(Paper) Indian Institute of Foreign Trade Previous Paper - 2011

(Paper) Indian Institute of Foreign Trade Previous Paper - 2011

Direction for questions 1 to 4: Read the following passage carefully and answer the questions given at the end.

Passage 1

Before the internet, one of the most rapid changes to the global economy and trade was wrought by something so blatantly useful that it is hard to imagine a struggle to get it adopted: the shipping container. In the early 1960s, before the standard container became ubiquitous, freight costs were I0 per cent of the value of US imports, about the same barrier to trade as the average official government import tariff. Yet in a journey that went halfway round the world, half of those costs could be incurred in two ten-mile movements through the ports at either end. The predominant ‘break-bulk’ method, where each shipment was individually split up into loads that could be handled by a team of dockers, was vastly complex and labour-intensive. Ships could take weeks or months to load, as a huge variety of cargoes of different weights, shapes and sizes had to be stacked together by hand. Indeed, one of the most unreliable aspects of such a labour-intensive process was the labour. Ports, like mines, were frequently seething pits of industrial unrest. Irregular work on one side combined with what was often a tight-knit, well - organized labour community on the other.

In 1956, loading break-bulk cargo cost $5.83 per ton. The entrepreneurial genius who saw the possibilities for standardized container shipping, Malcolm McLean, floated his first containerized ship in that year and claimed to be able to shift cargo for 15.8 cents a ton. Boxes of the same size that could be loaded by crane and neatly stacked were much faster to load. Moreover, carrying cargo in a standard container would allow it to be shifted between truck, train and ship without having to be repacked each time.

But between McLean’s container and the standardization of the global market were an array of formidable obstacles. They began at home in the US with the official Interstate Commerce Commission, which could prevent price competition by setting rates for freight haulage by route and commodity, and the powerful International Longshoremen's Association (ILA) labour union. More broadly, the biggest hurdle was achieving what economists call ‘network effects’: the benefit of a standard technology rises exponentially as more people use it. To dominate world trade, containers had to be easily interchangeable between different shipping lines, ports, trucks and railcars. And to maximize efficiency, they all needed to be the same size. The adoption of a network technology often involves overcoming the resistance of those who are heavily invested in the old system. And while the efficiency gains are clear to see, there are very obvious losers as well as winners. For containerization, perhaps the most spectacular example was the demise of New York City as a port.

In the early I950s, New York handled a third of US seaborne trade in manufactured goods. But it was woefully inefficient, even with existing break-bulk technology: 283 piers, 98 of which were able to handle ocean-going ships, jutted out into the river from Brooklyn and Manhattan. Trucks bound‘ for the docks had to fiive through the crowded, narrow streets of Manhattan, wait for an hour or two before even entering a pier, and then undergo a laborious two-stage process in which the goods foot were fithr unloaded into a transit shed and then loaded onto a ship. ‘Public loader’ work gangs held exclusive rights to load and unload on a particular pier, a power in effect granted by the ILA, which enforced its monopoly with sabotage and violence against than competitors. The ILA fought ferociously against containerization, correctly foreseeing that it would destroy their privileged position as bandits controlling the mountain pass. On this occasion, bypassing them simply involved going across the river. A container port was built in New Jersey, where a 1500-foot wharf allowed ships to dock parallel to shore and containers to be lified on and off by crane. Between 1963 - 4 and 1975 - 6, the number of days worked by longshoremen in Manhattan went from 1.4 million to 127,041.

1. Identify the correct statement:

(1) The freight costs accounted for around I0 percent of the value of imports in general during early l960s, given the labour-intensive ‘break-bulk’ cargo handling.
(2) As a result of growing adoption of containerized trade during 1969-73, while the ocean-borne exports from South Korea in general more than doubled, the same to the US tripled.
(3) The outbreak of the Vietnam war functioned as a major positive force towards rapid expansion of containerization, as American imports from the country increased heavily.
(4) In the early days of container trade development, a major shipping firm Matson Navigation used a 24-foot container since a bigger container was not suitable for its trucks.

2. Identify the false statement:

(1) In the pre-containerization days, trucks bound for the New York docks had to pass through the narrow streets, wait for an hour or two before even entering a pier, and then undergo a laborious three-stage process for loading onto a ship.
(2) Once satisfied with the effectiveness of containerized trade, the US military engaged the company of Malcolm McLean to transport equipments for their soldiers stationed in Western Europe.
(3) Cargo loading during 1960s usually took a long period, as it involved manual handling of huge variety of cargoes of different weights, shapes and sizes.
(4) The issue of standardization of the containers created led to a debate .between the US government and American Standards Association, but the question was finally sorted through public subsidy programme by Federal Maritime Board.

3. The emergence of containerization technology in early seventies resulted in:

(1) Immediate adoption of the containerized export route by private companies, in their own accord.
(2) An instant sharp reduction in freight costs expressed as a percentage of imports across countries.
(3) Spectacular growth in exports from the East Asian tiger economies, which were reliant on an export-oriented growth strategy.
(4) All of the above

4. Match the following

(1) a – i; b – iv, c – ii; d - iii
(2) a – iii; b – i, c – iv; d - ii
(3) a – iv; b – i, c – ii; d - iii
(4) a – iii; b – iv, c – ii; d – i

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