The World’s Key Industry

Almost a century ago, C. Ernest Fayle characterized maritime transport as ‘the world’s key industry’.² Indeed, maritime transport has been the main driver of trade growth and hence of the emergence and expansion of a global economy. Shipping not only served to integrate world markets, it was the international business par excellence in most national economies and preceded trends that later became visible in many other sectors of international economic activity. In consequence, an international and comparative perspective should be a central ingredient in both maritime history and maritime economics.³ For anyone interested in the growth and development of the world’s economy, knowledge of the history and mechanisms of shipping provides important insights.

The editors of an important volume of essays on shipping history published in 1990 observed that ‘the study of man’s relationship with the sea is an old and honoured topic within the historical profession. Indeed, some of the foremost scholars of the past century have asked significant questions about this connection.’¹ For all such a long tradition, however, the last forty years or so have seen such study gain impetus and a new direction in the form of a focus on the economic and social dimensions of that relationship. The shift is evident in the study of all spheres of maritime activity — including naval — but it is most marked in the sector of merchant shipping. Merchant shipping, for centuries considered and interpreted from romantic, nationalistic and imperial standpoints, has come to be examined for what it always has been, a business. Ships are capital goods — built and operated for profit — with consequent implications for markets and all factors of production.

Shipping was an important economic activity in various parts of the periphery during the process of globalization that began with the European voyages of discovery and lasted until the closing of the continental frontiers early in the twentieth century. This important shipping activity in the periphery contrasted with the dominance of ocean shipping in the late nineteenth century that Britain, the dominant core economy, experienced. Generally globalization before the late twentieth century involved a manufacturing core area trading with a staple raw material producing periphery. Although India was central to the imperialism of this period, prototypically, the periphery consisted of areas of recent settlement where discovery, growing core demand and falling transportation costs created potential profit opportunities for staple production (sugar and tobacco in the eighteenth century and grain, meat and agricultural/industrial raw materials in the nineteenth). Exploitation of these opportunities involved the mobilization of capital and labour and its movement to the staple periphery. This process has been systematized in the staple theory of economic development.¹

The invention and subsequent development of the steamship represents a great watershed in maritime transport and humankind’s relationship with the sea. For the first time, vessels were not at the mercy of wind or tide and this, together with the ability to make or leave port at will, permitted scheduled services. These, to a considerable degree, overcame the uncertainties that previously had inevitably accompanied maritime voyages. Over time all elements of shipping — vessels, labour, finance — were transformed and likewise shipbuilding, the port industry and associated shipping services. Steam together with changes in construction materials — from wood to iron and later steel — along with later advances in communications and transport technology, the telegraph and the railway, created a ‘new world of shipping’.¹ Such changes contributed to the integration of the world economy.

Adam Smith was one of the first to emphasize the superiority of water transport for the carriage of goods. Had he lived long enough to see the rapid development of railways in the mid-nineteenth century he might have moderated his views slightly. However, the transition from sail to steam shipping, which gained momentum in the 1870s, produced a new leap forward for water transport: between 1880 and the First World War, transport costs in coastal shipping seem to have declined almost 40 per cent faster than on British railways.¹ Similar observations have also been made for the period 1960–1990, and we may, indeed, conclude that ‘the advantages of water carriage’ have increased even in the longer term.² Adam Smith’s example suggests that labour productivity in coastal shipping outpaced that in road transport by the ratio fourteen to one. In the beginning of the third millennium, the overall cost efficiency (price per ton-mile) of short-sea shipping seems to be some 25 times higher than that of long-trader trucking.³ Thus even after the late nineteenth century, there have been other technical ‘revolutions’ leading to a continuous, more or less regular, growth of transport efficiency in both ocean and coastal shipping. A macro-level proof is the fact that the global merchant tonnage grew about sixtyfold in 150 years, while the respective growth of output — the physical volume of cargo carried — grew at least twice as much.⁴

The development of maritime history as a specialized field of research is an impressive testament to the founders of the International Maritime Economic History Association.¹ Skip Fischer’s own publications, together with his relentless efforts as editor of the International Journal of Maritime History, have contributed significantly to placing seaborne transport at the centre of the international economic history of the nineteenth century. As a result of the collective efforts made in the field since the 1970s, most economists, economic historians and general historians now recognize the pivotal role played by the maritime sector in fostering a truly global economy before World War One (WWI).

The chapter examines the development of elements that in combination provided vital commercial infrastructure for the global shipping industry. Specifically, it discusses the roles of key institutions, such as the Baltic Mercantile and Shipping Exchange, Lloyd’s Register of Shipping, the Lloyd’s of London insurance market and various commodity and financial markets, in facilitating exchanges needed to sustain oceanic transport. In addition to these institutions’ formal attributes, for example, their constitutions and rules, the discussion considers their informal characteristics, including the customs, routines and behavioural patterns observed by participants. Together, these formal and informal institutional arrangements have supported shipping by disseminating information, reducing uncertainty and mitigating transaction costs associated with this volatile industry.¹ The chapter also pursues a secondary, somewhat abstract aim; it explores how markets operate and attempts to show how various mechanisms have generated efficiencies.

From the vantage point of the twenty-first century the history of Britain’s shipping over the previous century may seem one of a long process of decline – ‘ebb tide’ in the words of one historian.¹ In 1900 approaching half of the world’s tonnage was under the British flag. In 2000 British owners’ share of world shipping, whether vessels were registered in the UK or elsewhere, was 2.58%, putting it in tenth place.² This change in Britain’s maritime status was not, however, a gradual process. In 1967 the UK flagged fleet was still the third largest in the world and continuing to grow, albeit more slowly than its major competitors. It then went into free fall, shrinking from its historic peak of 1,682 vessels in 1975 to 693 vessels ten years later. By 1995 there were just 365 vessels of over 500 tons flying the British flag.

This chapter considers the results of micro-economic and political-institutional research that has been carried out into the ports of Antwerp and Rotterdam and investigates whether it can help to understand why the two ports have made quite different choices as regards labour organization on the docks.¹ Despite the fact that ports like Antwerp, Hamburg, Bremen, Le Havre and Rotterdam all share the same hinterland and therefore compete with each other for market share, competition between specifically Antwerp and Rotterdam has become an important focus of attention in previous research projects.²

The Australian and New Zealand port industries in the post-World War II period exhibit strong elements of path dependence. Simply put, economic and political actors’ purposive decisions pushed the development of port institutions down a pathway which became hard to step off: institutional lock-ins impeded strategic flexibility and the growth of port productivity; inefficient macro- and micro-level institutional arrangements reduced Australian and New Zealand port efficiency. Given this experience, our chapter uses path dependence as a method to explain institutional stability and change within New Zealand’s and Australia’s respective port systems. While port institutions in both countries were slow to adapt to shifts in the wider industry environment, they eventually succumbed to reformist change. As we explain, this occurred more strongly in New Zealand through pathbreaking institutional transformation in 1989, the pressures for which mounted over several decades. In Australia, by contrast, there were many false starts and change was slower even after the ports were caught up in the federal government’s late 1980s economy-wide programme of microeconomic reform.

The Chinese have a long maritime history, well-documented since the Shang dynasty (1600–1046 BCE).¹ Although the export of Chinese products has occasionally been disrupted by the Closed Door policies imposed by different Chinese regimes over the past millennium, Chinese ports often played key roles in the international trade networks maintained by the Portuguese, Spanish, Dutch and later English in the early modern period.² After the First Opium War (1839–42), however, the Chinese door was forced open again under pressure from Western imperial powers. Ironically, the Chinese coast was forced to close again by a general embargo imposed by the United Nations (UN) after the newly established People’s Republic of China (PRC) entered the Korean War (1950–53) and fought against the United States and its allies (endorsed and supported by the UN).

Skip Fischer has suggested that maritime historians often fail to situate their studies ‘within the broader debates that animate discussion and research in the larger [historical] profession’.¹ While this may be true of many branches of the history discipline — Fischer cites Atlantic and gender history as examples — it is not so applicable to business history, a vibrant field that has long had an important maritime dimension. This is evident in the contributions of Francis Hyde, Peter Davies and Sheila Marriner — the Liverpool School of maritime business history — to our understanding of the role that companies play in the process of economic development.² It is also apparent in works relating to the development and regulation of shipowning as a specialist activity in particular localities during the early stages of industrialization in Britain.³ Building on, and combining, these two perspectives on the business of shipping, Gordon Boyce devised a ‘complementary yet alternative framework to Alfred D. Chandler’s transaction cost approach’.⁴ This alternative lay in Boyce’s focus on British shipping, which introduced a non-American, service sector element to the literature on patterns and processes of economic growth, which had hitherto been dominated by discussions relating to manufacturing industries in the USA. Others have followed in Boyce’s wake, with the work of Gelina Harlaftis and John Theotokas on family enterprise in the British and Greek shipping industries offering a notable European insight into the field as it has moved beyond the Harvard School and Chandler’s paradigm.⁵

Due to the volatility of freight rates and vessel values, shipping is generally considered an industry in which the risks of doing business are substantial.¹ One reflection of this riskiness is the fact that fortunes can be made, and lost, extremely quickly in the shipping sector. This chapter discusses how shipowners in Norway, which for more than a century has been one of the world’s leading maritime nations, have dealt with the question of business risk in a historical perspective.

This chapter aims at comparing and examining the origins and evolution of business groups in southern Europe, focusing on Spanish and Greek business groups originating from shipping from the late nineteenth century to the beginning of the twenty-first century. Within the European context Greece and Spain were late industrializing countries that experienced remarkable economic growth during the second half of the twentieth century. A modern shipping industry had emerged in both countries since the last quarter of the nineteenth century, with quite similar characteristics until the 1930s: Greeks and Spaniards became low cost tramp operators in the international market. However, after the mid-1930s, Spain became a minor player in the international shipping business while Greece became the leading shipping nation of the world.² Notwithstanding these divergent paths of development, business groups and entrepreneurial families pervaded the shipping industry in both countries throughout the nineteenth and twentieth centuries. In fact, some of these have proved particularly resilient to changes in markets, technologies, governments and even political regimes.

The title of this volume presents shipping as ‘the world’s key industry’, but this primarily reflects the insiders’ view of the role of shipping. In mainstream economic history and economics, however, another, less advantageous epithet would be more fitting, namely ‘the invisible industry’. Maritime transport has never played a central role in the main academic debates of economic history or economics.³ At the same time, all the chapters in this volume have shown that shipping has been crucial to the emergence of a global economy.