade normally followed swiftly lest they be left behind. The capital-intensive nature of container shipping put a premium on size; quite unlike breakbulk shipping, in which an owner of “tramp” ships could eke out a profit picking up freight wherever it could be found, a container line needed enough ships, containers, and chassis to run a high-frequency service between major ports on a regular schedule. When a ship line decided to enter a trade, it had to do so in a large way—which meant that on every major route, several competitors were entering with several vessels apiece. Capacity on the largest international routes increased fourteen times over between 1968 and 1974. Between the United States and northern Europe, where only a handful of small containers had moved prior to 1966, there were enough new ships to carry nearly a million boxes a year by 1974. The containership route between Japan and the U.S. Atlantic coast, opened only in 1970, was served by thirty vessels in 1973.19

Demand, robust through it was, could not possibly keep up with this explosion of supply. The result was a new and painful experience for the shipping industry: a rate war.

Overcapacity was an old story in ocean shipping. The flow of cargo had always been volatile, based on economic growth, changes in tariffs and trade restrictions, and political factors such as wars and embargoes. In the 1950s and 1960s, though, a temporary imbalance between the amount of space on breakbulk ships and the amount of general cargo usually was not a fatal problem. The war-surplus ships that filled most merchant fleets had been acquired for little or nothing, so shipowners were not saddled with huge mortgage payments. Their main expenses—cargo handling, fees for the use of docks, pay for crews, fuel—were operating costs. If business was bad, the ship-owner could lay the vessel up and most of the costs would go away.

The economics of container shipping were fundamentally different. The huge sums borrowed to buy ships, containers, and chassis required regular payments of interest and principal. State-of-the-art container terminals meant either debt service, if a ship line had borrowed to build its own terminal, or rent, if the terminal was leased from a port agency. Those fixed costs accounted for up to three-quarters of the total cost of running a container operation, and they had to be paid no matter how much cargo was available. No company could afford to lay up a containership just because there was too little cargo. So long as each voyage collected enough revenue to cover operating costs, the ship had to keep moving. In container shipping, quite unlike breakbulk, overcapacity would not diminish as owners temporarily idled their ships. Instead, rates would fall as carriers struggled to win every available box, and over-capacity would persist until the demand for shipping space eventually caught up with the supply.20

Overcapacity preoccupied everyone connected with containerization. “Now that standardized containers have been introduced, the rush to ‘get on the bandwagon’ will probably lead to substantial overexpansion,” a study for the British government warned in 1967. By one early estimate, 5 ships carrying 1,200 containers each, sailing at 25 knots, could move all of the U.S.-UK trade that could be containerized. By another, just 25 ships could handle the entire general-cargo trade between Europe and North America. A third estimate foresaw that the 5 ships ordered by the American carrier Farrell Line would be adequate for all of Australia’s exports to the United States. With hundreds of containerships on order, experts projected that half the available container slots across both the Atlantic and the Pacific would go unused by 1974. In the North Atlantic, “by the early 1970s there will be excess container capacity,” a study for the U.S.