The Box - Marc Levinson [118]
The first of these new vessels was American Lancer, owned by United States Lines, Sea-Land’s biggest competitor across the North Atlantic. The Lancer, which made its maiden voyage between Newark and Rotterdam, London, and Hamburg in May 1968, was far bigger than any containership on the seas. It could carry 1,210 20-foot containers at a speed of 23 knots—half again as fast as the reconstructed ships in Sea-Land’s fleet. In August 1968 U.S. Lines asked the Maritime Administration for a $95 million subsidy to build six more such behemoths. Other American, European, and Japanese companies raced to place their orders. Almost always, a ship was designed with a specific route in mind. Atlantic vessels usually held 1,000–1,200 containers, because too large a ship meant too much port time after a relatively short voyage. Ships meant for the Asia trades were typically larger, carrying 1,300–1,600 20-foot containers, because the relatively long ocean voyages from Europe or America to Japan generated enough additional revenue to cover the added construction cost.4
The expense of building and equipping these second-generation containerships staggered even the largest ship lines. Between 1967 and the end of 1972, a consultant would later calculate, the total cost of containerization around the world would come to near $10 billion—an amount close to $40 billion in 2005 dollars. Individual European ship lines had no prospect of raising financing of this magnitude: the total after-tax profit of all thirty-seven British steamship companies in 1966 came to less than £6 million. With few alternatives, the British formed consortia such as Overseas Containers Ltd., whose members shared the $185 million cost of building six ships, and containers to go with them, between 1967 and 1969. The smaller Belgian, French, and Scandinavian carriers sought strength in numbers as well. If four ship lines joined forces, each building one or two vessels, in combination they might have enough ships to be significant players.5
The American carriers were slightly more prosperous, thanks to government subsidies and military shipments, but they were hardly rolling in money. Sea-Land generated a total of $30 million of profit from 1965 through 1967, almost all of it on domestic routes. The largest American ship line, United States Lines, earned $4 million of profit over those three years. The Americans were not forced into joint ventures, though, because they had an option that the Europeans did not. The American conglomerates that aspired to remake the business world in the late 1960s spotted opportunity in the traditionally low-profit maritime industry, and they wanted to be in on the container boom. Litton Industries, of course, had invested in Sea-Land. Walter Kidde & Co. opened its wallet to buy United States Lines in January 1969. City Investing, another conglomerate, won a bidding war for Moore-McCormack Lines until the ship line reported a big loss for 1968 and the deal fell apart. The “cold, pragmatical thinking” of conglomerates threatened the industry, a maritime executive complained in 1968. “Such conglomerates, the newcomers, assign no value to the romance of the sea or the traditions of the railroads and the highways. They are strictly readers of the bottom lines of financial reports.”6
No conglomerate chieftain was a more avid reader of financial reports than Malcom McLean. He knew what the cost of competition was going to be, and he knew that Sea-Land, its balance sheet stretched to the limit, had no hope of borrowing the money. His previous conglomerate backer, Litton, which held 10 percent of Sea-Land’s shares, was tapped out. McLean turned toward an entirely unexpected source of funds: R. J. Reynolds Industries. Reynolds, based in Winston-Salem, North