The Truck Driver Who Reinvented Shipping
Malcolm P. McLean (1914-2001) hit on an idea to dramatically reduce labor and dock servicing time. An excerpt from In Their Time: The Greatest Business Leaders of the Twentieth Century by Harvard Business School's Anthony J. Mayo and Nitin Nohria.
Malcolm P. McLean, a truck driver, fundamentally transformed the centuries-old shipping industry, an industry that had long decided that it had no incentive to change. By developing the first safe, reliable, and cost effective approach to transporting containerized cargo, McLean made a contribution to maritime trade so phenomenal that he has been compared to the father of the steam engine, Robert Fulton.
As a youth growing up on a farm in a small town of Maxton, North Carolina, McLean learned early on about the value of hard work and determination: His father was a farmer who also worked as a mail carrier to supplement the family's income. Even so, when young Malcolm graduated from high school in 1931, the country was in the midst of the Depression and further schooling was simply not an option. Pumping gas at a service station near his hometown, McLean saved enough money by 1934 to buy a second-hand truck for $120. This purchase set McLean on his lifelong career in the transportation industry.
McLean soon began hauling dirt, produce, and other odds and ends for the farming community in Maxton, where reliable transportation was hardly commonplace. Eventually, he purchased five additional trucks and hired a team of drivers, a move that enabled him to get off the road and look for new customers. For the next two years, his business thrived, but when poor economic conditions forced many of his newly won customers to withdraw their contracts, McLean scaled down his operation and got behind the wheel again.
Not just one trailer, or two of them, or five, or a dozen, but hundreds, on one ship.
During this setback in his life, when he almost lost his business, McLean came across the idea that changed his destiny. The year was 1937, and McLean was delivering cotton bales from Fayetteville, North Carolina, to Hoboken, New Jersey. Arriving in Hoboken, McLean was forced to wait hours to unload his truck trailer. He recalled: "I had to wait most of the day to deliver the bales, sitting there in my truck, watching stevedores load other cargo. It struck me that I was looking at a lot of wasted time and money. I watched them take each crate off the truck and slip it into a sling, which would then lift the crate into the hold of the ship."1 It would be nineteen years before McLean converted his thought into a business proposition.
For the next decade and a half, Mclean concentrated on his trucking business, and by the early 1950s, with 1,776 trucks and thirty-seven transport terminals along the eastern seaboard, he had built his operation into the largest trucking fleet in the South and the fifth-largest in the country. As the trucking business matured, states adopted a new series of weight restrictions and levying fees. Truck trailers passing through multiple states could be fined for excessively heavy loads. It became a balancing act for truckers to haul as much weight as possible without triggering any fees. McLean knew that there must be a more efficient way to transport cargo, and his thoughts returned to the shipping vessels that ran along the U.S. coastline. He believed "that ships would be a cost effective way around shoreside weight restrictions . . . no tire, no chassis repairs, no drivers, no fuel costs . . . Just the trailer, free of its wheels. Free to be lifted unencumbered. And not just one trailer, or two of them, or five, or a dozen, but hundreds, on one ship."2 In many ways, McLean's vision was nothing new. As far back as 1929, Seatrain had carried railroad boxcars on its sea vessels to transport goods between New York and Cuba. In addition, it was not uncommon for ships to randomly carry large boxes on board, but no shipping business was dedicated to a systematic process of hauling boxed cargo.
Seeing the feasibility of these types of operations may have inspired McLean to take the concept to a new level. Transporting "containerized cargo" seemed to be a natural, cost-effective extension of his business. McLean initially envisioned his trucking fleet as an integral part of an extended transportation network. Instead of truckers traversing the eastern coastline, a few strategic trucking hubs in the South and North would function as end points, delivering and receiving goods at key port cities. The ship would be responsible for the majority of the travel—leaving the trucks to conduct short, mostly intrastate runs generally immune from levying fees.
He needed to convince lots of customers to rely less on his former business, trucking.
With the concept in mind, McLean redesigned truck trailers into two parts—a truck bed on wheels and an independent box trailer, or container. He had not envisioned a Seatrain type of business, in which the boxcar is rolled onto the ship through the power of its own wheels. On the contrary, McLean saw several stackable trailers in the hull of the ship. The trailers would need to be constructed of heavy steel so that they could withstand rough seas and protect their contents. They would also have to be designed without permanent wheel attachments and would have to fit neatly in stacks. McLean patented a steel-reinforced corner-post structure, which allowed the trailers to be gripped for loading from their wheeled platforms and provided the strength needed for stacking. At the same time, McLean acquired the Pan-Atlantic Steamship Company, which was based in Alabama and had shipping and docking rights in prime eastern port cities.
Buying Pan-Atlantic for $7 million, McLean noted that the acquisition would "permit us to proceed immediately with plans for construction of trailerships to supplement Pan-Atlantic's conventional cargo and passenger operations on the Atlantic and Gulf coasts."3 He believed that his strong trucking company, combined with newly redesigned cargo ships, would become a formidable force in the transportation industry. Commenting on McLean's controversial business plan, the Wall Street Journal reported: "One of the nation's oldest and sickest industries is embarking on a quiet attempt to cure some of its own ills. The patients are the operators of coastwise and intercoastal ships that carry dry cargoes."4 The cure, the article noted, was business operators like McLean who were breathing new life into the shipping industry.
Though McLean had resigned from the presidency of McLean Trucking and placed his ownership in trust, seven railroads accused him of violating the Interstate Commerce Act. The accusers attempted to block McLean from "establishing a coastwise sea-trailer transportation service."5 A section of the Interstate Commerce Act stated that it "was unlawful for anyone to take control or management in a common interest of two or more carriers without getting ICC's approval."6 Ultimately unable to secure ICC's endorsement, McLean was forced to choose between his ownership of his well-established trucking fleet or a speculative shipping venture. Though he had no experience in the shipping industry, McLean gave up everything he had worked for to bet on intermodal transportation. He sold his 75 percent interest in McLean Trucking for $6 million in 1955 and became the owner and president of Pan-Atlantic, which he renamed SeaLand Industries.
The maiden voyage for McLean's converted oil tanker, the Ideal X, carried fifty-eight new box trailers or containers from Port Newark, New Jersey, to Houston in April 1956. Industry followers, railroad authorities, and government officials watched the voyage closely. When the ship docked in Houston, it unloaded the containers onto trailer beds attached to non-McLean owned trucking fleets 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. He needed to convince lots of customers to rely less on his former business, trucking. McLean also needed 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 SeaLand 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 next challenge was convincing port authorities to redesign their sites to accommodate the new intermodal transport operation. Although he received his first big break with the backing of the New York Port Authority chairman, McLean continued to run into resistance. The tide did not change until the older ports witnessed the financial resurgence of port cities that had adopted containerization. His business got an additional boost when the Port of Oakland, California, invested $600,000 to build a new container-ship facility in the early 1960s, believing that the new facility would "revolutionize trade with Asia."7
To achieve the dramatic reductions in labor and dock servicing time, McLean was vigilant about standardization.
The labor savings associated with McLean's intermodal transportation business was a major victory for shippers and port authorities, but it was a huge threat to entrenched dockside unions. The traditional break-bulk process of loading and unloading ships and trucks necessitated huge armies of shore workers. For some ports, the real threat to the industry was not McLean but other modes of transportation that were making ship transport obsolete. By endorsing McLean's business strategy, port officials believed that they were protecting the future of their business. If that meant fewer workers, so be it. They reasoned that it was better to have fewer workers in a prosperous enterprise than many in a declining one.
To achieve the dramatic reductions in labor and dock servicing time, McLean was vigilant about standardization. His efforts to increase efficiency resulted in standardized container designs that were awarded patent protection. Believing that standardization was also the path to overall industry growth, McLean chose to make his patents available by issuing a royalty-free lease to the Industrial Organization for Standardization (ISO).8 The move toward greater standardization helped broaden the possibilities for intermodal transportation. In less than fifteen years, McLean had built the largest cargo-shipping business in the world. By the end of the 1960s, McLean's SeaLand Industries had twenty-seven thousand trailer-type containers, thirty-six trailer ships, and access to over thirty port cities.9 With a top market position, SeaLand was an attractive acquisition candidate, and in 1969, R.J. Reynolds purchased the company for $160 million. When he set out to gamble on his idea of containerized cargo, McLean probably did not realize that he was revolutionizing an industry. McLean's vision gave the shipping industry the jolt that it needed to survive for the next fifty years. By the end of the century, container shipping was transporting approximately 90 percent of the world's trade cargo.10 Though we have coded McLean as a leader in our research, some of his approaches and characteristics have more of an entrepreneurial flavor. There is often a fine line between creation and reinvention, and though the lines sometimes blur, we have generally tended to cite individuals as leaders when their innovations help restructure or reinvent an industry rather than create an entirely new one. For this reason, we see McLean as a leader.
1. Robert Mottley, "The Early Years: Malcolm McLean," American Shipper, 1 May 1996.
3. "McLean Buys All Stock in Two Subsidiaries of Waterman Steamship," Wall Street Journal, 24 January 1955, 17.
4. Marvin A. Chatinover, "'Fishy-Back': Coastal Operators Seek Economic Rescue; Haul Trucks, Trains," Wall Street Journal, 8 February 1955, 1.
5. "Railroads Assail Sea-Trailer Plan," The New York Times, 13 February 1955, 187.
6. "ICC to Investigate Ship, Truck Holdings of Malcolm P. McLean," Wall Street Journal, 18 May 1955, 15.
7. Sean Kilcarr, "The Passing of a Pioneer," Drivers Magazine, 1 June 2001.
8. Michael Bohlman, "Tribute to Malcolm McLean, Founding Father of the Freight Container," International Organization for Standardization, http://www.iso.ch/iso/en/commcentre/news/archives/2002/malcolmmclean.html (accessed 25 July 2003).
9. "R.J. Reynolds, McLean Holders Approve Merger," Wall Street Journal, 14 May 1969, 40.
10. For information on Malcolm P. McLean, see Bohlman, "Tribute to Malcolm McLean"; Wally Bock, "A Man Who Changed the World," Monday Memo, 11 June 2001, available from: http://www.mondaymemo.net/010611feature.htm (accessed 24 July 2003); "Centennial Journal: 100 Years in Business—McLean Makes Containers Shipshape, 1956," Wall Street Journal, 10 August 1989; Chatinover, "'Fishy-Back,'" 1; "Containerization Marks 40th Anniversary on April 26, 1996: A New Jersey Innovation," Business Wire, 17 April 1996, available from Factiva, http://www.factiva.com (accessed 24 July 2003); Kilcarr, "Passing of a Pioneer"; Louis, "Hall of Fame," 103; Maersk Sealand Company, "The Evolution of the Revolution in Containers," Maersk Sealand Web site, http://www.maersksealand.com/ (accessed 24 July 2003); "Malcolm Purcell McLean, Pioneer of Container Ships, Died on May 25th, Aged 87," The Economist, 2 June 2001; Joseph G. Mattingly Jr., "Containerization," editorial in Defense Transportation Journal, 1 June 2001; Mottley, "The Early Years: Malcolm McLean"; Richard Pearson, "Malcolm McLean Dies; Revolutionized Shipping," Washington Post, 27 May 2001; Wolfgang Saxon, "M. P. McLean, 87, Container Shipping Pioneer," The New York Times, 29 May 2001, 13; James Surowiecki, "The Financial Page: The Box That Launched a Thousand Ships," The New Yorker, 11 December 2000, 46; and Wayne K. Talley, "Ocean Container Shipping: Impacts of a Technological Improvement," Journal of Economic Issues, 1 December 2000.
Reprinted by permission of Harvard Business School Press. Excerpted from In Their Time: The Greatest Business Leaders of the Twentieth Century by Anthony J. Mayo and Nitin Nohria. Copyright 2005 Harvard Business School Publishing Corporation.
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