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8:25 @{ 46 l 24% NPD book.pdf - Read-only RA KY buyer behaviour and is beyond the scope of this book. Case study How three students built a business that could affect world trade This case study tells the story of how three MSc stu- was inconsistent. But, what about empty containers? dents at the Technical University of Delft in The Are there ships travelling the world with containers Netherlands had an idea for a folding shipping con- that are empty? If so, is this a business opportunity? tainer and went about building a business. There are many examples of university students starting busi- nesses, but few of these have the potential to revolu- tionise world trado. Almost all containers today that you see on ships, trains or on trucks are 20 ft or 40 ft in length. The rea- son for the massive change in both transportation and the global economy is because of this simplicity of size-a small set of standard sizes that allowed ships, trucks, receiving bays, and all of the related logistical systems to easily adapt to an industry-wide standard. Prior to standardisation, there were major inefficien- cies in commercial shipping: packaging and crating Source Pension clodie 104 Case study Introduction they run and get a patent on their idea before some Jan, Mark and Stephan were studying for their MSc one else stole it? What are the benefits of a folding in mechanical engineering at the Technical University container? Maybe a folding container already exists? of Delft in The Netherlands. They had arrived late for A working computer simulation is a long way from a their lecture and had been forced to sit at the front. folding 40 ft steel container. (By way of illustration They had cycled the short distance from their house you can drive a large car into one of these contain- on the other side of town and would have arrived on ers.) Would anyone be interested? And how can we time if it had not been for the lifting bridge over the make any money out of the idea? Having interesting canal, which had to be raised for a large boat carrying technology is a long way from a profitable money- steel shipping containers. This incident was to prove making business. significant. For it was during the lecture by a profes- The first thing Jan did was to contact the Port of sor of mechanics that the students hit upon the idea Rotterdam, which is only 15 km from Delft and is one of a folding steel container. The professor was of the world's busiest container ports (see Table 3.2) explaining that springs can, in theory, be used to lift Eventually, he was able to speak to the Commercial very heavy weights, providing the springs are large Director of the Port. He explained to Jan that folding enough. We are all aware of the Anglepoise lamp that and collapsible containers have been around for uses springs to enable the movement of its steel arm many years, but they have never really worked. This and lamp. The same principle can be used to move is primarily because they are expensive to manufac- much larger objects, providing one has much larger ture (usually 10 per cent more than the standard con- springs. Initially, the students thought about springs tainer) and bits get lost, for example the roof from one to raise and lower a bridge, but this was soon dis- container sometimes does not fit another container, missed. A steel container that could be folded into a and the additional equipment required to assemble small space had many more attractions. The three the containers all adds to the cost. The list of criti- students went away to experiment with their idea and cisms seemed to be very long. At the end, Jan asked, conduct calculations on weight, force, stress and 'What about folding containers that are all in one strain measurements. Eventually, they developed a piece, where the sides can be folded down by hand? prototype and modelled it on a computer simulation The Director laughed and said: 'Yeah, right, like on program. It worked. After much dancing around the the Disney Channell Jan reported back to his friends computer lab, the three then looked at each other as that potential customers may not believe that they it to say "now what?" It was a good question. Should could deliver such a product. 1 Table 3.2 Busiest container ports Port Country Singapore Singapore 2 Hong Kong China 3 Shanghai China Shenzhen China 5 Busan South Korea TEUS" (000s) increase from 2004 23,192 8.7 22,427 2.0 18.084 24.2 16,197 19.0 11,843 3.6 Von TID NA 8:25 : @{ 46 ll 24% NPD book.pdf - Read-only RA Case study Introduction they run and get a patent on their idea before some- Jan, Mark and Stephan were studying for their MSc one else stole it? What are the benefits of a folding in mechanical engineering at the Technical University container? Maybe a folding container already exists? of Delft in The Netherlands. They had arrived late for A working computer simulation is a long way from a their lecture and had been forced to sit at the front folding 40 ft steel container. (By way of illustration They had cycled the short distance from their house you can drive a large car into one of these contain- on the other side of town and would have arrived on ers.) Would anyone be interested? And how can we time if it had not been for the lifting bridge over the make any money out of the idea? Having interesting canal, which had to be raised for a large boat carrying technology is a long way from a profitable money- steel shipping containers. This incident was to prove making business significant. For it was during the lecture by a profes- The first thing Jan did was to contact the Port of sor of mechanics that the students hit upon the idea Rotterdam, which is only 15 km from Delft and is one of a folding steel container. The professor was of the world's busiest container ports (see Table 3.2). explaining that springs can, in theory, be used to lift Eventually, he was able to speak to the Commercial very heavy weights, providing the springs are large Director of the Port. He explained to Jan that folding enough. We are all aware of the Anglepoise lamp that and collapsible containers have been around for uses springs to enable the movement of its steel arm many years, but they have never really worked. This and lamp. The same principle can be used to move is primarily because they are expensive to manufac- much larger objects, providing one has much larger ture (usually 10 per cent more than the standard con- springs. Initially, the students thought about springs tainer) and bits get lost, for example the roof from one to raise and lower a bridge, but this was soon dis- container sometimes does not fit another container. missed. A steel container that could be folded into a and the additional equipment required to assemble small space had many more attractions. The three the containers all adds to the cost. The list of criti- students went away to experiment with their idea and cisms seemed to be very long. At the end, Jan asked, conduct calculations on weight, force, stress and "What about folding containers that are all in one strain measurements. Eventually, they developed a piece, where the sides can be folded down by hand? prototype and modelled it on a computer simulation The Director laughed and said: 'Yeah, right, like on program. It worked. After much dancing around the the Disney Channell Jan reported back to his friends computer lab, the three then looked at each other as that potential customers may not believe that they it to say 'now what?" It was a good question. Should could deliver such a product. Table 3.2 Busiest container ports Port Country 1. 2 3 4 5 6 Singapore Hong Kong Shanghai Shenzhen Busan TEUS (000) increase from 2004 23,192 8.7 22,427 2.0 18,084 24.2 16,197 19.0 11,843 3.6 9,471 0.0 Singapore China China China South Korea Talwan (Republic of China Netherlands Germany United Arab Emirates USA Kaohsiung 7 8 9 Rotterdam Hamburg Dubai 9,287 8,068 7,619 12.2 15.5 18.5 7,485 22 10 Los Angelen *Twenty-foot equivalent units 105 Chapter 3 Market adoption and technology diffusion The friends faced a number of difficulties and competing gauges and the computer industry has many uncertainties. They needed advice, after all battled for many years over operating systems. The they were engineers, very clever engineers, but not shipping industry was in a similar position with many experts in developing businesses. Fortunately, the ditterent types of containers. Packaging and crating university had a business incubatorta 136 of 666 consistent and inefficient. Large dents develop their ideas and create bune would be able to help them with their patent applica- the world to break bulk cargo. Frequently, separate tion, but Jan, Mark and Stephan soon realised they items had to be handied individually, such as bags of did not know answers to simple questions, such as: sugar or flour packed next to copper tube. Today. Who would buy it? Who are the customers? How approximately 90 per cent of non-bulk cargo world- many containers are there in The Netherlands/ wide moves by containers stacked on transport 111 8:25 : @{ 46 ll 24% NPD book.pdf - Read-only Ra KY Chapter 3 Market adoption and technology diffusion = The friends faced a number of difficulties and competing gauges and the computer industry has many uncertainties. They needed advice, after all battled for many years over operating systems. The they were engineers, very clever engineers, but not shipping industry was in a similar position with many experts in developing businesses. Fortunately, the different types of containers. Packaging and crating university had a business incubator that helped stu- products was inconsistent and inefficient. Large dents develop their ideas and create businesses. It numbers of people were employed in ports around would be able to help them with their patent applica- the world to break bulk cargo Frequently, separate tion, but Jan, Mark and Stephan soon realised they items had to be handled individually, such as bags of did not know answers to simple questions, such as: sugar or flour packed next to copper tube. Today, Who would buy it? Who are the customers? How approximately 90 per cent of non-bulk cargo world- many containers are there in The Netherlands/ wide moves by containers stacked on transport Europe/world? How much does it cost to make a ships. Some 18 million containers make over 200 mil- container? How much does it cost to buy one? It was lion trips per year. For the past 10 years, demand for soon clear that many days of research lay ahead, cargo capacity has been growing almost 10 per cent This would have to be squeezed in between lectures a year and coursework. This background research on the industry proved to be more interesting than the students first had A brief history of shipping containers thought and it delivered some exciting findings. Most The students' research uncovered the following. importantly, that this was a growing industry, it had During the 1960s, 1970s and 1980s the standardisa international firms with large budgets. And they had tion of shipping containers revolutionised global uncovered the fact that the storage of containers trade and has dramatically reduced the cost of trans- poses a significant problem for the shipping lines that porting goods around the world. According to Maro are always on the lookout for ways to reduce this Levinson (2006), author of The Box: How the Shipping cost Container Made the World Smaller and the World Economy Bigger, much of this revolution was down Background: containers to one man - Malcolm McLean, who challenged the The students now needed to explore in detail the norm and introduced standardised, packaged ship- shipping container and how it is used. More research ping. More than 50 years ago. Malcom McLean, a was required and soon they uncovered more useful North Carolina trucking entrepreneur, originally information. The history of the use of purpose-built hatched the idea of using containers to carry cargo. containers for trade can be traced back to the 1830s; He loaded 58 containers onto his ship, Ideal X, in railroads on several continents were carrying contain- Newark, New Jersey and, once the vessel reached ers that could be transferred to trucks or ships, but Houston, Texas, the uncrated containers were moved these containers were small by today's standards. directly onto trucks - and reusable rectangular boxes Originally used for shipping coal on and off barges, soon became the industry standard. What was new in "loose boxes' were used to containerise coal from the the USA about McLean's innovation was the idea of late 1780s. By the 1840s, iron boxes were in use as using large containers that were never opened in as wooden ones. The early 1900s saw the adop- transit between shipper and consignee and that were tion of closed container boxes designed for move- transferable on an intermodal basis, amongst trucks, ment between road and rail. Towards the end of the ships and railroad cars. Second World War, the US Army began using spe- Now, most students of business immediately will cialised containers to speed up the loading and recognise the benefits that can flow from the intro- unloading of transport ships. After the US Department duction of a uniform standard. And history is littered of Defense Standardised an 8 ft x 8 ft cross-section with examples of industries struggling to grow until a container in multiples of 10 ft lengths for military use, single uniform standard is adopted, thereby signal- it was rapidly adopted for shipping purposes. These ling the end of uncertainty and the start of the adop- standards were adopted in the United Kingdom for tion of the standard technology. Prior to a standard containers and rapidly displaced the older wooden width gauge, the UK railway industry had two containers in the 1950s. Case study 137 of 666 Squipment is required. The transfer Container, also known as interm ship arrives at the container terminal or as ISO containers because the been defined by the ISO, are the main type of bquip and may be between ships and land ment used in intermodal transport, particularly when we ample trains or trucks. Maritime con- one of the modes of transportation is by ship tainer terminals tend to be part of a larger port, Containers are 8 ft wide by 8ft high. Since their intro- whereas inland container terminals tend to be located duction, there have been moves to adopt other in or near major cities, with good rail connections to heights. The most common lengths are 20 ft and 40 maritime container terminals 111 8:25 : Q. ..ll 24% NPD book.pdf - Read-only Ky width gauge, the UK railway industry had two containers in the 1950s. 106 Case study Containers, also known as intermodal containers the container ship arrives at the container terminal or as ISO containers because the dimensions have (port), specialist equipment is required. The transfer been defined by the ISO, are the main type of equip from ship to land may be between ships and land ment used in intermodal transport, particularly when vehicles, for example trains or trucks. Maritime con- one of the modes of transportation is by ship. tainer terminals tend to be part of a larger port, Containers are 8 ft wide by 8 ft high. Since their intro whereas inland container terminals tend to be located duction, there have been moves to adopt other in or near major cities, with good rail connections to heights. The most common lengths are 20 ft and 40 maritime container terminals. ft, although other lengths exist. They are made out of A container crane, or gantry crane, is used at con- steel and can be stacked on top of each other. tainer terminals for loading and unloading shipping Container capacity often is expressed in twenty- containers from container ships. Cranes normally foot equivalent units (TEU or sometimes, teu). An transport a single container at once. However, some equivalent unit is a measure of containerised cargo newer cranes have the capability to pick up up to 4 capacity equal to one standard 20 ft (length) 8 ft 20-ft containers at once. Handling equipment is (width) container. The use of Imperial measurements designed with intermodality in mind, assisting with to describe container size reflects the fact that the US transferring containers between rail, road and sea. Department of Defense played a major part in the These can include: development of containers. The overwhelming need to have a standard size for containers, in order that Transtainer for transferring containers from sea- going vessels onto either trucks or rail wagons. A they fit all ships, cranes and trucks, and the length of transtainer is mounted on rails with a large boom time that the current container sizes have been in use, makes changing to an even metric size impractical spanning the distance between the ship's cargo Table 3.3 shows the weights and dimensions of the hold and the quay, moving parallel to the ship's side. three most common types of container worldwide The weights and dimensions quoted above are aver- Gantry cranes, also known as straddle carriers, are able to straddle rail and road vehicles allowing ages; different manufactured series of the same type of container may vary slightly in actual size and for quick transfer of containers. A spreader beam moves in several directions, allowing accurate weight. positioning of the cargo. Handling containers Reach stackers are fitted with lifting arms as On ships, containers are, typically. stacked up to well as spreader beams and lift containers to seven units high. When carried by rail, containers can swap bodies or stack containers on top of each be loaded on fiatcars or in container well cars. When other. Table 3.3 Specifications of the three most common types of container 40 container 45' high-cube container Metric Imperial 20' container Imperial Metric External Length 200 6.096 m dimensions Width 80 2.438 m Height 8' 6 2.501 m Volume 1,169 1 33.1 m Maximum 66,139 lb 30,400 kg gross mass Empty 4,850 lb weight Net load 61 289 lb 28.200 kg Imperial 40' 0 80 86 2,385 66,139 lb 12.192 m 2.438 m 2.591 m 67,5 m 45' 0 80 9' 6 3.040 66,139 lb Metric 13.716 m 2.438 m 2.896 m 88.1 m 30,400 kg 30,400 kg 2,200 kg 8,380 lb 3,800 kg 10.580 lb 4,800 kg 57,759 b 26,600 kg 55,559 lb 25,800 kg 107 Chapter 3 Market adoption and technoicay an1 38 of 666 Container shipping companies make up the vast majority of the total weight of a Informally known as 'box boats', these vessels carry cargo ship, the loading and unloading is a delicate the majority of the world's manufactured goods. balancing act, as it directly affects the whole ship's 111 8:25 : @{ 46 Il 24% NPD book.pdf - Read-only RA KY 107 Chapter 3 Market adoption and technology diffusion Container shipping companies make up the vast majority of the total weight of a Informally known as 'box boats", these vessels carry cargo ship, the loading and unloading is a delicate the majority of the world's manufactured goods. balancing act, as it directly affects the whole ship's Cargoes like metal ores, coal or wheat are carried in centre of mass. There have been some instances of bulk carriers. There are large mainline vessels that ply poorly loaded ships capsizing at port. the deep-sea routes, and then many small "feeder It has been estimated that container ships lose ships that supply the large ships at centralised hub over 10,000 containers at sea each year. Most go ports. Most container ships are propelled by diesel overboard on the open sea during storms but there engines and have crews of between 20 and 40 are some examples of whole ships being lost with Container ships now carry up to 15,000 TEU. The their cargo. When containers are dropped, they world's largest container ship, the MN Emma Marskimmediately become an environmental threat - has a capacity of 15,200 containers. (See Table 3.4.) termed marine debris'. Most containers used today measure 40 ft (12 m) in It is not surprising that, when the three students length. Above a certain size, container ships do not visited Rotterdam Container Port to discuss their idea carry their own loading gear, so loading and unloading with senior managers from the port, the managers can be done only at ports with the necessary cranes. were very enthusiastic about containers and the ben- However, smaller ships with capacities of up to 2,900 efits they deliver. They explained that container cargo TEU are often equipped with their own cranes. could be moved nearly 20 times faster than pre-con- The world's oceans can be scary places in bad tainer break bulk cargo. They also argued that, whilst weather, hence the transit of containers around the there were increased fuel costs, due to the extra world inevitably carries a considerable risk. And yet, weight of the containers, labour efficiencies more the well-known challenging routes, such as round the than compensate. Nonetheless, for certain bulk prod- Cape Horn, are not where most containers are lost. ucts this makes containerisation unattractive. On rail- Most risks are linked to the loading and unloading of ways, the capacity of the container is far from its containers. The risks involved in these operations maximum weight capacity. In some areas (mostly the affect both the cargo being moved on to or off the USA and Canada) containers are double-stacked, ship, as well as the ship itself. Containers, due to their but this is not usually possible in other countries. fairly non-descript nature and the sheer number han- At the end of the meeting, the Commercial Director died in major ports, require complex organisation to explained to the students that for their idea to suc- ensure they are not lost, stolen or misrouted. In addi-ceed, they would need to receive the necessary certi- tion, as the containers and the cargo they contain fication from agencies such as Lloyds Register or Table 3.4 Biggest shipping container companies Market share (16) Number of ships 18.2 549 376 11.7 5.6 5.2 256 Top 10 container shipping companies in order of TEU capacity Company TEU capacity A.P. Moller-Maersk Group 1.665,272 Mediterranean Shipping Company S.A 865,890 CMA CGM 507,954 Evergreen Marine Corporation 477,911 Hapag-Lloyd 410 412,344 China Shipping Container Lines 346,493 American President Lines 331,437 Hanjin-Senator 328,794 COSCO 322,326 NYK Line 302.213 153 140 4.5 3.8 111 99 3.6 3.6 145 3.5 3.3 118 105 108 Case study 139 of 666 Bureau Veritas. Their approval is required regarding Concept to product the seaworthiness of any marine equipment. Without The background research had been done. There was such certification, no shipping company would be genuine interest from potential customers. The stu- Interested in their ideas. There seemed to be many dents now needed money to build a working scale obstacles to their business idea. model of the folding container. They had to prove to 111 8:25 @{ 46 ll 24% NPD book.pdf - Read-only Ra KY Case study = Bureau Veritas. Their approval is required regarding Concept to product the seaworthiness of any marine equipment. Without The background research had been done. There was such certification, no shipping company would be genuine interest from potential customers. The stu- interested in their ideas. There seemed to be many dents now needed money to build a working scale obstacles to their business idea. model of the folding container. They had to prove to everyone that it would work. Moreover, the concept Business opportunity: moving empty also had to be compatible with existing equipment for containers intermodal transport. That is, it would need to be Containers are intended to be used constantly, being exactly the same size/shape/weight, etc. It would loaded with a new cargo for a new destination soon also have to have proper sealing and locking devices after being emptied of the previous cargo. This is not and should interlock with other containers. Computer always possible and, in some cases, the cost of models were fine to a point, but a physical model was transporting an empty container to a place where it now required, especially if they were going to con can be used is considered to be higher than the worth vince people to invest. With the help of the university of the used container. This can result in large areas in and the Incubator, the students set about construct ports and warehouses being occupied by empty con- ing a full working steel model. It was to be a 1/10th tainers left abandoned. The shipping industry spends scale. So it would be 2 ft long x 0.8 ft high. Real a great deal of time and money in repositioning empty working springs would have to be in place. The containers. If trade was balanced, there would be no friends realised immediately that a patent drawing is empty containers. But trade imbalance, especially theory and it did not resemble reality. Numerous fab- between Europe and North America with Asia, has rication and manufacturing problems had to be over- resulted in approximately 2.5 million TEUs of empty come. Eventually, after two months of experimenting containers stored in yards around the world with with steel springs and welding equipment in the empties comprising 20-23 per cent of the movement workshop, a fully working model emerged that of containers around the world. According to research required two people to manoeuvre the steel box. conducted by International Asset Systems, the aver- More importantly, it had taken a considerable amount age container is idle or undergoing repositioning for of time and investment in materials and equipment. over 50 per cent of its life span. The research also When the model was demonstrated to senior figures determined that shipping companies spend $16 bil- at the Port of Rotterdam, they were very impressed lion in repositioning empties. To compensate for and immediately wanted to see a full-size version -a these costs, carriers add surcharges, ranging from prototype. But, who would pay for a full-size proto- $100 to $1,000 per TEU, to freight rates type? It would be enormous and probably cost thou- Folding containers would provide further advan- sands of euros to produce. tages: for example, they would relieve congestion at ports. Storing empty containers takes up prime real estate. For example, the storage yards around the Port of Jersey, UK, are cluttered with an estimated 100,000 empty containers belonging to leasing companies and an additional 50,000 belonging to ocean carriers. Folding containers would be quicker to load (four at a time), resulting in faster tumaround time for ships. Energy costs would drop as well as one trailer rather than four would transport empties. Fnally, there is also a security feature to the folded container built to ISO standards. Nothing can be smuggled in a collapsed empty. It was estimated that, if 75 per cent of empty Son Education Photos containers were folded by 2010, the result would be a yearly saving in shipping of 25 milion TEUs or 50 per The three students had made some significant cent of the total volume of empty containers shipped. steps forward with their business idea, but they still 109 Chapter 3 Market adoption and technology diffusion did not have an order, let alone any sales or cash from 150,000 TEUs in October 2008 to 750.000, Was this to be just a hanboy, something 140 of 666 ny tregohet cates for containere Strips not generated any anyone pay for one of these things? The students needed money to finance the next stage, but, as well as being impoverished, they were not manufacturers! are also fallen by almost 80 per cent since summer 2008. The freight rates on the India-UK sector was $1,100 for a 20 it container and this has come down to $280 to $300, and to ferry a 20 ft container unit to the Gulf is just $90 against $550 in 2007. Globally, things are Decision time TIL 8:25 : @ { 46 Il 24% NPD book.pdf - Read-only standards. Nothing can be smuggled in a collapsed empty. It was estimated that, if 75 per cent of empty Sunna hot containers were folded by 2010, the result would be a yearly saving in shipping of 25 million TEUs or 50 per The three students had made some significant cent of the total volume of empty containers shipped.stops forward with their business idea, but they still 109 Chapter 3 Market adoption and technology diffusion did not have an order, let alone any sales or cash. Was this to be just a hobby, something they enjoyed, but not something that generated any cash? Would anyone pay for one of these things? The students needed money to finance the next stage, but, as well as being impoverished, they were not manufacturers! Decision time All three students were excited about the possibilities and the huge potential that existed. They would love to start their own business, rather than work for someone else. There were many uncertainties: money, career, what happens if they fail? As if to underline their concerns, an open page of the Financial Times glared at them and gave them further worries Credit crunch hits shipping as trade falls 2009 has seen a considerable slowdown in global trade. It has left the Indian shipping industry high and dry, with the country's idle capacity set to rise from 150,000 TEUs in October 2008 to 750,000. Not surprisingly freight rates for container ships from India have also fallen by almost 80 per cent since summer 2008. The freight rates on the India-UK sector was $1,100 for a 20 ft container and this has come down to $280 to $300, and to ferry a 20 ft container unit to the Gulf is just $90 against 3550 in 2007. Globally, things are similar elsewhere in Singapore, one of the world's busiest ports, some vessels are now being used to store empty containers to save on port rentals Port-related businesses, such as inland container ports and container freight stations, are also suffering. The global downturn raised further worries for the friends - maybe this was the wrong time to start a business? Source: Levinson, M. (2006) The Box How the Shipping Container Made the World Smaller and the World Economy Bigger, Princeton University Press, Princeton Questions 1 Would you advise the students to start this business? 2 Who are their customers going to be? 3 Who can they license the technology to? 4 Can they form any partnerships or alliances? 5 How would you enter this market? 6 What aspects of product diffusion will they need address? 7 Use the CIM (Figure 1.9) to illustrate the innovation process 8 is patent protection essential here? If not, why not? 9 How can the students help customers adopt the product? 10 Standardisation led to growth in container usage: what will be the effect of this non-standard folding container? Note: This case has been written as a basis for class discussion rather than to illustrate effective or ineffective managerial or adminis- trative behaviour. It has been prepared from a variety of sources and from cbservations Chapter summary This chapter has explored the wider context of innovation, particular the role of the state and the role of the market. It has shown that innovation cannot be separated from political and social processes. This includes both tangible and intangible features, including economic, social and political institutions and processes and mechanisms that facilitate the flow of knowledge between industries and firms. It has also shown the pow- erful influence of the market on innovation; in particular the need to consider long time 110 141 of 666 References 111 o 8:25 @{ 46 l 24% NPD book.pdf - Read-only RA KY buyer behaviour and is beyond the scope of this book. Case study How three students built a business that could affect world trade This case study tells the story of how three MSc stu- was inconsistent. But, what about empty containers? dents at the Technical University of Delft in The Are there ships travelling the world with containers Netherlands had an idea for a folding shipping con- that are empty? If so, is this a business opportunity? tainer and went about building a business. There are many examples of university students starting busi- nesses, but few of these have the potential to revolu- tionise world trado. Almost all containers today that you see on ships, trains or on trucks are 20 ft or 40 ft in length. The rea- son for the massive change in both transportation and the global economy is because of this simplicity of size-a small set of standard sizes that allowed ships, trucks, receiving bays, and all of the related logistical systems to easily adapt to an industry-wide standard. Prior to standardisation, there were major inefficien- cies in commercial shipping: packaging and crating Source Pension clodie 104 Case study Introduction they run and get a patent on their idea before some Jan, Mark and Stephan were studying for their MSc one else stole it? What are the benefits of a folding in mechanical engineering at the Technical University container? Maybe a folding container already exists? of Delft in The Netherlands. They had arrived late for A working computer simulation is a long way from a their lecture and had been forced to sit at the front. folding 40 ft steel container. (By way of illustration They had cycled the short distance from their house you can drive a large car into one of these contain- on the other side of town and would have arrived on ers.) Would anyone be interested? And how can we time if it had not been for the lifting bridge over the make any money out of the idea? Having interesting canal, which had to be raised for a large boat carrying technology is a long way from a profitable money- steel shipping containers. This incident was to prove making business. significant. For it was during the lecture by a profes- The first thing Jan did was to contact the Port of sor of mechanics that the students hit upon the idea Rotterdam, which is only 15 km from Delft and is one of a folding steel container. The professor was of the world's busiest container ports (see Table 3.2) explaining that springs can, in theory, be used to lift Eventually, he was able to speak to the Commercial very heavy weights, providing the springs are large Director of the Port. He explained to Jan that folding enough. We are all aware of the Anglepoise lamp that and collapsible containers have been around for uses springs to enable the movement of its steel arm many years, but they have never really worked. This and lamp. The same principle can be used to move is primarily because they are expensive to manufac- much larger objects, providing one has much larger ture (usually 10 per cent more than the standard con- springs. Initially, the students thought about springs tainer) and bits get lost, for example the roof from one to raise and lower a bridge, but this was soon dis- container sometimes does not fit another container, missed. A steel container that could be folded into a and the additional equipment required to assemble small space had many more attractions. The three the containers all adds to the cost. The list of criti- students went away to experiment with their idea and cisms seemed to be very long. At the end, Jan asked, conduct calculations on weight, force, stress and 'What about folding containers that are all in one strain measurements. Eventually, they developed a piece, where the sides can be folded down by hand? prototype and modelled it on a computer simulation The Director laughed and said: 'Yeah, right, like on program. It worked. After much dancing around the the Disney Channell Jan reported back to his friends computer lab, the three then looked at each other as that potential customers may not believe that they it to say "now what?" It was a good question. Should could deliver such a product. 1 Table 3.2 Busiest container ports Port Country Singapore Singapore 2 Hong Kong China 3 Shanghai China Shenzhen China 5 Busan South Korea TEUS" (000s) increase from 2004 23,192 8.7 22,427 2.0 18.084 24.2 16,197 19.0 11,843 3.6 Von TID NA 8:25 : @{ 46 ll 24% NPD book.pdf - Read-only RA Case study Introduction they run and get a patent on their idea before some- Jan, Mark and Stephan were studying for their MSc one else stole it? What are the benefits of a folding in mechanical engineering at the Technical University container? Maybe a folding container already exists? of Delft in The Netherlands. They had arrived late for A working computer simulation is a long way from a their lecture and had been forced to sit at the front folding 40 ft steel container. (By way of illustration They had cycled the short distance from their house you can drive a large car into one of these contain- on the other side of town and would have arrived on ers.) Would anyone be interested? And how can we time if it had not been for the lifting bridge over the make any money out of the idea? Having interesting canal, which had to be raised for a large boat carrying technology is a long way from a profitable money- steel shipping containers. This incident was to prove making business significant. For it was during the lecture by a profes- The first thing Jan did was to contact the Port of sor of mechanics that the students hit upon the idea Rotterdam, which is only 15 km from Delft and is one of a folding steel container. The professor was of the world's busiest container ports (see Table 3.2). explaining that springs can, in theory, be used to lift Eventually, he was able to speak to the Commercial very heavy weights, providing the springs are large Director of the Port. He explained to Jan that folding enough. We are all aware of the Anglepoise lamp that and collapsible containers have been around for uses springs to enable the movement of its steel arm many years, but they have never really worked. This and lamp. The same principle can be used to move is primarily because they are expensive to manufac- much larger objects, providing one has much larger ture (usually 10 per cent more than the standard con- springs. Initially, the students thought about springs tainer) and bits get lost, for example the roof from one to raise and lower a bridge, but this was soon dis- container sometimes does not fit another container. missed. A steel container that could be folded into a and the additional equipment required to assemble small space had many more attractions. The three the containers all adds to the cost. The list of criti- students went away to experiment with their idea and cisms seemed to be very long. At the end, Jan asked, conduct calculations on weight, force, stress and "What about folding containers that are all in one strain measurements. Eventually, they developed a piece, where the sides can be folded down by hand? prototype and modelled it on a computer simulation The Director laughed and said: 'Yeah, right, like on program. It worked. After much dancing around the the Disney Channell Jan reported back to his friends computer lab, the three then looked at each other as that potential customers may not believe that they it to say 'now what?" It was a good question. Should could deliver such a product. Table 3.2 Busiest container ports Port Country 1. 2 3 4 5 6 Singapore Hong Kong Shanghai Shenzhen Busan TEUS (000) increase from 2004 23,192 8.7 22,427 2.0 18,084 24.2 16,197 19.0 11,843 3.6 9,471 0.0 Singapore China China China South Korea Talwan (Republic of China Netherlands Germany United Arab Emirates USA Kaohsiung 7 8 9 Rotterdam Hamburg Dubai 9,287 8,068 7,619 12.2 15.5 18.5 7,485 22 10 Los Angelen *Twenty-foot equivalent units 105 Chapter 3 Market adoption and technology diffusion The friends faced a number of difficulties and competing gauges and the computer industry has many uncertainties. They needed advice, after all battled for many years over operating systems. The they were engineers, very clever engineers, but not shipping industry was in a similar position with many experts in developing businesses. Fortunately, the ditterent types of containers. Packaging and crating university had a business incubatorta 136 of 666 consistent and inefficient. Large dents develop their ideas and create bune would be able to help them with their patent applica- the world to break bulk cargo. Frequently, separate tion, but Jan, Mark and Stephan soon realised they items had to be handied individually, such as bags of did not know answers to simple questions, such as: sugar or flour packed next to copper tube. Today. Who would buy it? Who are the customers? How approximately 90 per cent of non-bulk cargo world- many containers are there in The Netherlands/ wide moves by containers stacked on transport 111 8:25 : @{ 46 ll 24% NPD book.pdf - Read-only Ra KY Chapter 3 Market adoption and technology diffusion = The friends faced a number of difficulties and competing gauges and the computer industry has many uncertainties. They needed advice, after all battled for many years over operating systems. The they were engineers, very clever engineers, but not shipping industry was in a similar position with many experts in developing businesses. Fortunately, the different types of containers. Packaging and crating university had a business incubator that helped stu- products was inconsistent and inefficient. Large dents develop their ideas and create businesses. It numbers of people were employed in ports around would be able to help them with their patent applica- the world to break bulk cargo Frequently, separate tion, but Jan, Mark and Stephan soon realised they items had to be handled individually, such as bags of did not know answers to simple questions, such as: sugar or flour packed next to copper tube. Today, Who would buy it? Who are the customers? How approximately 90 per cent of non-bulk cargo world- many containers are there in The Netherlands/ wide moves by containers stacked on transport Europe/world? How much does it cost to make a ships. Some 18 million containers make over 200 mil- container? How much does it cost to buy one? It was lion trips per year. For the past 10 years, demand for soon clear that many days of research lay ahead, cargo capacity has been growing almost 10 per cent This would have to be squeezed in between lectures a year and coursework. This background research on the industry proved to be more interesting than the students first had A brief history of shipping containers thought and it delivered some exciting findings. Most The students' research uncovered the following. importantly, that this was a growing industry, it had During the 1960s, 1970s and 1980s the standardisa international firms with large budgets. And they had tion of shipping containers revolutionised global uncovered the fact that the storage of containers trade and has dramatically reduced the cost of trans- poses a significant problem for the shipping lines that porting goods around the world. According to Maro are always on the lookout for ways to reduce this Levinson (2006), author of The Box: How the Shipping cost Container Made the World Smaller and the World Economy Bigger, much of this revolution was down Background: containers to one man - Malcolm McLean, who challenged the The students now needed to explore in detail the norm and introduced standardised, packaged ship- shipping container and how it is used. More research ping. More than 50 years ago. Malcom McLean, a was required and soon they uncovered more useful North Carolina trucking entrepreneur, originally information. The history of the use of purpose-built hatched the idea of using containers to carry cargo. containers for trade can be traced back to the 1830s; He loaded 58 containers onto his ship, Ideal X, in railroads on several continents were carrying contain- Newark, New Jersey and, once the vessel reached ers that could be transferred to trucks or ships, but Houston, Texas, the uncrated containers were moved these containers were small by today's standards. directly onto trucks - and reusable rectangular boxes Originally used for shipping coal on and off barges, soon became the industry standard. What was new in "loose boxes' were used to containerise coal from the the USA about McLean's innovation was the idea of late 1780s. By the 1840s, iron boxes were in use as using large containers that were never opened in as wooden ones. The early 1900s saw the adop- transit between shipper and consignee and that were tion of closed container boxes designed for move- transferable on an intermodal basis, amongst trucks, ment between road and rail. Towards the end of the ships and railroad cars. Second World War, the US Army began using spe- Now, most students of business immediately will cialised containers to speed up the loading and recognise the benefits that can flow from the intro- unloading of transport ships. After the US Department duction of a uniform standard. And history is littered of Defense Standardised an 8 ft x 8 ft cross-section with examples of industries struggling to grow until a container in multiples of 10 ft lengths for military use, single uniform standard is adopted, thereby signal- it was rapidly adopted for shipping purposes. These ling the end of uncertainty and the start of the adop- standards were adopted in the United Kingdom for tion of the standard technology. Prior to a standard containers and rapidly displaced the older wooden width gauge, the UK railway industry had two containers in the 1950s. Case study 137 of 666 Squipment is required. The transfer Container, also known as interm ship arrives at the container terminal or as ISO containers because the been defined by the ISO, are the main type of bquip and may be between ships and land ment used in intermodal transport, particularly when we ample trains or trucks. Maritime con- one of the modes of transportation is by ship tainer terminals tend to be part of a larger port, Containers are 8 ft wide by 8ft high. Since their intro- whereas inland container terminals tend to be located duction, there have been moves to adopt other in or near major cities, with good rail connections to heights. The most common lengths are 20 ft and 40 maritime container terminals 111 8:25 : Q. ..ll 24% NPD book.pdf - Read-only Ky width gauge, the UK railway industry had two containers in the 1950s. 106 Case study Containers, also known as intermodal containers the container ship arrives at the container terminal or as ISO containers because the dimensions have (port), specialist equipment is required. The transfer been defined by the ISO, are the main type of equip from ship to land may be between ships and land ment used in intermodal transport, particularly when vehicles, for example trains or trucks. Maritime con- one of the modes of transportation is by ship. tainer terminals tend to be part of a larger port, Containers are 8 ft wide by 8 ft high. Since their intro whereas inland container terminals tend to be located duction, there have been moves to adopt other in or near major cities, with good rail connections to heights. The most common lengths are 20 ft and 40 maritime container terminals. ft, although other lengths exist. They are made out of A container crane, or gantry crane, is used at con- steel and can be stacked on top of each other. tainer terminals for loading and unloading shipping Container capacity often is expressed in twenty- containers from container ships. Cranes normally foot equivalent units (TEU or sometimes, teu). An transport a single container at once. However, some equivalent unit is a measure of containerised cargo newer cranes have the capability to pick up up to 4 capacity equal to one standard 20 ft (length) 8 ft 20-ft containers at once. Handling equipment is (width) container. The use of Imperial measurements designed with intermodality in mind, assisting with to describe container size reflects the fact that the US transferring containers between rail, road and sea. Department of Defense played a major part in the These can include: development of containers. The overwhelming need to have a standard size for containers, in order that Transtainer for transferring containers from sea- going vessels onto either trucks or rail wagons. A they fit all ships, cranes and trucks, and the length of transtainer is mounted on rails with a large boom time that the current container sizes have been in use, makes changing to an even metric size impractical spanning the distance between the ship's cargo Table 3.3 shows the weights and dimensions of the hold and the quay, moving parallel to the ship's side. three most common types of container worldwide The weights and dimensions quoted above are aver- Gantry cranes, also known as straddle carriers, are able to straddle rail and road vehicles allowing ages; different manufactured series of the same type of container may vary slightly in actual size and for quick transfer of containers. A spreader beam moves in several directions, allowing accurate weight. positioning of the cargo. Handling containers Reach stackers are fitted with lifting arms as On ships, containers are, typically. stacked up to well as spreader beams and lift containers to seven units high. When carried by rail, containers can swap bodies or stack containers on top of each be loaded on fiatcars or in container well cars. When other. Table 3.3 Specifications of the three most common types of container 40 container 45' high-cube container Metric Imperial 20' container Imperial Metric External Length 200 6.096 m dimensions Width 80 2.438 m Height 8' 6 2.501 m Volume 1,169 1 33.1 m Maximum 66,139 lb 30,400 kg gross mass Empty 4,850 lb weight Net load 61 289 lb 28.200 kg Imperial 40' 0 80 86 2,385 66,139 lb 12.192 m 2.438 m 2.591 m 67,5 m 45' 0 80 9' 6 3.040 66,139 lb Metric 13.716 m 2.438 m 2.896 m 88.1 m 30,400 kg 30,400 kg 2,200 kg 8,380 lb 3,800 kg 10.580 lb 4,800 kg 57,759 b 26,600 kg 55,559 lb 25,800 kg 107 Chapter 3 Market adoption and technoicay an1 38 of 666 Container shipping companies make up the vast majority of the total weight of a Informally known as 'box boats', these vessels carry cargo ship, the loading and unloading is a delicate the majority of the world's manufactured goods. balancing act, as it directly affects the whole ship's 111 8:25 : @{ 46 Il 24% NPD book.pdf - Read-only RA KY 107 Chapter 3 Market adoption and technology diffusion Container shipping companies make up the vast majority of the total weight of a Informally known as 'box boats", these vessels carry cargo ship, the loading and unloading is a delicate the majority of the world's manufactured goods. balancing act, as it directly affects the whole ship's Cargoes like metal ores, coal or wheat are carried in centre of mass. There have been some instances of bulk carriers. There are large mainline vessels that ply poorly loaded ships capsizing at port. the deep-sea routes, and then many small "feeder It has been estimated that container ships lose ships that supply the large ships at centralised hub over 10,000 containers at sea each year. Most go ports. Most container ships are propelled by diesel overboard on the open sea during storms but there engines and have crews of between 20 and 40 are some examples of whole ships being lost with Container ships now carry up to 15,000 TEU. The their cargo. When containers are dropped, they world's largest container ship, the MN Emma Marskimmediately become an environmental threat - has a capacity of 15,200 containers. (See Table 3.4.) termed marine debris'. Most containers used today measure 40 ft (12 m) in It is not surprising that, when the three students length. Above a certain size, container ships do not visited Rotterdam Container Port to discuss their idea carry their own loading gear, so loading and unloading with senior managers from the port, the managers can be done only at ports with the necessary cranes. were very enthusiastic about containers and the ben- However, smaller ships with capacities of up to 2,900 efits they deliver. They explained that container cargo TEU are often equipped with their own cranes. could be moved nearly 20 times faster than pre-con- The world's oceans can be scary places in bad tainer break bulk cargo. They also argued that, whilst weather, hence the transit of containers around the there were increased fuel costs, due to the extra world inevitably carries a considerable risk. And yet, weight of the containers, labour efficiencies more the well-known challenging routes, such as round the than compensate. Nonetheless, for certain bulk prod- Cape Horn, are not where most containers are lost. ucts this makes containerisation unattractive. On rail- Most risks are linked to the loading and unloading of ways, the capacity of the container is far from its containers. The risks involved in these operations maximum weight capacity. In some areas (mostly the affect both the cargo being moved on to or off the USA and Canada) containers are double-stacked, ship, as well as the ship itself. Containers, due to their but this is not usually possible in other countries. fairly non-descript nature and the sheer number han- At the end of the meeting, the Commercial Director died in major ports, require complex organisation to explained to the students that for their idea to suc- ensure they are not lost, stolen or misrouted. In addi-ceed, they would need to receive the necessary certi- tion, as the containers and the cargo they contain fication from agencies such as Lloyds Register or Table 3.4 Biggest shipping container companies Market share (16) Number of ships 18.2 549 376 11.7 5.6 5.2 256 Top 10 container shipping companies in order of TEU capacity Company TEU capacity A.P. Moller-Maersk Group 1.665,272 Mediterranean Shipping Company S.A 865,890 CMA CGM 507,954 Evergreen Marine Corporation 477,911 Hapag-Lloyd 410 412,344 China Shipping Container Lines 346,493 American President Lines 331,437 Hanjin-Senator 328,794 COSCO 322,326 NYK Line 302.213 153 140 4.5 3.8 111 99 3.6 3.6 145 3.5 3.3 118 105 108 Case study 139 of 666 Bureau Veritas. Their approval is required regarding Concept to product the seaworthiness of any marine equipment. Without The background research had been done. There was such certification, no shipping company would be genuine interest from potential customers. The stu- Interested in their ideas. There seemed to be many dents now needed money to build a working scale obstacles to their business idea. model of the folding container. They had to prove to 111 8:25 @{ 46 ll 24% NPD book.pdf - Read-only Ra KY Case study = Bureau Veritas. Their approval is required regarding Concept to product the seaworthiness of any marine equipment. Without The background research had been done. There was such certification, no shipping company would be genuine interest from potential customers. The stu- interested in their ideas. There seemed to be many dents now needed money to build a working scale obstacles to their business idea. model of the folding container. They had to prove to everyone that it would work. Moreover, the concept Business opportunity: moving empty also had to be compatible with existing equipment for containers intermodal transport. That is, it would need to be Containers are intended to be used constantly, being exactly the same size/shape/weight, etc. It would loaded with a new cargo for a new destination soon also have to have proper sealing and locking devices after being emptied of the previous cargo. This is not and should interlock with other containers. Computer always possible and, in some cases, the cost of models were fine to a point, but a physical model was transporting an empty container to a place where it now required, especially if they were going to con can be used is considered to be higher than the worth vince people to invest. With the help of the university of the used container. This can result in large areas in and the Incubator, the students set about construct ports and warehouses being occupied by empty con- ing a full working steel model. It was to be a 1/10th tainers left abandoned. The shipping industry spends scale. So it would be 2 ft long x 0.8 ft high. Real a great deal of time and money in repositioning empty working springs would have to be in place. The containers. If trade was balanced, there would be no friends realised immediately that a patent drawing is empty containers. But trade imbalance, especially theory and it did not resemble reality. Numerous fab- between Europe and North America with Asia, has rication and manufacturing problems had to be over- resulted in approximately 2.5 million TEUs of empty come. Eventually, after two months of experimenting containers stored in yards around the world with with steel springs and welding equipment in the empties comprising 20-23 per cent of the movement workshop, a fully working model emerged that of containers around the world. According to research required two people to manoeuvre the steel box. conducted by International Asset Systems, the aver- More importantly, it had taken a considerable amount age container is idle or undergoing repositioning for of time and investment in materials and equipment. over 50 per cent of its life span. The research also When the model was demonstrated to senior figures determined that shipping companies spend $16 bil- at the Port of Rotterdam, they were very impressed lion in repositioning empties. To compensate for and immediately wanted to see a full-size version -a these costs, carriers add surcharges, ranging from prototype. But, who would pay for a full-size proto- $100 to $1,000 per TEU, to freight rates type? It would be enormous and probably cost thou- Folding containers would provide further advan- sands of euros to produce. tages: for example, they would relieve congestion at ports. Storing empty containers takes up prime real estate. For example, the storage yards around the Port of Jersey, UK, are cluttered with an estimated 100,000 empty containers belonging to leasing companies and an additional 50,000 belonging to ocean carriers. Folding containers would be quicker to load (four at a time), resulting in faster tumaround time for ships. Energy costs would drop as well as one trailer rather than four would transport empties. Fnally, there is also a security feature to the folded container built to ISO standards. Nothing can be smuggled in a collapsed empty. It was estimated that, if 75 per cent of empty Son Education Photos containers were folded by 2010, the result would be a yearly saving in shipping of 25 milion TEUs or 50 per The three students had made some significant cent of the total volume of empty containers shipped. steps forward with their business idea, but they still 109 Chapter 3 Market adoption and technology diffusion did not have an order, let alone any sales or cash from 150,000 TEUs in October 2008 to 750.000, Was this to be just a hanboy, something 140 of 666 ny tregohet cates for containere Strips not generated any anyone pay for one of these things? The students needed money to finance the next stage, but, as well as being impoverished, they were not manufacturers! are also fallen by almost 80 per cent since summer 2008. The freight rates on the India-UK sector was $1,100 for a 20 it container and this has come down to $280 to $300, and to ferry a 20 ft container unit to the Gulf is just $90 against $550 in 2007. Globally, things are Decision time TIL 8:25 : @ { 46 Il 24% NPD book.pdf - Read-only standards. Nothing can be smuggled in a collapsed empty. It was estimated that, if 75 per cent of empty Sunna hot containers were folded by 2010, the result would be a yearly saving in shipping of 25 million TEUs or 50 per The three students had made some significant cent of the total volume of empty containers shipped.stops forward with their business idea, but they still 109 Chapter 3 Market adoption and technology diffusion did not have an order, let alone any sales or cash. Was this to be just a hobby, something they enjoyed, but not something that generated any cash? Would anyone pay for one of these things? The students needed money to finance the next stage, but, as well as being impoverished, they were not manufacturers! Decision time All three students were excited about the possibilities and the huge potential that existed. They would love to start their own business, rather than work for someone else. There were many uncertainties: money, career, what happens if they fail? As if to underline their concerns, an open page of the Financial Times glared at them and gave them further worries Credit crunch hits shipping as trade falls 2009 has seen a considerable slowdown in global trade. It has left the Indian shipping industry high and dry, with the country's idle capacity set to rise from 150,000 TEUs in October 2008 to 750,000. Not surprisingly freight rates for container ships from India have also fallen by almost 80 per cent since summer 2008. The freight rates on the India-UK sector was $1,100 for a 20 ft container and this has come down to $280 to $300, and to ferry a 20 ft container unit to the Gulf is just $90 against 3550 in 2007. Globally, things are similar elsewhere in Singapore, one of the world's busiest ports, some vessels are now being used to store empty containers to save on port rentals Port-related businesses, such as inland container ports and container freight stations, are also suffering. The global downturn raised further worries for the friends - maybe this was the wrong time to start a business? Source: Levinson, M. (2006) The Box How the Shipping Container Made the World Smaller and the World Economy Bigger, Princeton University Press, Princeton Questions 1 Would you advise the students to start this business? 2 Who are their customers going to be? 3 Who can they license the technology to? 4 Can they form any partnerships or alliances? 5 How would you enter this market? 6 What aspects of product diffusion will they need address? 7 Use the CIM (Figure 1.9) to illustrate the innovation process 8 is patent protection essential here? If not, why not? 9 How can the students help customers adopt the product? 10 Standardisation led to growth in container usage: what will be the effect of this non-standard folding container? Note: This case has been written as a basis for class discussion rather than to illustrate effective or ineffective managerial or adminis- trative behaviour. It has been prepared from a variety of sources and from cbservations Chapter summary This chapter has explored the wider context of innovation, particular the role of the state and the role of the market. It has shown that innovation cannot be separated from political and social processes. This includes both tangible and intangible features, including economic, social and political institutions and processes and mechanisms that facilitate the flow of knowledge between industries and firms. It has also shown the pow- erful influence of the market on innovation; in particular the need to consider long time 110 141 of 666 References 111 o