Business

The Elon Musk of his day, containers, and family shipping dynasties

The world of container shipping, created in the 1950s by the drive of Malcom Purcell McLean, an Elon Musk of his day, has been split asunder by the pandemic and trade disputes.

The Freightos Baltic Index, an average of container rates over five days, has tripled to $4,302 in a year.  Rates in Asia hit a peak of $10,000 in January. The rise levelled off in early February but recently resumed. 

Empty containers are marooned in Australia, Europe and the US due to pandemic restrictions at ports and staffing shortages. Exporters are paying to take them to China empty, squeezing out users in the US food community.

Ikea has called the situation a “global transport crisis.” Shipping companies, many of them family-owned, are fighting to regain their balance. 

McLean, an advocate of free trade, would struggle to recognise a return to the chaos he sorted out. Born in 1913, he started out developing McLean Trucking Company with his brother and sister which later became a listed company.

By 1956 he saw the potential in carrying container loads by sea. He bought a shipping company called Sea-Land Service to prove his point and converted two oil tankers to carry containers with the help of Keith Tatlinger.

In those days, cargo was loaded and unloaded by labourers. The process cost $5.86 a ton, against the 16 cents it took to move containers.  This led to a 36-fold reduction in costs as well as time savings.  

McLean faced down the unions and split the difference with suppliers while persuading ports to adapt to container traffic. By 1967, his container ships were sailing to Asia.  

To get funds to develop his business he negotiated Sea-Land’s sale to tobacco group RJ Reynolds which invested $1 billion to improve his business, now owned by Maersk.  

McLean became weary of the bureaucracy at Reynolds and cut loose to buy United States Lines. He borrowed $1.2 billion to build a massive fleet of container superships. The business failed to compete and slid into Chapter 11. 

In 1991, at 78, McLean started a new shipping business called Tailor Bridge but died in 2001 in obscurity.

Latterly, there has been recognition of his achievements. The US government has paid tribute to his determination. 

Marc Levinson, who wrote a biography of McLean, said: “He had a vision of what he thought possible and constantly challenged his managers to achieve it.”

In a review of the container industry for the Journal of International Economics, Daniel Bernhofen saw it as an important “driver of 20thCentury economic globalisation.”

Recent events have pushed the process into reverse. Exports of agricultural goods including rice, soybeans and sugar are being held up at ports. The cost of manufactured goods is rising. There are reports of goods being put in the holds of ships, as was the case before McLean intervened.

Suppliers are largely taking the hit to margins at this stage, but inflationary pressure could increase if and when the pandemic ebbs and demand goes up.

Shipowners do not see any chance of the situation being resolved until the end of the second quarter, at the earliest. But increased demand has improved their profitability and many carriers are locking in long-term delivery contracts at a decent price. 

Due to its many moving parts, the shipping industry can be a place where money goes to die. But families are in this business for the long term. They know their way round the system. And it’s an ill wind…

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