But the deal was still not done, and a competing buyer, also financed by National City, had grown interested in Waterman. To avoid any chance of a slipup, the lawyers decided that the entire transaction needed to be completed simultaneously. On May 6, Waterman’s board and McLean’s bankers and lawyers convened in a Mobile boardroom only to realize that the board lacked a quorum. One of the Wall Street lawyers quickly took the elevator downstairs, stopped a passerby, and asked whether he wanted to earn a quick fifty dollars. The man was promptly elected a Waterman director, making a quorum. The Waterman board members then resigned one at a time, with each being replaced by a McLean nominee. The new board immediately voted to pay a $25 million dividend to McLean Industries, and with a phone call the money was wired to National City. As the meeting broke up, lawyers for the opposing bidder served the board with legal papers to prevent the transfer of the dividend, but the bank already had its money and McLean had Waterman. Typical of McLean’s financial acumen, he laid out only $10,000 of his own cash to gain control of one of the country’s largest ship lines through what later became known as a leveraged buyout. “In a sense, Waterman was the first LBO,” Wriston recalled.20
McLean’s prize was a formerly debt-free company whose bank loans and ship mortgages soared to $22.6 million at the end of 1955, nearly ten times its $2.3 million of after-tax income. In a step that set the norm for future leveraged buyouts, McLean disposed of unwanted Waterman assets to pay down debt; the sale of a hotel, a dry dock, and various other businesses raised almost $4 million within two months of the takeover. Now heavily in debt, McLean began maneuvering for a government handout. The federal government had become interested in ships carrying truck trailers, and Pan-Atlantic obtained $63 million of government loan guarantees for seven new roll on-roll off ships, designed to have trailers driven on board. The new ships would carry 288 truck trailers each and would reduce cargo-handling costs by more than 75 percent.21
The money was never spent, because McLean reconsidered his plan. He had realized that carrying trailers on ships was inefficient: the wheels beneath each trailer would waste a lot of precious shipboard space. Pondering that problem, McLean came up with a still more radical idea. A government maritime-promotion program made leftover World War II tankers available to ship lines very cheaply. Pan-Atlantic would buy two and convert them to haul truck trailer bodies—trailers detached from their steel beds, axles, and wheels. Subtracting the frames and wheels would reduce the space occupied by each trailer by one-third. Even better, the trailer bodies could be stacked, whereas trailers with wheels could not be. As McLean envisioned it, a truck would pull the trailer alongside the ship, where the trailer body, filled with twenty tons of freight, would be detached from its steel chassis and lifted aboard ship. At the other end of the voyage, the trailer body would be lowered onto an empty chassis and hauled to its destination.22
The concept was costed out on Ballentine Beer, which McLean Trucking hauled from Newark. Analysts for the Port of New York Authority calculated that sending the beer to Miami on board a traditional coastal ship, including a truck trip to the port, unloading, stacking in a transit shed, removal from the transit shed, wrapping in netting, hoisting aboard ship, and stowage, would cost four dollars a ton, with unloading at the Miami end costing as much again. The container alternative—loading the beer into a container at the brewery and lifting the container aboard a specially designed ship—was estimated to cost twenty-five cents a ton. Container shipping would be 94 percent cheaper than breakbulk shipping of the same product, even allowing for the cost of the container.23
Tankers, of course, were not the ideal vessels for such a mission, but they reduced the financial risk. If no one wanted to ship containers on the return trip from Houston to Newark, the vessels could still make money carrying oil. McLean portrayed these “lift on-lift off” ships as “forerunners” of the roll on-roll off ships he intended to build with the government guarantees, but plans for the trailerships were pushed to the side and finally abandoned.24
The concept that became container shipping was Malcom McLean’s. But in early 1955, when McLean jettisoned his plan to put entire truck trailers on Pan-Atlantic’s ships and decided instead to carry just trailer bodies, he could not simply buy the equipment off the shelf. Small steel boxes were readily available, but it was obvious that lowering them into the hold and stowing them amid assorted bags and bales, the way other ship lines occasionally did, would bring little by way of cost savings. Truck trailer bodies could be purchased as well, but moving trailers weighing tens of thousands of pounds apart from their chassis and wheels was by no means a routine operation. McLean, impatient to build a business, demanded that his staff find a way to turn his concept into reality. In March, a Pan-Atlantic executive named George Kempton placed a call to Keith Tantlinger.
Tantlinger, then thirty-five, was chief engineer at Brown Industries in Spokane, Washington, and had already built a reputation as a container expert. Brown had been building truck trailers since 1932, and Tantlinger’s job, along with designing trailers for trucking companies, involved speaking at industry meetings to promote Brown’s products. In 1949, he had designed what was probably the first modern shipping container, a 30-foot aluminum box that could be stacked two high on barges operating between Seattle and Alaska or placed on a chassis and pulled by a truck. The order involved only two hundred containers, and despite much curiosity, no other orders followed. “Everybody was interested, but nobody wanted to reach for his pocketbook,” Tantlinger remembered.25
McLean the trucker had never done business with Brown Industries. Now that he was in the shipping business, though, McLean wanted Tantlinger’s expertise—immediately. The next morning, Tantlinger flew to Mobile, where Pan-Atlantic was based. “I understand you know everything there is to know about containers,” was McLean’s gruff greeting. McLean explained his plan. He proposed to use containers thirty-three feet long, a length chosen because the available deck space aboard the T-2 tankers was divisible by thirty-three. These boxes were at least seven times the size of any containers then in common use. Rather than having longshoremen stow them with other cargo in a ship’s hold, he proposed to install metal frames, called flying decks or spardecks, above the tangle of pipes that covered the decks of his two tankers. The spardecks would hold the containers eight abreast. The idea was to attach six steel pieces, each a foot long with a small hole at the bottom, to the sides of each container. When the container was loaded on board ship, the steel pieces would slide vertically through slots in the frame of the spardeck, and a rod would be inserted through the holes, underneath the frame, to lock the container in place. Most important, the containers Pan-Atlantic planned to use would be designed to be shifted easily among ships, trucks, and trains.26
McLean’s trucking superintendent, Cecil Egger, had begun experiments with two old Fruehauf truck trailers that had been strengthened with A-shaped steel brackets welded to each side. Tantlinger quickly saw that the system was unworkable: the containers were meant to be locked in placed with steel pieces protruding beneath them, making them impossible to stack, and the A-shaped brackets made the trailers too wide and too tall for the highways. Tantlinger told McLean that standard Brown containers, which used the aluminum sides and roof to bear most of the load, would do the job. McLean ordered two 33-foot containers, to be delivered in two weeks to the Bethlehem Steel shipyard in Baltimore, which was altering the tankers. On the appointed day, Tantlinger was to meet Pan-Atlantic executives for breakfast at the Lord Baltimore Hotel. When they failed to arrive, he called the shipyard and learned that the men were already there. Tantlinger rushed to the shipyard, where Malcom and Jim McLean, Kempton, and Egger were jumping up and down on the roof of a container. Tantlinger had told Malcom McLean that the wafer-thin aluminum roof was strong enough to keep the container rigid, and the McLean group was trying, unsuccessfully, to disprove his claim. Sold on the merits of Brown’s containers, McLean ordered two hundred boxes and demand
ed that the reluctant Tantlinger move to Mobile to be his chief engineer.
Part of Tantlinger’s job was to convince the American Bureau of Shipping, which sets standards for maritime insurers, that the Ideal-X would be seaworthy when loaded with containers, while the U.S. Coast Guard wanted assurance that the containers would not endanger the ship’s crew. After negotiation, the Coast Guard agreed to a test. Pan-Atlantic asked trucking company workers to load two containers with cardboard boxes filled with coke briquets, a cargo of average density and negligible cost. The boxes were lashed to the spardeck of one of the converted T-2s. The ship then sailed back and forth between Newark and Houston, the Coast Guard checking the load after each voyage, until a trip though heavy seas persuaded that maritime agency that loaded containers were safe. Photos of the test, showing the stacks of cardboard boxes dry and firmly in place after each voyage, got the Bureau of Shipping’s approval.
And then there was the matter of loading. Most cargo ships in the 1950s had winches that allowed them to load and unload in any port, but a standard shipboard winch could not shift a twenty-ton container without destabilizing the ship. The solution took the form of two huge revolving cranes at a disused shipyard in Chester, Pennsylvania. The cranes, with booms seventy-two feet above the dock, were designed to move on tracks installed on the dock, parallel to the ship. Pan-Atlantic dismantled them, cut twenty feet out of their structures, and shipped them off to Newark and Houston, while port workers at both locations reinforced the piers to accommodate the added weight and installed the rails and large power supplies the cranes required. Hanging from the cranes was another money-saving piece of equipment newly invented by Tantlinger, a spreader bar stretching the entire length and width of a container. The spreader eliminated the need for longshoremen to climb ladders to the roof of each container and attach hooks dangling from the crane. Instead, the crane operator, sitting in a cab sixty feet above the dock, could lower the spreader over a container and engage the hooks at each corner with the flip of a switch. Once the box had been lifted and moved, another flip of the switch would disengage the hooks, without a worker on the ground touching the container.27
McLean wanted to start Pan-Atlantic’s new service in 1955. The government did not move quite so fast. Not until late 1955, after months of hearings, did the ICC overrule objections from the railroads and authorize Pan-Atlantic to carry containers between Newark and Houston. Delays in gaining Coast Guard approval pushed the start date back further. On April 26, 1956, one hundred dignitaries enjoyed lunch at Port Newark and watched the crane place a container on the Ideal-X every seven minutes. The ship was loaded in less than eight hours and set sail the same day. McLean and his executives flew to Houston to watch the arrival. “They were all waiting on Wharf II for the ship to arrive, and as she came up the channel, all the longshoremen and everybody else came over to look,” one witness recalled. “They were amazed to see a tanker with all these boxes on deck. We had seen thousands of tankers in Houston, but never one like this. So everybody looked at this monstrosity and they couldn’t believe their eyes.” For McLean, though, the real triumph came only when the costs were tallied. Loading loose cargo on a medium-size cargo ship cost $5.83 per ton in 1956. McLean’s experts pegged the cost of loading the Ideal-X at 15.8 cents per ton. With numbers like that, the container seemed to have a future.28
Pan-Atlantic’s Sea-Land Service was in business, meeting a schedule of one weekly sailing in each direction between Newark and Houston. Pan-Atlantic itself was barred from owning trucks, but it contracted with trucking companies to pick up shipments at customers’ loading docks and to carry arriving containers to their final destinations. Between April and December, Pan-Atlantic completed forty-four container voyages along the East and Gulf coasts. In a typical McLean touch, his engineers figured out that through the addition of small deck extensions, the tankers’ capacity could be increased from 58 containers to 60 and then 62. If there was a way to squeeze a dollop of extra revenue from the aging tankers, McLean would find it.29
Again, the railroad and trucking industries did their best to close down the show. They protested vehemently that McLean’s takeover of Waterman without ICC approval was a blatant violation of the Interstate Commerce Act. Although Waterman had renounced its domestic operating rights to escape ICC jurisdiction, that renunciation had not been accepted by the ICC—and Pan-Atlantic’s request for “temporary” authority to take over the Waterman rights, keeping them in the corporate family, made the entire deal look suspicious. In November 1956, an ICC examiner agreed. Although Malcom McLean was a “man of vision, determination and considerable executive talent,” the examiner said, his purchase of Waterman without commission approval broke the law. As punishment, he recommended that McLean Industries be forced to divest Waterman. The ICC rejected the examiner’s recommendation in 1957, leaving McLean in control of both Pan-Atlantic and Waterman, and, more important, of Waterman’s large fleet.30
Malcom McLean was by no means the “inventor” of the shipping container. Metal cargo boxes of various shapes and sizes had been in use for decades, and numerous reports and studies supported the idea of containerized freight before the Ideal-X set sail. An American steamship operator, Seatrain Lines, had operated specially built ships holding railway boxcars in metal cells as early as 1929, lifting the boxcars on and off with large dockside cranes. These ample precedents have led historians to downplay the nature of Malcom McLean’s achievements. His container was just a “new adaptation of a long-used transportation formula whose birth dates to the early years of the twentieth century,” French historian Rene Borruey asserts. American historian Donald Fitzgerald concurs: “Rather than a revolution, containerization of the 1950s was a chapter in the history of development of maritime cargo transportation.”31
In a narrow sense, of course, these critics are correct. The high cost of freight handling was widely recognized as a critical problem in the early 1950s, and containers were much discussed as a potential solution. Malcom McLean was not writing on a blank slate. Yet the historians’ debate about precedence misses the transformational nature of McLean’s accomplishment. While many companies had tried putting freight into containers, those early containers did not fundamentally alter the economics of shipping and had no wider consequences.
Malcom McLean’s fundamental insight, commonplace today but quite radical in the 1950s, was that the shipping industry’s business was moving cargo, not sailing ships. That insight led him to a concept of containerization quite different from anything that had come before. McLean understood that reducing the cost of shipping goods required not just a metal box but an entire new way of handling freight. Every part of the system—ports, ships, cranes, storage facilities, trucks, trains, and the operations of the shippers themselves—would have to change. In that understanding, he was years ahead of almost everyone else in the transportation industry. His insights ushered in change so dramatic that even the experts at the International Container Bureau, people who had been pushing containers for decades, were astonished at what he had wrought. As one of that organization’s leaders confessed later, “we did not understand that at that time a revolution was taking place in the U.S.A.”32
* The younger McLean was named Malcolm at birth and continued to spell his name that way until after 1950, when he changed the spelling to Malcom. To avoid confusion, he is referred to as “Malcom” throughout this account.
Chapter 4
The System
A dock strike loomed over East Coast ports in the autumn of 1956. Facing the prospect that the Pan-Atlantic and Waterman fleets would sit idle, Malcom McLean decided to use the time to advantage. Six of Waterman’s C-2 freighters were transferred to Pan-Atlantic’s control. They were sent to Waterman’s shipyard in Mobile, which had been closed after World War II but was reopened to convert them into pure containerships. The idea was to build a honeycomb of metal cells in the holds so that 35-foot containers, two feet longer than those carried on the Ideal
-X, could be lowered in and stacked five or six high. The ships were to be rebuilt and back at sea by 1957. Of course, there was no model of a pure containership, the metal cells did not exist, and no one had ever stacked containers five or six high. How tightly should the containers fit into the cells? How would a stack of six containers behave when a ship rolled in heavy seas? And how could the vessels be unloaded at ports where there were no land-based cranes? As was his way, McLean did not preoccupy himself with such details. He simply told his staff to get the job done.1
The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger Page 7