What do Cartier Pearls and Shipping Containers have in common?
How Creative Destruction Reshaped Two Industries
Hi there,
Throughout history, we've witnessed countless innovations that have disrupted and reshaped entire industries. From horse-drawn buggies being replaced by cars to airplanes being the preferred mode of transport for crossing the ocean instead of steamships, change is constant.
This phenomenon is known as creative destruction, and as I explored this concept further, I thought of understanding its impact through two industries: pearls and shipping. These industries, seemingly unrelated, share a common bond—they both underwent significant transformations to become what they are today.
Let’s begin.
Swapping a Mansion for Pearls
In 1917, Maisie Plant was captivated by a magnificent double strand of pearls from Cartier. Seeing her adoration, Pierre Cartier, the jeweler, offered a trade. The pearls for her six-story mansion home on the corner of 52nd Street and Fifth Avenue in Manhattan, New York.
Maisie and her railway tycoon husband, Morton Plant, were looking to move out of their current mansion as the area was being taken over by storefronts, leaving them physically and socially isolated. Meanwhile, Pierre was looking to establish Cartier's U.S. headquarters in New York.
The Cartier necklace is a double strand of enormous, natural South Sea pearls; the smaller strand has 55 pearls, and the larger is made of 73 pearls, worth $1 million in 1917.
The trade went through, and today, Cartier's headquarters - six stories of marble and granite - stands proudly in one of the world's most expensive shopping streets.
To the best of Plant’s knowledge, pearls were rare and could only be found in nature, making them extremely valuable.
Looking back, however, it's fair to say Cartier got the better end of the deal. A similar necklace sold for $7 million in 2015, and a similar property sold for $525 million in 2016.
The making of Cultured Pearls and how it affected the price of Natural Pearls
Unknown to Plant and Cartier, on the other side of the Pacific, Japanese entrepreneur Kokichi Mikimoto had been experimenting with the technology to make cultured pearls.
The technology involves inserting a tissue graft from a donor oyster and a spherical bead (irritant) into another oyster.
Once both are implanted, the oyster’s natural response is to cover the bead with nacre, which is the shiny substance that pearls are made of. Over time, the oyster continues to deposit layers of nacre around the irritant, forming a pearl.
In 1921, round cultured pearls appeared on the market for the first time. As a result, the price of natural pearls began collapsing in the 1920s and stayed down for decades.
Creative Destruction
Improvements in technology allow for once-valuable items to become widely available, challenging and changing the status quo.
This process is known as "creative destruction," a term coined by the economist Joseph Schumpeter.
Creative destruction is the phenomenon in which new technologies, innovations, and ways of working destroy the old way of doing things. It's the continual process of innovation in which new products and services replace outdated ones.
In his book "Capitalism, Socialism and Democracy," written in 1942, while looking at the benefits of Henry Ford's car assembly line, Schumpeter wrote:
[…] industrial mutation— if I may use that biological term — that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism. It is what capitalism consists in and what every capitalist concern has got to live in.
It is not a small change. The change shakes the foundations of the existing firms and alters the way consumers interact with the products/services.
There are benefits from the new technologies, such as how phones replaced telephones; we can now stay connected with people regardless of location, but the flipside is that the telephone companies laid off thousands of people, and the entire industry petered off.
This phenomenon can be seen across time and industries.
Lately, it's been associated with technology such as AI changing the nature of jobs and the way we work, but it's not limited to technology; kerosene replaced whale oil in candles. Kodak film cameras were replaced by digital cameras, Yellow Pages went out of commission due to Google Search; handwritten books went out of fashion due to the Gutenberg printing press making mass manufacture of books possible, and many, many more.
Look around your industry, and I am sure you can spot a few.
The Advent of the Shipping Container
In 1954, the SS Warrior carried merchandise from New York to Germany.
Individual goods were packed in sacks, barrels, drums and crates, then the cargo would be piled onto a wooden pallet on the dock. Longshoremen hoisted the pallets in slings and deposited them in the ship's cargo hold. Each shipment was stacked, pushed, and restacked into different corners of the ship to maximize space, a global game of maritime Tetris playing out all day long.
The SS Warrior carried 5,000 tonnes of cargo, comprising of 194,582 individual items such as food, household goods, bales of cotton, letters, and vehicles.
Cranes and forklifts were used to place the items in the cargo hold, but much of the merchandise required physical labor from the longshoremen. It was dangerous, back-breaking work; accidents were commonplace.
Loading the ship in New York and unloading the ship in Germany took 10 days, approximately the same time as the Atlantic crossing. Theft was an accepted business loss; a dock worker was said to earn "$20 a day and all the Scotch you could carry home."
The end-to-end journey – from the place of manufacture to the port, surviving the ship journey, unloading at the destination, and road travel to the ultimate destination – might take three months.
Shipping goods internationally was costly, risky, and time-consuming.
The McLean Revolution
Everything changed with Malcom McLean's idea of moving containers seamlessly between ships, trucks, and trains without unloading and reloading their cargo.
McLean's story is a rags-to-riches tale. Graduating from high school in 1931 in the Great Depression, he worked at a gas station, eventually saving up to buy a second-hand truck for $120. Over the next decade and a half, he expanded his trucking business into the fifth largest in the country.
However, the rise in the number of cars on the road delaying trucks, combined with transit fees for crossing U.S. states, increased costs. McLean knew there had to be a more efficient way to transport cargo.
If cranes could lift cargo directly from trucks, the delay caused by human labor could be eliminated. McLean redesigned truck trailers into two parts: a truck bed on wheels and an independent container that could be lifted by cranes and placed across different modes of transport, such as ships, trains, and trucks. Eliminating the need to rely on physical labour and repacking cargo during unloading.
His insight was that the core business of the shipping industry "was moving cargo, not sailing ships".
Inventing the box was the easy part – shipping containers had already been tried in various forms for decades. Standard sizes was prevalent before containers, such as in coal shipping in London and ships carrying railroad boxcars. All the containerization pioneers who came before McLean had thought too small because they were focused on optimizing particular modes of transport.
The real challenge was changing people’s mindsets, and redesigning ports, ships, and cranes to accommodate containers, which meant changing practices that the industry had followed for centuries.
To follow through on his idea, McLean purchased the Pan-Atlantic Steamship Company, renamed it SeaLand Industries, and refitted their ships to handle containers. He also had to install cranes that could lift the boxes on and off the redesigned ships.
In 1956, Ideal X, a refitted oil tanker, carried fifty-eight containers from New Jersey to Houston. Once the ship docked in Houston and the costs were tallied, loading costs were $0.16 per tonne—compared with $5.83 per tonne for loose cargo on a standard ship. The savings were incredible!
The adoption of container shipping accelerated with the Vietnam War as the US Military was looking for a faster and cheaper method to ship large amounts of equipment and supplies overseas.
As an unintended consequence of the war, containerization revolutionized the global shipping industry.
Ships could be unloaded in less than a day, minimizing idle time at ports. This rapid turnaround also led to a sharp decline in petty theft, subsequently lowering insurance costs. Moreover, container ships were designed to operate with fewer crew members, further reducing operating expenses.
Research suggests that the container has been more of a driver of globalization than all trade agreements in the past 50 years taken together.
As per an article in The Economist
Over time all this reshaped global trade. Ports became bigger and their number smaller. More types of goods could be traded economically. Speed and reliability of shipping enabled just-in-time production, which in turn allowed firms to grow leaner and more responsive to markets as even distant suppliers could now provide wares quickly and on schedule. International supply chains also grew more intricate and inclusive. This helped accelerate industrialisation in emerging economies such as China[…]
Many modern-day conveniences such as being able to affordably purchase goods produced halfway around the world are only possible due to Malcom McLean's vision and entrepreneurial guts.
Today, gigantic cranes lock onto containers weighing upwards of 30 tonnes and swing them up and over onto waiting carriers. After the crane has released one container onto a waiting transporter, it will grasp another before swinging back over the ship, which is being simultaneously emptied and refilled. Computers choreograph this jigsaw, tracking every container as it moves through a global logistical system.
A modern shipping port today would be unrecognisable to a longshoreman of the 1950s.
The Impact of Containerization
Containerization drastically improved our choices as consumers, but in the short term, it brought pain to thousands of longshoremen who lost their jobs. Entire communities that had sprung up around ports were shattered and dispersed due to the changes brought about by Creative Destruction.
The Winds of Change
I hope that these stories reminded you, like they did me, that change is the only constant in this capitalist world of business. From the emergence of cultured pearls to the advent of containerization, these tales underscore the transformative power of creative destruction.
While progress can bring short-term pain, it ultimately paves the way for greater efficiency and prosperity. As we look to the future, it is clear that the winds of change will continue to blow, reshaping industries and altering the way we live and work. The question is not whether change will come, but how we will respond to it.
To understand more about Creative Destruction, see here
You can read McLean’s patent on the shipping container here.
For more information on the landmark Cartier building and on the Plant family, read- In-Depth The House That Plant Built – 101 Years Of Cartier Mansion History
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Filtered Kapi #56
Loved the post
Wonderful post, Aditi. You're right. Change is the only constant and creative destruction is here to stay. In today's world, AI seems to be a potential cause for creative destruction.