The Box - Marc Levinson [144]
In July 1983, American President Lines sponsored the first experimental train composed only of the new double-stack cars. Within months, ship lines and railroads had negotiated ten-year contracts under which dedicated double-stack container trains would speed imports from Seattle, Oakland, and Long Beach directly to specially designed freight yards in the Midwest. Days were shaved off the delivery time. The rates, set by negotiation rather than regulation, were far lower than before and were designed to fall further as volumes rose. On average, it cost four cents to ship one ton of containerized freight one mile by rail in 1982. Adjusted for inflation, that cost dropped 40 percent over the next six years. Rail rates fell so steeply that by 1987, more than one-third of the containers headed from Asia to the U.S. East Coast crossed the United States by rail rather than making the voyage entirely by sea. A major obstacle to international trade had given way.39
With U.S. trucks and trains deregulated, shipper interests turned their attention to the maritime industry. Once more, they won a sweeping victory. The Shipping Act of 1984 rewrote the rules governing international shipping through U.S. ports. Shippers could now sign long-term contracts with ship lines. In return for guaranteeing a minimum amount of cargo, a shipper could negotiate a low rate and specific terms of service, such as the frequency of ships. These “service contracts” had to be made public, so other shippers with similar freight could demand the same deal. While conferences were still permitted to set rates, individual conference members were free to depart from conference rates whenever they wished, so long as they served public notice.
Shippers’ newfound power put enormous downward pressure on freight rates. The official rates published by railroads and ship lines did not fall; if the improbable figures in Lloyd’s Shipping Economist are to be believed, the conference tariff for a 20-foot container from Britain to New York doubled between 1980 and 1988. But the official rates meant nothing. A better indication of true market conditions comes from the rates bid for U.S. military freight. The military market was open only to U.S.-flag ship lines, which submitted sealed bids every six months to carry general cargo in containers at least 32 feet long. Ship lines were not obligated to bid, so whatever bids were submitted were presumably above the rates the carriers thought they could earn from commercial cargo. In October 1979, the low bidders offered $40.94 to carry 40 cubic feet of cargo either way across the Pacific. By 1986, the transpacific rates had collapsed to $2.39 westbound, $15.89 from Asia to the U.S. West Coast. Even as U.S. producer prices were rising by nearly one-third between 1979 and 1986, maritime freight rates were plummeting.40
After the middle of the 1970s, the growth of nonconference ship lines and the ability of shippers to negotiate rates made official tariff schedules useless as indicators of what exporters and importers were paying to ship their goods. “The rates actually charged vary widely and often deviate substantially from published tariffs,” the World Bank confirmed. The New York Times was less diplomatic, reporting in 1986 that “the shipping world has been turned upside down by five catastrophic years of tumbling freight rates, rising costs, and sinking values of used ships.” The magnitude of the saving to shippers and consumers cannot be calculated, but it was extremely large. When American President Lines studied the matter a few years later, it concluded that freight rates from Asia to North America had fallen 40 to 60 percent because of the container.41
Chapter 14
Just in Time
Barbie was conceived as the all-American girl. In truth, she never was: