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 ever increasing loading and unloading times for cargo – a time-consuming and labor intensive process.
Because of these long delays for individual lots of cargo to be slowly loaded and unloaded, cargo ships were spending as much time in port as they were sailing to their destination – not the most efficient way to utilize the capital investments that ships had become. Additionally, outbound and inbound cargo would sit on the piers for days even weeks before reaching their final destination – increasing the chance of damage, loss and pilferage. At the time, many shipping executives suggested 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. Something had to give.
Enter Malcom McLean, a North Carolina truck driver who grew frustrated with the existing process. McLean felt that there had to be a better way than loading and unloading cargo piece by piece. “Why couldn’t” he asked, “an entire truck be hoisted aboard ship and then used for delivery purposes at the other end of the line?” What McLean had in mind was not so much the introduction of containerized shipping (which had been used sporadically by many lines since the 1920s) , but the reinvention of the entire industry – a complete containerized transportation network that that stretched from the trucking companies and railroads to the shipping lines. It required the redesign of truck trailers into two parts; a truck bed on wheels and an independent box trailer – the container. A container that could be stackable within the hull of a ship and strong enough to withstand the weight of those containers stacked on top and strong enough to withstand rough seas to protect the cargo inside. And a container that could be hauled by the railroads. The key was standardization.
In April of 1956, McLean’s dream became a reality when his 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.
Malcolm 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.
Today, containerized shipping accounts for almost 94 percent of global cargo. There are few instances where innovation has had such a dramatic impact.
Here’s the takeaway: 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 – huge expenses that were occurring when ships were in port. As a result of his innovative containerized transportation network, he more than anyone else is credited with helping the shipping industry rise from the dead.
