“The fact of being an underdog changes people in ways that we often fail to appreciate. It opens doors and creates opportunities and enlightens and permits things that might otherwise have seemed unthinkable.” — Malcolm Gladwell, David vs. Goliath
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The classic David vs. Goliath story: How does an underdog — against all odds — rise above the strongest player, and beat the giant? The story of David vs. Goliath seems to pop up over and over again — a déjà vu of sorts. Same theme. Different characters.
In retrospect, the history of New York’s shipping industry illustrates this theme as an example in the 20th century economy. Its unexpected transformation provides us with insights that sets the stage for how innovation may change our world in the 21st century and beyond.
In the 1950s, New York was one of the largest manufacturing centers in the USA. The New York shipping port handled about 33% of America’s seaborne trade in manufactured goods. New York ports were three to six times more expensive than other East Coast ports, but New York City still dominated because of its geographic advantage. Shipping ports neighbored the vital economic and manufacturing hub of New York City.
New York’s ports were designed for relatively small conventional ships. Trade was local, and the cost of moving goods was costly. Shipping wasn’t expensive because of long-distance transportation costs. Rather, the biggest cost was the time and complication of sorting cargo and moving the cargo from trains and trucks to the ship at the point of departure. Significant costs were also incurred at the destination port, where cargo was moved onto trucks and trains so they could be transported across land.
Furthermore, the pace of shipping was irregular. Demand for employment was unpredictable and there were irregular, but urgent needs to unload perishable cargo. As a result, workers were always on-call and had to live close to the ports. Ports needed big labor supplies to handle the labor peaks, but on most days, there were more workers than jobs to be done. This demand created immediate term jobs, but did not necessarily guarantee a demand for consistent work, day in and day out. Since workers had to always be on-call, ports had to neighbor the living corridors of workers.
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The shipping container was invented by Malcolm McLean, a ruthless businessman who sought an more efficient way to ship goods. Originally the owner of a trucking company, the inefficiency of transferring goods from truck to ship hurt his business, which inspired him to invent the shipping container. McLean’s next company, Sea-Land, was the first corporation to embrace shipping containers. As a result, Sea-Land transported cargo faster and cheaper than competitors.
The container ship first came into international use in the 1950s. By the next decade, the volume of international trade in manufactured goods grew more than twice as fast as the volume of global manufacturing production, and two and a half times as fast as global economic output. Container shipping would be 94% cheaper than previous alternatives.
Container ships replaced conventional ships, and as a result, the transportation of goods went from expensive to cheap. Container shipping grew to become a highly automated system for transporting goods in a cheap and efficient manner. Two economists suggest that the shipping container made moving freight around the world “essentially costless.” By significantly reducing the cost of shipping, the shipping container system transformed the global economy.
As container shipping became the new norm, it influenced trade patterns and the location of industrial hubs. As it turned out, New York City’s ports were poorly designed for container shipping. Due to limited space, complicated logistics, and excessive traffic, for the first time, New York City had a geographic disadvantage. New York City’s transportation ports were unable to adapt to the fast-growing container shipping industry.
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In 1955, New Jersey Governor Robert Meyner launched the 450-acre Port Elizabeth project. At the time, it was the largest shipping transportation port project in American history. Elizabeth, New Jersey was a small town of shallow tidal wetlands, an invisible “David" 19 miles away from its gargantuan New York City neighbor.
After a few years of careful planning and deep water dredging, Port Elizabeth was designed to handle 25 oceangoing vessels at once. It embraced automation, which made reduced costs and boosted efficiency. For the first time, containers could be handled in an assembly line fashion. Port Elizabeth also built logistical infrastructure, close to modern interstate highways and expanded rail networks.
In just a few years, Elizabeth , New Jersey — not New York — became America’s container capital and the world’s first container port. Its container cargo tonnage doubled from 9% to 18% between 1956 and 1960. Soon, it would operate on a scale that was inconceivable by comparable standards. Only Port Elizabeth, and later its adjacent Port Newark, had the space and facilities required to accommodate the surging demand for container cargo transport. By 1970, two New Jersey ports, Port Elizabeth and Port Newark, had captured 63% of the eastern region’s general cargo trade.
By the mid 70’s, New York’s archaic ports drove up prices and became a significant economic drain on the city and New York State. While New York ports could handle a mixed load of containers and small, individual loads of freight, the cost of the extra port time to handle less efficient, non-containerized cargo swallowed the savings from containerization. New York’s docks were pressed for space. They could not handle the hundreds of trucks and railcars needed to transport all the goods. New York, which once offered transport-cost advantages for factories serving foreign or distant domestic markets, was unable to compete with its New Jersey neighbors. Between 1967 and 1976, New York lost a one-quarter of its factories and one-third of its manufacturing jobs.
Container ships and the ports required to handle them, turned the economics of location on its head — a paradigm shift.
The growth of Port Elizabeth exceeded all forecasts. In late 1965, the New Jersey port added five new piers and sixty-five acres of paved storage. Port Elizabeth’s relentless expansion led to a 30 percent increase in hirings between 1963 and 1970, despite the automation-driven efficiencies of containerization.
By 1985, David had overtaken Goliath — Port Elizabeth/Newark was the busiest container port in the world. The port served as a model for innovative transportation ports worldwide.Governor Robert Meyner’s vision catapulted a small, insignificant town on the eastern seaboard into an innovative, dynamic economic hub, which served as the gateway for global trade in and out of the United States.
What you need to succeed in one paradigm can be a disadvantage in the next one. This is how David beat Goliath.