The Box - Marc Levinson [90]
The ships that had launched the container era all had been leftovers, dating to World War II. As of 1965, every containership in Sea-Land’s fleet was at least two decades old, and Matson’s youngest had been launched in 1946. These older vessels, obtained from the U.S. government’s fleet at bargain-basement prices, were slow and small, but they allowed the container pioneers to get under way without huge amounts of capital. As other companies tested containerization in the early 1960s, they generally used converted World War II freighters as well. The cost of building brand-new vessels was too great for many companies to handle, even with government subsidies, and the risks of guessing wrong about future trends in cargo handling were extremely high.23
No one was more aware that the world was about to change than Malcom McLean. He was already fully committed to the container. Outracing any potential competitors, Sea-Land had converted seven vessels into containerships between 1961 and 1963. The converted ships allowed it to open West Coast service in 1962 and then to buy Alaska Freight Lines in 1964, but at the cost of increasing its debt from $8.5 million to $60 million in just two years. By 1964, far greater financing needs loomed as Sea-Land began to look at Europe. Once word of McLean’s next destination got out, the big American companies would surely enter the transatlantic container trade, and the European ship lines were bound to join in as well. To stay in the lead, McLean had no choice but to roll the dice once again. He did it by arranging two more extraordinary financial transactions in 1965.24
The first was with Daniel K. Ludwig, a man who had much in common with Malcom McLean. Ludwig, born in 1897, had entered the shipping business at age nineteen by transporting molasses around the Great Lakes. Like McLean, he ran his business with a legendary focus on costs; according to one famous story, he bought a tanker called the Anahuac and decided to keep the name because “it would have cost $50 to paint it out.” By the 1950s his National Bulk Carriers was the largest American-owned ship line, and Ludwig was one of the world’s wealthiest men. His holdings included American-Hawaiian Steamship Company, a shell since it stopped operating ships in 1953. Ludwig had watched McLean’s container venture carefully, and in January 1961 American-Hawaiian suddenly applied for $100 million in federal subsidies to build ten enormous high-speed ships and open an intercoastal service through the Panama Canal. Sea-Land promptly announced its own entry into the intercoastal route and spent the next year successfully blocking Ludwig’s bid for subsidies. Ludwig pared his subsidy request to three ships, to be powered by nuclear reactors, but then decided that the best way to profit from container shipping was to invest in Sea-Land instead. In early 1965, when McLean Industries’ shares were trading for $13 apiece, the company issued one million shares of stock to American-Hawaiian for $8.50 per share, and Ludwig joined the company’s board of directors. It was the first act of what would prove to be a long-running collaboration between Ludwig and Malcom McLean.25
The second deal involved Litton Industries. Litton, founded in the 1930s to make radio tubes, had been reshaped during the 1950s into a new type of company, a “conglomerate.” Among its far-flung holdings was the Ingalls Shipyard in Pascagoula, Mississippi. Litton, like the other conglomerates of the day, was bent on fast growth, and it was eager for Ingalls to diversify away from naval contracts into commercial work. McLean needed ships but had no money; Litton was rolling in money but desperate to keep its shipyard busy.
Negotiations led to