The legacy of Malcolm McLean

Article from Freight Waves
Flashback Friday: the legacy of Malcolm McLean
March 15, 2019, Scott Mall

Most adults have seen a movie that shows cargo being lifted onto a ship. Depending on the era that the movie was set in, there were sweating stevedores hoisting a net filled with boxes and barrels of various sizes aboard a schooner. Or the movie might show cargo being muscled up a gangway into a ship of one kind or another. Then you might see cargo being moved from a ship onto a dock and from the dock onto a truck.

Before containerization, the cargo would be stored at a port warehouse until a ship was available. When an empty vessel arrived, the cargo would be transported from the warehouse to the side of the docked ship. The cargo would typically be loaded into sacks, bales, crates and barrels, and then loaded by hand onto the ship. This was a very time- and labour-intensive process. A typical ship might have as many as 200,000 pieces of cargo on-board.

By the end of the second Industrial Revolution (early 20th century), this process was exacerbated with the advent of moving cargo by rail. The transfer of cargo from ships to trains or trains to ships had not changed in hundreds of years. This caused major delays at ports across the industrialized world.

And whether one package or thousands, until the 1950s, muscle power and/or rudimentary tools were used to load and unload the cargo carried by boats and ships around the world (and then to load them onto another form of transportation). For hundreds of years on ships, about 130 years on railroads and about 50 years on trucks, most of the cargo was loaded by hand and shipped or packed loose, or in boxes, bags, barrels or other relatively small containers based on the commodity. In industry terms, this is known as “breakbulk shipping.”

The primary costs involved in breakbulk shipping until the 1950s were the time and labour spent loading and unloading ships in port, railcars in railyards and trucks at docks or other locations. According to DeathInTek Freight & Logistics, “the cost of loading and unloading [ships] was up to 75 per cent of the total shipping costs and the ship could take as long to load and unload as it did to transport [the cargo] over the water.”

Since 1956, though, breakbulk shipping has given way (for the most part) to intermodal freight transportation. By definition, intermodal freight transport involves freight transportation in an intermodal container or vehicle, using multiple modes of transportation (rail, ship and/or truck), without any handling of the freight itself when changing modes. Intermodal transportation reduces cargo handling, improves security, reduces damage and loss and means that the freight is transported faster. Cross-country intermodal is generally cheaper than trucking similar distances.

Early forms of intermodal transportation

Technically, intermodal transportation goes back to the late 1700s when coal was moved in containers on England’s Bridgewater Canal. Various entities in the United Kingdom (UK) should be credited with most early intermodal innovations.

In 1780s England, wooden boxes were loaded on barges that moved on the country’s rivers and canals and transferred to horse-drawn wagons. That same method spread to the European continent and the new United States of America. But these practices were the exception rather than the rule.

The Liverpool and Manchester Railway, one of England’s early railroads, used wooden coal containers to move the fuel in the 1830s. Also, in England, the Great Eastern Railway used wooden containers to trans-ship passenger luggage between trains and sailings just before World War I. The first use of covered containers, primarily used to move furniture and other freight between road and rail, was used in England beginning around 1900. However, a lack of standard container sizes limited the value of this service, which led to early efforts at standardization. Similar containers (known as “lift vans”) were used in the United States beginning early in the second decade of the 20th century.

In the 1920s, containers were first standardized by the UK’s Railway Clearing House (RCH). Subsequently, both railway-owned and privately owned vehicles could be carried on standard container flats. These containers were small by today’s standards (4.9 or 9.8 feet long). They were primarily made of wood, had a curved top and were too flimsily made to be stacked. With these containers, the London, Midland and Scottish Railway offered “door-to-door” intermodal road-rail services in 1928. However, the RCH standard did not gain widespread acceptance outside the UK.

Transporting trucks on ships was put into practice after World War I, although never in any great quantities.

In 1936 truck trailers were carried by rail by the Chicago Great Western Railroad, a small Class 1 railroad. However, this new form of intermodal transportation – technically known as a trailer on a flatcar, or TOFC, called by most “piggyback service” – was not widely used before World War II. Then, in the years just before the war, and once the war began, the railroads’ cargo was primarily war material.

The U.S. military widely used palletized loads during World War II. It assembled its freight (war materiel) on pallets, allowing faster transfer between warehouses, trucks, trains, ships and aircraft. Because no breakbulk handling was required, fewer military or civilian personnel were needed to process the material, and loading times were shortened.

The U.S. military also began widespread containerized shipping during World War II. It used metal shipping containers to move large amounts of its freight. These containers were a standard size (8’6” x 6’3” x 6’10”) and were shipped to the various staging areas and war zones around the world.

After World War II, the Canadian Pacific Railway reintroduced piggyback transport and was the first Class 1 North American railroad to offer the service in 1952. Intermodal transportation of truck semi-trailers was offered by many railroads beginning in the 1950s under various names. It was one of the key new methods for moving the increasing amounts of freight.

Concurrently, the four largest railroads in the United Kingdom offered services that used standard RCH containers that could be taken off or put on the back of trucks via cranes.

Malcolm McLean and McLean Trucking Co

Malcolm P. McLean was born in Maxton, North Carolina, in 1913. After graduating from high school, his family did not have the resources to send him to college. He worked for several years, and in 1935, McLean bought a used truck.

That same year, McLean and his siblings, Clara and Jim, founded McLean Trucking Co. Based in Red Springs, North Carolina, McLean Trucking began transporting farmers’ harvests and supplies, as well as empty tobacco barrels. McLean was one of the drivers. Through hard work and resourcefulness, the company expanded to 30 trucks by 1940.

In 1937, during routine delivery of cotton bales from North Carolina to New Jersey, McLean watched dockworkers loading and unloading cargo from a ship. The process took many hours; the dock hands had to pass many small boxes to others aboard the ship. Because McLean could not leave until his cargo was loaded aboard the ship, he thought what a waste of time and money this entailed (for him and many others).

From then until the early 1950s, McLean focused on McLean Trucking. It became the fifth-largest trucking company in the U.S., with over 1,750 trucks and 37 transport terminals. If he had done nothing else in his life, McLean would have been judged successful by most.

McLean Trucking and its competitors were operating under regulations mandated by the Interstate Commerce Commission (ICC). The ICC instituted new truck weight restrictions. Routinely, McLean’s trucks were fined for being out of compliance with the new restrictions.

McLean sought a more efficient method to transport cargo and remembered his experience on the New Jersey dock in 1937 and the containers that the U.S. military used routinely during World War II.

The birth of intermodal shipping

In 1952, McLean’s original idea was to create a standard-size trailer loaded onto ships. He thought he could improve his business by taking his trucks off the ICC-controlled roads and move them by ship along the Atlantic Coast. He planned to move them from the company’s base in North Carolina to New York, with trucking hubs co-located with strategic ports. This would mean his trucking fleet would be used only for shorter, intrastate deliveries, which would fall outside the ICC’s jurisdiction.

However, he realized that the original concept of “trailer ships” would not be very efficient. Only a certain number of trailers would fit on a ship, and other cargo space on board a vessel would be wasted. McLean modified his idea so that only the containers

would be loaded onto a ship, not the chassis. The concept of a trailer ship became the “container ship” or “box ship.”

As noted earlier, the U.S. military palletized metal containers to speed up necessary war material during World War II. In the 1950s, the U.S. Department of Defense developed specifications for a new standardized steel Intermodal container.

McLean had seen the military’s use of containers during the war when it could ship a huge volume via ships in its rudimentary shipping containers.

Also, during that time period, U.S. law did not allow a trucking company to own a shipping line. McLean believed in his idea of a standardized shipping trailer or container. Undaunted, he sold McLean Trucking for approximately $25 million and began a new company, McLean Industries. In 1955, he secured a $42 million bank loan. McLean used $7 million to buy Pan-Atlantic Steamship Company, an established shipping company that already had docking rights in many of the eastern port cities McLean was targeting. Part of the loan also paid for the docking, shipbuilding and repair facilities necessary for his operations.

He also hired Keith Tantlinger, an engineer, to develop the prototype for a new shipping container. They tested variations of the container and finally settled on a primitive form of the ubiquitous shipping container. It was standardized and strong, making it easy to load/unload, stackable and lockable (and therefore tamper- and theft-resistant).

Tattinger improved on the rudimentary design used by the military during the war. His container’s metal body had corner fittings and twist-lock. A twist-lock and corner fittings form a standardized rotating connector for securing shipping containers. Together, they also lock a container into place on either a container ship, semi-trailer truck or railway container car. They also allow the container to be lifted by a container crane or side lifter.

McLean now had his containers and McLean Industries as a platform. The next hurdle was to design ships that could carry containers. In January 1956, he bought two World War II-era oil tankers. They were retrofitted to carry containers on and under the deck. McLean was familiar with Mechano decking, which was wooden shelter decking used during the war to help carry oversized cargo, such as aircraft. The refitting, construction of containers and design of trailer chassis to haul the containers took several months.

On April 26, 1956, one of the converted tankers, the SS Ideal X, left from the Port of Newark-Elizabeth Marine Terminal in New Jersey, heading for the Port of Houston. Its cargo included 58 of the new containers, as well as 15,000 tons of petroleum. The containers were 35-feet long and were termed “Trailer Vans” (later just called containers).

The success of McLean’s idea and designs was quickly apparent. McLean Industries was taking orders for return cargo before the SS Ideal X docked in Houston. The company offered a 25 per cent discount on the current price of ship cargo. Not only was the cost lower than regular shipping, but the lockable containers also prevented cargo theft.

McLean’s containers revolutionized the industry. At the SS Ideal X’s sailing, most of the cargo was loaded and unloaded by longshoremen for $5.86 per ton. A ship could be loaded/unloaded for 16 cents per ton using the new containers – a 36-fold saving! Not only did containerization cost less, but there were also great savings in the time it took to load or unload a ship.

Sea-Land

In April 1957, McLean’s first true container ship, the Gateway City, began regular service between New York, Florida and Texas. In the summer of 1958, McLean’s Pan-Atlantic Steamship Corporation began container service between the U.S. and San Juan, Puerto Rico. The name of the company was changed from Pan-Atlantic to Sea-Land Service, Inc. in April 1960. The new name highlighted the company’s delivery service on the sea as well as on the land. By 1961 Sea-Land was profitable and continued to add routes and buy bigger ships.

Sea-Land opened a new 101-acre facility in Port Newark-Elizabeth Marine Terminal in August 1963 to handle the increased container traffic. The container market developed slowly over the next few years; the change was slow to come to the industry that had operated in the same basic way for more than 200 years. Infrastructure had to be modified or added; heavy-duty cranes to lift containers on and off ships were not widespread at ports. Additionally (and understandably), the unions representing dockworkers were against the idea that (at a minimum) meant change and, at its worst, had the potential to cost many jobs.

Nonetheless, McLean’s Sea-Land continued to grow and expand. Sea-Land began service between New York and Bremen (Germany), Rotterdam (Netherlands) and Grangemouth (Scotland) in April 1966.

The U.S. government became Sea-Land’s largest account when it started shipping containers to South Vietnam in 1967. This generated 40 per cent of Sea-Land’s 1968-1969 revenue.

Shipping containers to South Vietnam also opened other opportunities for Sea-Land in Asia. The company began container ship service in late 1968 from Asia to the U.S. Service expanded in 1969 to Hong Kong and Taiwan, and the Philippines, Singapore and Thailand in 1971.

McLean continued to work on standardization to reduce the cost of labour and the time needed at dockside. This focus on efficiency resulted in patents for Sea-Land’s standardized container designs. However, McLean allowed others to use the patents through a royalty-free lease to the International Organization for Standardization.

As the 1970s began, Sea-Land Industries owned 27,000 trailer-type containers, 36 trailer ships and docked at 30 ports worldwide. Competitors began to imitate Sea-Land as the advantages of containers gained increased attention.

McLean had trucked Reynolds Tobacco Company cigarettes around the United States when he operated McLean Trucking. He began negotiations to sell Sea-Land to generate the cash needed to remain competitive with his imitators. Reynolds agreed to buy Sea-Land for $530 million in cash and stock; McLean personally made $160 million in the deal and was awarded a seat on the company’s board of directors. R.J. Reynolds formed R.J. Reynolds Industries, Inc. as a holding company, formally buying Sea-Land in May 1969.

Profits were not consistent under the Reynolds Industries tent. Nonetheless, the company spent more than $1 billion on Sea-Land, adding ships to its fleet and building improved terminals in New Jersey and Hong Kong. And because fuel was the company’s largest expense, Reynolds purchased the American Independent Oil Co. to lower those costs.

Sea-Land’s earnings were spectacular in 1974 ($145 million) but dropped sharply in 1975. The turmoil caused McLean to resign from the board of directors in 1977 and severed his ties with the company he founded.

R.J. Reynolds Industries spun off Sea-Land Corporation to shareholders as an independent, NYSE-traded company in mid-1984. Coincidentally, Sea-Land had its highest revenue and earnings in its history.

A little more than two years later (September 1986), Sea-Land Corporation merged with a rail giant CSX Corporation subsidiary. Then in 1999, the international division of Sea-Land was sold to Danish shipping company Maersk. The new company was known as Maersk Sealand; in 2006, the company was rebranded as Maersk Line.

The domestic portion of Sea-Land is now Horizon Lines. Nearly 36 per cent of the total marine container shipments between the continental United States and Alaska, Hawaii, Puerto Rico and Guam are carried on Horizon Lines ships.

The legacy of Malcolm McLean

McLean’s modern intermodal shipping container development revolutionized transportation and international trade in the second half of the 20th century. His concept of containerization significantly lowered the cost of freight transportation by eliminating the repeated handling of individual pieces of cargo. In addition, the standardized intermodal container improved the reliability of shipping, reduced cargo theft and decreased the costs of inventory by cutting transport time across three transportation modes (marine, rail and truck).

McLean’s container had its biggest impact on shipping. Container ships now spend 80 per cent of their time at sea; before containers, this time was around 50 per cent (with 50 per cent of time loading and unloading cargo).

Beyond that accomplishment, McLean created a system that goes beyond shipping containers. Container ships now fly the flags of many nations and carry the brands of numerous companies. But they trace their heritage to McLean’s converted oil tankers. In addition, specialized rail cars and trucks were designed to haul shipping containers via land.

Fortune magazine included McLean in its Business Hall of Fame in 1982. American Heritage magazine named McLean one of the 10 innovators of the past 40 years in 1995.