The Box - Marc Levinson [133]
The profit potential of these new services was questionable from the start. Almost the entire container shipping industry was struggling: Seatrain Lines went bankrupt in 1981; Delta Steamship and Moore-McCormack Lines collapsed into the arms of U.S. Lines in 1982; Hapag-Lloyd sold its headquarters building for cash to repay creditors; Taiwan’s Orient Overseas holding was forced to restructure $2.7 billion of debt; and Sea Containers, which owned British ferry services as well as 15 containerships and a container leasing company, nearly went under. Matters grew even worse in 1984 and 1985, as Evergreen and U.S. Lines began their round-the-world services. New shipping capacity flooded onto the market. The available space for containers in the North Pacific rose 20 percent between May 1983 and May 1984, leaving ships from North America to Japan running almost half empty. Lloyd’s Shipping Economist reported “widespread rate cutting actions by carriers in search of market share.”20
Nor was the service quite as expected. Each port call required not just a stop at the dock but a costly, time-wasting diversion from the round-the-world route. Unless stops were severely curtailed, voyages would become impractically long. As a result, most ports were connected to the round-the-world services with feeder ships that transferred their containers at major load centers, lengthening total transit time for cargo. Evergreen’s globe-girdling ships eventually stopped visiting Britain altogether, using Le Havre, in France, as their regional load center and shuttling 200,000 containers per year to ports in England, Scotland, and Ireland. McLean’s Econships required too much depth for many ports, sometimes leaving cargo on the dock in order to depart on the high tide. Neither Evergreen nor U.S. Lines had faced the fact that their ships might not be the best way to move cargo; although shipping containers cross-country on double-stack trains cost more than sending them through the Panama Canal, American President Lines’ ship-rail service could get a container from Japan to New York in only 14 days, a transit time neither Evergreen nor U.S. Lines could come close to matching. On-time performance was a constant problem as well. With a ship sailing around the world, bad weather in the Bay of Biscay or a troublesome crane in Dubai could obliterate the schedules promised to customers at Yokohama and Long Beach.21
Disaster was not long in coming. Instead of rising from $28 to $50 a barrel, as McLean had expected, oil prices collapsed to $14 in 1985. U.S. Lines’ slow, fuel-conserving ships were suddenly the wrong vessels for the market, and the oil sheikdoms of the Middle East could no longer afford the limitless quantities of imports that were supposed to keep the Econships filled with cargo. The competition was tougher, too: unlike the 1970s, when one mismanaged breakbulk company after another collapsed before the onslaught of container shipping, the players in the 1980s were professionally managed firms with no inclination to surrender. After posting a $62 million profit in 1984, McLean Industries reported a $67 million loss in 1985. The company missed an interest payment in early 1986 as McLean struggled to restructure his loans. It was to no avail. In the first nine months of 1986, McLean Industries lost $237 million on revenue of $854 million. Container terminals in Europe began demanding cash up front before allowing the Econships to load. Creditors tightened their terms. On November 24, staggering under $1.2 billion of debt, McLean Industries suspended all service and filed for bankruptcy.22
The collapse of United States Lines was, at the time, the largest bankruptcy in U.S. history. It was also one of the most tangled. A total of 52 ships were arrested at ports from Singapore to Greece. The seven U.S. banks that held the mortgages on the Econships scrambled to recover what they could from