The man who saved the shipping industry

In the mid-1950s, the ocean-going shipping industry was struggling to survive. The growing air-freight business was gaining market share; costs of ocean shipping were rising; and the industry faced the challenge of how to reduce the increasingly time-consuming and labor-intensive process of loading and unloading individual lots of cargo.

Because of the long delays caused by the painstakingly slow process, cargo ships were spending as much time in port as they were sailing to their destination, which was not the most efficient way to utilize the capital investments that the ships had become. Additionally, outbound and inbound cargo would sit on the piers for days—sometimes even weeks—before reaching their final destination, thus increasing the chances of damage, loss, and pilferage. At the time, many shipping executives claimed that it cost more to move cargo from the pier to the ship than it did to transport the cargo thousands of miles from one port to another. Clearly, much-needed improvements were in order.

Malcom McLean, a North Carolina truck driver, grew frustrated with the existing process. He knew there had to be a better way than loading and unloading cargo piece by piece. He wondered why an entire truck couldn’t be hoisted aboard a ship and then be used for delivery purposes at the other end of the line. What he had in mind was not so much the introduction of containerized shipping (which many lines had used sporadically since the 1920s) but the reinvention of the entire industry—a completely containerized transportation network that encompassed the trucking companies, railroads, and shipping lines. The concept required the redesign of truck trailers into two parts:a truck bed on wheels and an independent box trailer that serves as the container. These containers would be stackable within the hull of a ship and, to protect the cargo inside, strong enough to withstand the weight of other containers stacked on top as well as the rough seas. Plus, trains would be able to transport them. The key to this new process was standardization.

In April of 1956, McLean’s first containerized ship left Port Newark carrying fifty-eight new box trailers and headed to Houston. According to authors Anthony J. Mayo and Nitin Nohria for the Harvard Business School Working Knowledge article The Truck Driver Who Reinvented Shipping,

Industry followers, railroad authorities, and government officials watched the voyage closely. When the ship docked in Houston, it unloaded the containers onto trailer beds and its cargo was inspected. The contents were dry and secure. McLean's venture had passed its first hurdle, yet it was just one of many obstacles that he encountered.The primary hurdle being to persuade port authorities to redesign their dockyards to accommodate the lifting and storage of trailers, and he needed to rapidly expand the scope of his operations to ensure a steady and reliable revenue stream. Securing new clients proved the least difficult, since McLean's new service could transport goods at a 25 percent discount off the price of conventional travel, and it eliminated several steps in the transport process. In addition, since McLean's trailers were fully enclosed and secure, they were safe from pilferage and damage, which were considered costs of business in the traditional shipping industry. The safety of McLean's trailers also enabled customers to negotiate lower insurance rates for their cargo.

McLean’s new venture eventually became known as Sea-Land Service, and it evolved into one of the most important and most successful steamship companies to operate as part of the U.S. Merchant Marine.

When most everyone in the shipping industry was focusing on how to lower expenses while ships were in motion and steaming (costs that were already relatively low), Malcom McLean focused on how to eliminate the real costs—namely, huge expenses that were occurring when ships were in port. As a result of his innovative containerized transportation network, he has received top credit for helping resurrect the shipping industry that today accounts for almost 94 percent of all global cargo.

Author:.

Patrick Lefler is the founder of The Spruance Group, a management consultancy that helps companies grow faster and dramatically increase profits through smarter pricing strategies and execution. He is a former Marine Corps officer, a graduate of both the U.S. Naval Academy and The Wharton School of the University of Pennsylvania, and has held leadership positions at a number of different firms including Goldman Sachs, Citibank and Wall Street Systems. He is a member of Innovation NJ, a coalition...

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