SURVEYOR'S NOTEBOOK

So, How Much Cheaper is Containerization?

By Rik van Hemmen

 

Besides all other Coronavirus upheavals, it has also affected our intern program. Joseph Schwarz, starting Penn State Engineering Junior was supposed to join us for the summer, but with an office that practices social distancing a face to face internship became quite impractical. In order to provide Joe with a somewhat meaningful training experience it was fun to assign Joe homework tasks about things I have long wondered.

One of those things I long wondered about is how much cheaper break bulk has really gotten since the general acceptance of containerization.

So this is Joe’s story:

Rik asked me to find the rates of shipping one 40 foot container load in break bulk from New York to Rotterdam in 1964, adjust for inflation, and then compare it to the cost a container load today.

Freight shipping was always done in break bulk up until about 1965 when containerization, as we know it today, really started to take off. In break bulk days all cargo items were individually placed and charged according to weight, or per cubic foot (CFT). It turns out I had a load of trouble finding these exact rates. I started my search by jumping into Google. After a week or so and countless hours online I had come up with nothing. Realizing that I needed to think outside the box I started making a few phone calls to people in the shipping industry who put me in touch with some of their colleagues and still, nothing. It was at this point I found that the type of searching I was doing on Google was all wrong. I then got into Google scholar and searched for a few hours trying to find books or articles that may help me and the best thing I had found was a magazine article from the Nautical Gazette which gave me the break bulk freight prices from New York to almost anywhere in the world, for the year 1921.

This information was good, but it was still quite some time from 1964 so I had to keep looking. From there I ordered the most recent print of the same magazine I could find which was from June 1948 hoping it would contain the same article with updated prices for that time. The magazine, sadly, had no useful information so the only data I have for pre-containerized shipping is from 1921.

 

In 1921, to ship cargo from New York to Rotterdam cost $0.45 – $0.60 CFT, or $0.90 – $1.25 per 100 lbs.  (RVH comment: Interestingly that means that shipping water, or liquids with similar densities, costs a little less if shipped by volume, since one cubic foot is 64 pounds)

If you were to adjust those prices for inflation using the CPI, we could get an idea of what shipping may have cost in 1964. When adjusted for 1964, shipping along the same route would have cost $0.78 – $1.04 CFT, or $1.56 – $2.16 per 100 lbs.

Below is a CPI Graph for the Years 1921-1964

To compare 1964 pre container prices to modern day, we are going to use a standard 40 ft. container as a baseline. To find the modern day freight rates, I used the Freightos Baltic Global Index Calculator. According to this index, the weekly average shipment cost for a 40 foot non-refrigerated container from New York to Rotterdam for the week of August 7th, 2020 is $361.

In terms of volume, a 40 ft. container has an internal capacity of 67.7 meters, or 2,392 cubic feet, and in terms of weight a 40 foot container can carry a maximum of 67,200 pounds, or 33.6 tons. 

Below is a CPI Graph for the Years 1964-2020

In 1964, shipping the equivalent of one container load (2,392 cubic feet) in break bulk from N.Y. to Rotterdam would cost $1,865.76 on the low end and $2,487.68 on the high end. Compared to the slim $316 it would cost today.

Adjusting the 1964 prices for inflation, it would be equivalent to $15,526.19 – $21,680.72 in today’s money. So, on a volume basis per 40 ft. container, modern containerized shipping, relatively speaking, is 15 – 21 thousand dollars cheaper than break bulk shipping would have been. In other words, the cost today is only 1.45% – 2.03% of the price right before containerization became dominant in 1964.

 

In terms of weight, shipping just one container load (33.6 tons max.) in break bulk would cost $1,048.32 – $1,451.52 in 1964. When you adjust these prices for inflation, this would be the equivalent of $8,723.75 – $12,079.03 in 2020. Percentage wise, the cost today is only 2.61% – 3.62% of the modern day equivalent.

 

 

And this is just the reduction in cost dock to dock, but containerization has provided additional cost reductions to shippers due to reductions in pilferage, reductions in door to door delivery times, and lowered cargo damages. Perhaps the largest reduction due to containerization was in labor costs. Once containers came into play, ports would only need a fraction of the staff, so many longshoremen, drayers and clerks lost jobs, but shippers saved money.

To large a extent, the world as we know it today is driven by this remarkable reduction in cost.