Response to "The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger"

Original Article: http://press.princeton.edu/chapters/s9383.html

The most interesting point that I found in Marc Levinson's Chapter One is his argument that one of containerization's biggest contributions is to save time. Because of the quicker handling and shorter storage time, products are transited much faster from manufacturers to customers. Thus, manufacturers' inventories are reduced significantly, leading to more efficient use of capitals. Additionally, containerization also gives rise to the possibility of developing just-in-time manufacturing that answers consumers' design needs specifically. This advantage of containerization and the subsequent low transportation costs is a whole new idea for me. I have always thought of low transportation cost as beneficial to promoting international trade by reducing costs for suppliers. Yet, it is quite brilliant to associate the development in manufacturing process to containerization, which can be regarded as an invention and thus should have the equal effect to intrigue new manufacturing model. I am truly impressed with this interpretation of the advantage of containerization and it opens my mind to view things in a broader sense.

The author believes that shipping containers make it possible and affordable for suppliers to sell their products half way across the world and consumers to demand goods from other countries, since the cost of shipping products has significantly reduced. Additionally, containerization makes it possible to transport inputs or intermediary good between countries, so manufacturers have the options to purchase inputs with lower price from foreign countries or to ship the intermediary goods to countries with lower cost to finish the manufacturing process. This process makes it more likely that wage rates across the globe are equal. What is more, as mentioned in the previous paragraph, by reducing shipping time and inventory cost, manufacturers also have the option of just-in-time manufacturing and answers consumers' needs specifically. All these factors combined contribute to the increasingly important globalization.

By reducing transportation cost, this innovation increases a country's export of goods in which it has a comparative advantage. Meanwhile, it will increases a country's import of goods in whose production it is less productive. So both exports and imports will rise, leaving little change to net export. Additionally, business will invest in building equipments to adjust to shipping container, so business will increase investment. Thus, all in all, National Income will increase. Correspondingly, as export increases, the labor demanded in the export industry will increase. Yet, import also increases at the same time, so the labor demanded in the import competing industry will decrease. Also, given the higher efficiency in the manufacturing process and the broader use of machines and computers, fewer labors will be demanded in the shipping process. Thus, employment is expected to decline.

In the extended Ricardian Model in international trade, transportation cost is borne by the consumers and thus added to the unit labor requirement, the units of labor hour required to produce one unit of good. That is, the higher the transportation cost, the higher the unit labor requirement and the lower the productivity. As transportation cost gets lower as a result of the containerization, the country's productivity is increased, relatively raising the capital resources of the country. Therefore, the country's national income will increase in the long run.