The Box - Marc Levinson [125]
Economic growth around the world picked up in 1972, and with it the flow of trade. Container tonnage nearly doubled from 1971 to 1973, and as carriers finally found enough cargo to fill their ships, they earned profits once more. But the shipping industry that survived the carnage of containerization’s first rate cycle was quite different from the one that had existed in 1967. Far fewer independent companies were left, and they had no illusions about the future. Rate wars would obviously be a permanent feature of the container shipping industry, recurring every time the world economy turned down or ship lines expanded their fleets. Shippers would pay according to the distance their containers traveled, regardless of the weight or the nature of the contents, and in difficult times rates would dip so low that carriers would barely cover their operating costs. Ship lines would be under constant pressure to build bigger ships and faster cranes to reduce the cost of handling each container, because at some point overcapacity would return, and when rates collapsed the carrier with the lowest cost would have the best chance of survival.29
The next collapse was not long in coming.
The years 1972 and 1973, as it turned out, represented a peaceful interlude in an economically turbulent decade. Industrial production rose 18 percent in the United States, 19 percent in Canada, 22 percent in Japan, 12 percent in Europe. International trade grew strongly enough to transform the glut of container shipping into a shortage, despite the launch of 143 containerships in just two years. The sharp rise in oil prices that began in 1973 proved initially to be an unexpected blessing for the maritime industry, giving containerships, which transported more cargo per barrel of oil, a further cost advantage over the remaining breakbulk ships. The amount of containerized ocean cargo around the world rose 40 percent in 1973 alone. Companies ordered their ships to reduce speed in order to conserve fuel, cutting the number of voyages they could make over the course of a year, which further tightened the market. Freight rates soared, as conferences pushed through hundreds of rate increases and added surcharges to cover exchange-rate movements, higher fuel costs, and port delays. “Many shippers, faced with rate increases of over 15 per cent plus surcharges, must have found their freight bills increased by as much as 25 to 30 percent,” a United Nations report declared.30
The boom lasted into 1974, when a weaker dollar drove exports from U.S. factories up 42 percent in a single year. Rate increases, along with the various agreements around the world to limit capacity, pool revenues, or join forces, finally worked magic on the shipping industry’s bottom line. Sea-Land reported a healthy $142 million profit, up from $16 million in 1973. Even U.S. Lines, which had seen little besides red ink out of its sixteen new containerships, posted a $16 million profit for 1974. Judged the head of Atlantic Container Line, “If an operator can’t make it on the North Atlantic now, he will never make it.”31
The oil crisis, though, ended up devastating the shipping industry. The world economy tumbled into recession in the second half of 1974 as central banks tightened monetary policy to counteract the inflationary consequences of dearer oil. Industrial production collapsed, and with it the flow of trade. World exports of manufactured goods fell in 1975 for the first time since the war, and the amount of seaborne trade dropped 6 percent. Even as trade flows diminished, shipyards kept delivering new containerships—and every new ship weakened the ship lines’ ability to hold rates up. Containerships from the Soviet Union joined the competition in both the Atlantic and the Pacific outside the conference structure, pressuring rates further. The shipping conferences were forced to roll back or eliminate surcharges six hundred times between 1974 and 1976.32
The second