Reprint of Chapter 6 on Malcom P. McLean in Giants of the Sea book by John D. McCown

6. Malcom P. McLean

The Inventor and Father of Container Shipping.

Trade simply wouldn’t exist at current levels without the extraordinary cost efficiencies that resulted from Malcom’s genius. Almost everyone has daily exposure to products they consume, wear or otherwise use that made the way to them via container. No other individual is more responsible for the global trade phenomena than this giant among giants.

Malcom Purcell McLean was born on November 14, 1913 in Maxton, North Carolina, a town with a population of 1,300 that was 70 miles southeast of Charlotte, North Carolina. Originally called Shoe Heel, Maxton was a farming community settled more than a century earlier by Scottish immigrants. In testimony to its roots, the local paper was the Scottish Chief.

Malcom had six siblings, split evenly between three brothers and three sisters. He was the second oldest among a close-knit group of children. Malcom would remain close to all his siblings, most particularly to one brother and one sister. His father was a farmer who supplemented his income by delivering mail on a rural postal route. Malcom was named after his father who used the more traditional spelling of Malcolm. While Malcom spelt his name that way initially, at a later point in his life he would decide to change it. He would recall that his spelling simply fit better with the way his name was actually pronounced.

The Scottish heritage in the area of North Carolina that Malcom grew up in was according to sociologists a catalyst for the unusual entrepreneurial activity that would come out of the area. North Carolina had become the most popular destination for people migrating from Scotland. In large part, this was due to encouragement in the 1700’s by the royal governor of the colony, a Scotsman himself. These immigrants came from a culture rooted in hard work and industriousness, not surprising given that the same culture produced Adam Smith, the father of capitalism. It’s reasonable to speculate that those basic traits were exacerbated in Scotsmen who elected to cross the Atlantic to settle in North Carolina.

Thousands of Highland Scots, descendents of the Celts who settled in northern Scotland, migrated in large organized groups to North Carolina by the late 1700’s. They farmed the land and found that they could plant their crops without removing the tall straight longleaf pine trees. By removing a ring of bark, the tree died and all its needles fell, letting the sun reach the crops. Many Scottish farmers also went into the naval store business of producing products from the sap of those pine trees. Pitch and tar were important products at the time, in large part because they were needed to protect the hulls and rigging of wooden sailing ships.

How much this strong Scottish heritage played a role with young Malcom is unclear, but what is clear is that he began to exhibit diligent work habits and strong entrepreneurial skills even as a child. Before and after school, he had multiple farm chores that he performed meticulously.

After finishing his chores after school, Malcom would grab his shoeshine kit and go into town, moving from store to store where he would hawk his services. Initially getting a nickel to shine a pair of shoes or boots, as his performance reputation and sales abilities increased, he was often able to get a dime. Malcom remembered a story of returning to Maxton for a visit decades later. Walking along the sidewalk, he came across an elderly gentleman who recognizing him, smiled and said, “shine for a dime”, repeating Malcom’s often repeated sales pitch as a fourteen-year-old child.

Malcom graduated from high school in 1931 in the depths of the depression and promptly got a job stocking shelves in the local grocery store. His innate analytical skills were beginning to show and he quickly completed any tasks involving numbers. Within months, he was in the front of the store handling checkouts where he impressed the owner and his customers with his courteous and very efficient service in addition to his obvious math skills.

It didn’t take long before Malcom was confident he could manage his own retail business. Upon learning that a gas station in nearby Red Springs was looking for a manager, Malcom actively pursued and got that job. He studied and quickly learned the economics related to cash coming in and cash going out in that business.

In what would be the first of many initiatives he would undertake to differentiate his product with customers, he came up with a unique marketing promotion. Malcom thought his car traffic would increase if he gave drivers a memorable experience that would make them always want to come back to his gas station. Taking a page from organ grinders that were popular in various urban areas at the time, Malcom bought a monkey that he put on a leash attached to his gas pumps.

Customers, particularly those with children, embraced this attraction and gas sales at the station shot up sharply. Malcom did, however, have to modify the housing situation for the monkey who was initially locked inside the office at night. When Malcom opened up one morning, he found the office in disarray with papers scattered throughout. He quickly built a new enclosure outside that would become the new home for the monkey.

Malcom was always reviewing his receipts and disbursements and making various calculations of what could be done to improve the numbers. When he ordered a truckload of gasoline, he became aware that the trucker got $5 for moving that load from Fayettville, a larger town 28 miles away. His calculations lead him to believe he could do that himself and save a large amount of money. Talking the station owner into letting him use an old tank trailer in the back of the station, he did just that.

With $120 Malcom had saved from pumping gas, he bought a used tractor to pull the tank trailer. By moving his own gasoline, Malcom was able to sharply reduce his transport costs. As he moved more loads, his actual experience became a further input for refining his calculations. Even after factoring in full costs for equipment and his time, Malcom saw savings. He made inquiries of other businesses in town regarding what they paid for trucking and began developing his next business plan.

In 1934, Malcom formed McLean Trucking Company. He was the sole driver moving gasoline to the service station he continued to run. In addition to the savings he achieved there, he had determined that trucking offered nice profits if managed correctly.

Looking around for more opportunities in trucking, Malcom bought a used dump truck from a local man who agreed to accept installment payments over time. He immediately entered into a contract to haul dirt for the WPA, the federal public works program. Malcom hired a driver and that venture was immediately profitable from the beginning. With the cash he made there, he bought a new truck to haul vegetables for local farmers. Each successful contract gave rise to another opportunity. Malcom left his position at the gas station to focus exclusively on his growing trucking business.

Within a year of starting his trucking business, 22 year old Malcom owned two trucks and one tractor trailer and also employed nine drivers who owned their own tractor trailers. He brought in his brother Jim and his sister Clara to help him. In a framework that would work well for all of them for decades, Jim focused on day to day operations, Clara handled administrative tasks and Malcom focused on revenue growth and the future. It was a team and a division of labor that proved to be very effective.

To say that Malcom was hands-on is an under-statement and doesn’t adequately capture his constant focus on the basics of moving freight from one point to another. During the heady growth that would occur over the next decade, Malcom would often be seen behind the wheel driving one of his rigs. His granular approach resulted in observations that assisted in both reducing costs and increasing revenue.

In 1937, Malcom married Margaret Sykes, his girlfriend who lived in a nearby North Carolina town. They bought a house in Winston-Salem and began starting a family. Their first child was a daughter, Nancy, and their son, Malcom Jr., and another daughter, Patricia, would follow later.

Malcom shared with me numerous stories of his experience as a driver and how that informed his insight into the freight business. Each time he drove, he was aware of the cargo he was moving and its various attributes. He paid attention to how it was loaded and unloaded, how much it weighed and what its value was, among other things. Malcom would always take whatever time was needed to observe how cargo was put in and taken out of his trailer, where it was moved from and where it was initially placed after unloading. He was naturally curious and embodied the concept of management by walking around.

As he was driving, Malcom would reflect on all the characteristics of the cargo that he was moving. As he would say many times, when you’re driving, you’ve got plenty of time to think. Malcom chose always to be thinking about the movement of freight from one point to another. Combined with his keen skills of observation, these traits and habits would serve him well for the rest of his life.

There was one early experience that Malcom had as a driver that stands out as the catalyst for his greatest initiative. Before getting to that, however, it’s worth recounting a couple of other experiences he had as a driver that were reflective of the business principles he was developing.

In the early days of McLean Trucking, Malcom continued to drive and preferred to handle new business as that allowed him to see the cargo being loaded and unloaded and meet the people that were involved. His natural curiosity and polite southern manner lead to constructive conversations, whether on the loading docks or in the offices, that often would result in additional business with that new customer. Malcom was a man with many skills. While my view is that his rigorous focus on relative costs, supported by a very sharp quantitative mind, was his top skill, he was also an excellent salesman.

One of Malcom’s frequent trips as a driver was from North Carolina to New York. Between furniture, tobacco and a variety of other goods, his home state was a solid generator of truck freight. On one such trip that involved delivering cargo for several key accounts in the New York area just before Thanksgiving, Malcom came up with an idea that he thought could result in more business with those customers.

He was going to personally deliver live turkeys to decision makers at each of those accounts. Going to a local North Carolina turkey farm, he picked out three nice turkeys and indicated his plans. The farmer put each turkey in its own large burlap bag which he tied at the top, assuring Malcom they could breathe and would arrive in fine shape. Malcom then put the bagged turkeys in the cab of his tractor and setoff for New York. The first half of the trip was uneventful, although the turkeys got increasingly louder.

One by one, however, the turkeys managed to peck holes in their burlap bags and free themselves. Between hopping around the cab to pecking at each other and occasionally pecking on Malcom’s right arm, it became quite a menagerie. Stopping at tollbooths was particularly eventful, as the turkeys would attempt to escape through his rolled down window. Malcom devised a way to roll down his window just enough to allow him to pass cash to the toll taker, but not enough to allow a twenty-pound turkey to flee. Of course, this made for a hilarious scene at all of the tolls.

With the burlap bags in tatters and Malcom determining that stopping would just prolong the situation, he pressed on all the way to New York. He literally hand delivered the live turkeys to his contacts in New York. The drama and acknowledgement that came with this differentiated act resulted in increases in business with each of those accounts.

Malcom’s analytical mind was intuitively always comparing one thing to another. Indeed, one of his favorite expressions was “if you don’t have something to compare, you don’t have anything”. Malcom saw this as a doctrine that really influenced almost every decision he made or action he took. He would note that every day starts off with the innate comparison of whether it is light or dark before you even decide to get out of the bed.

His awareness on the value of comparisons was borne out in another one of his trips to New York that involved delivering chairs to a theater in the Broadway district. This shipment, like many shipments at the time, was setup for the trucking company to be paid cash upon delivery. As was his habit, Malcom assisted in unloading the chairs and then went to the manager’s office to get the freight amount due paid in full.

The manager, however, handed over an envelope containing only 80% of the total amount, coming up with some rationalization related to why he was short-changing the bill. Upon hearing this, Malcom turned to the manager’s secretary and politely asked her if she was paid for everyday she worked the previous week or just four out of the five days she worked. When she answered in the affirmative, Malcom rhetorically said if she is being paid for all the work she did, why isn’t he being paid for all the work he did?

That comparison resonated with the manager, who reached into his drawer and paid the balance. Malcom was a man of absolute business integrity and he viewed the transaction between carrier and customer as something that should be completely fulfilled by both sides.

As McLean Trucking grew, Malcom would spend less time behind the wheel of a tractor. Luckily, however, he was behind the wheel in 1937 when he had time to make some observations that would be recalled and implemented years later. Malcom was driving a full truckload of cotton bales from Fayetteville, North Carolina to an export dock in Hoboken, New Jersey. He had learned that his shipment was eventually destined for Europe. Malcom had never delivered freight alongside a ship and was looking forward to what he could observe and learn from that new experience.

He arrived early and was told by a tall Irish dock supervisor to wait until he was called. As he waited for hours, he watched as each truck pulled alongside the ship and gangs of men first unloaded the truck and then placed the goods in cargo nets to be winched onboard the vessel. He saw that a similar process in reverse was occurring on the ship. The same slow, laborious process unfolded with one truck after another.

Malcom was struck by the inefficiency he was witnessing as the same cargo was literally manhandled multiple times to get it onboard. Late in the afternoon he asked the dock supervisor when his truck would be unloaded, and when the response was if he didn’t get some cash he wasn’t sure when he would be unloaded, Malcom also got another firsthand insight into how things typically worked on the dock.

Decades later he would reflect on his takeaways from that day. “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. Why not just lift the trailer and put it on the ship without its contents being touched?” Malcom tucked away what he had seen and learned in Hoboken. Nineteen years later, he would implement a revolutionary business plan, the genesis of which came from his direct observations that day.

Malcom applied his insightful approach to all elements of his growing trucking business. By 1940, he was operating some thirty tractor trailer rigs that produced annual revenue of $230,000. While he was no longer behind the wheel, he was constantly reviewing and analyzing all of the typical costs from pickup to delivery. Wherever Malcom was his yellow pad and pencil were close by. His favored approach was to cost out in longhand any situation he was reviewing. This habit would stay with him for the rest of his life and ensured that he had a granular understanding of the cost economics of his businesses.

The underpinning for Malcom’s initial focus on costs was the regulatory nature of trucking at the time. With the passage of the Motor Carrier Act of 1935, interstate trucking was brought under the authority of the Interstate Commerce Commission, or ICC. The ICC had regulated railroads since 1897. The ICC had almost total control of trucking companies that offered services to the public.

Truckers could only haul goods that the ICC allowed them to move on routes approved by the ICC and at ICC approved rates. This highly regulated environment made expansion into new routes difficult and this protected existing carriers. While it limited competition, the overriding goal of the ICC was to keep the transportation industry stable.

Consistent with this goal of stabilizing trucking services, the ICC would allow a trucking company to expand into a new route only if it could show that was in the public interest and the rate offered would be profitable. The only meaningful way a trucking company could attract new business was by offering lower rates than competitors offered. The regulatory framework made this a difficult needle to thread as lower rates without lower costs were deemed to be destabilizing by the ICC.

Malcom wanted to grow and he realized that the regulatory framework effectively meant that he couldn’t offer lower rates, the only way to grow fast, unless he also had lower costs. Malcom’s obsessive focus on costs was therefore rooted directly in that regulatory framework.

Malcom took advantage of the public filings with the ICC to learn everything that he could about competitor’s rates and their financial performance. He was constantly making comparisons between his company and other companies to learn where he had the largest advantage and where he should focus on expanding. He developed a process for calculating the revenue, cost and profit for each individual shipment handled and used that as a tool to improve his overall performance. By 1945, McLean Trucking was operating 162 tractor trailer rigs and generating $2.2 million in annual revenue, ten times the level just five years earlier.

As McLean Trucking grew, so did Malcom’s cost-saving innovations. The company opened one of the first automated terminals in the industry with a facility in Winston-Salem that used conveyor belts to move freight from one truck to another, saving labor costs. For less than truckload shipments, terminal expenses where cargo was sorted and consolidated involved significant labor costs and this early automation gave Malcom’s company a noteworthy competitive cost advantage.

Of even more cost impact, during a time when most trucking fleets used only gasoline engines, McLean Trucking was the first to fully convert his fleet to diesel engines. While diesel engines were starting to be offered by General Motors and other tractor manufacturers, they weren’t popular because drivers didn’t like their acceleration characteristics. Malcom, however, had done a detailed analysis on all the numbers on the initial test diesel engine in one of his tractors. He saw firsthand that it resulted in significantly lower fuel cost per mile. Malcom quickly converted exclusively to tractors with diesel engines.

Because all trucking companies had to file detailed income statements breaking out fuel costs with the ICC that were publicly available, other trucking companies eventually saw the results and began to copy McLean Trucking’s use of diesel engines. Malcom would say years later that, luckily for him, most of his competitors weren’t looking nearly as closely at his costs and financial statements as he was at their costs and financial statements. Malcom was obsessed with costs and constantly involved in comparisons of his costs and performance with other trucking companies.

Related to fuel, he sought and obtained discounts at various service stations along the company’s key routes and required that his drivers only fuel at those stations. While that seems obvious and is the situation throughout the trucking industry today, it was unique at the time as drivers typically bought fuel wherever they chose.

As Malcom analyzed the various factors that effected fuel consumption, he specified that new trailers should be constructed with sides that were crenellated and not smooth. He got this advice from experts at the University of North Carolina who told him that crenellation would reduce wind drag and therefore fuel consumption.

As these various cost reduction initiatives took hold, the gap between costs at McLean Trucking and the rest of the industry widened. With this cost advantage, Malcom could offer lower rates on new routes and still prove to the ICC that these rates were profitable. This relative cost advantage was a meaningful edge that allowed the company to sharply grow its business. Cost reduction and volume growth became a virtuous circle for McLean Trucking.

In addition to growing this way, McLean Trucking also acquired several smaller trucking companies and indoctrinated them into the company’s way of doing business. Another route of growth involved leasing routes from other trucking companies. All these various approaches resulted in significant growth at McLean Trucking. By 1950, it was operating some 800 tractor trailer rigs and the company was five times bigger than it was in 1945 with annual revenue approaching $15 million.

With his own experience behind the wheel, Malcom understood the key importance of the driver and the multitude of decisions he made every day. Holding down insurance and repair costs meant having drivers who were safety conscious. McLean Trucking had one of the first systematic driver-training programs where novices were paired with senior drivers on key runs such as Winston-Salem to Atlanta. If the novice made it through his first year without an accident, the senior driver got a bonus equal to one months pay.

Recognizing that safety was often coincident with a driver who was calm and deliberate in his actions, Malcom had his driver recruiters hang out at diners frequented by truck drivers. They would approach drivers who calmly ordered meals and avoid drivers who were loud and belligerent. This approach was grounded in Malcom’s own experience in diners as a driver and another example of a keen sense of observation that was always on.

Malcom clearly understood the power of monetary incentives for drivers. For instance, one year he had a nice new house built on a road that most drivers would pass on approaching the main terminal in Winston-Salem. He then announced that house would be given to the driver with the best safety record at the end of the year. Not surprisingly, McLean Trucking was at the top of the industry in safety performance and that in turn was reflected in lower costs.

McLean Trucking began hiring young college graduates in the early 1950’s and put them through what was the first formal management training in the trucking industry and among the first such programs in the country. Their first task was to learn how to drive a truck. After six months behind the wheel, they were then sent to terminals where they spent a few months loading and unloading freight into trailers. After learning these core aspects, they then spent several months at the head office where they learned the commercial aspects of trucking.

A key aspect of this was learning the McLean Trucking approach to making a proposal to a potential customer. Not surprisingly, this was driven by a cost analysis which compared the shippers current freight cost per unit to what it would be with McLean Trucking. After a year, these trainees had a solid grasp of both the operational and commercial aspects of the trucking business and were dispatched to sell freight in cities up and down the East Coast.

A relentless focus on costs and relative competitiveness was an obsession with Malcom and it was reflected at all levels of the company. The salesman who managed the account completed forms showing the anticipated profit for each shipment and copies were passed along to both the driver and the terminal manager. This way, everyone was on the same page with regard to the commercial impact of the shipment and the information was also used to prioritize truck dispatching and routing.

The accounting department also consolidated this profit per load information into various reports that were scrutinized by management and by Malcom in particular. He used these reports to move the company towards the more profitable loads and to move away from the less profitable loads. With the detailed insight that came from these reports, Malcom also established for the sales force a minimum profit percentage that any new business would need to have.

Even when it had become a large trucking company, Malcom could often be seen walking around his terminals, talking to drivers and other workers, and observing everything that was going on. His version of management by walking around and the granular feel and insight he got from this approach aided his business immensely. Decades later I would personally see firsthand countless examples of his keen sense of observation.

One of Malcom’s favorite things to do even after McLean Trucking had become a large company was to spend a couple of hours in the gatehouse where drivers got their dispatching orders. At the gatehouse, the truck was weighed and sealed and the drivers were given specific instructions on which route to take. Malcom liked to observe the systematic processes he had developed and always had his eyes and ears open for observations and suggestions for improvement.

When he was in the gatehouse, he would typically ask the driver to show him his profit per load form. On one weekend evening when he did this, he noticed that while a particular load was profitable, it was below the minimum profitability level that was in effect at that time. Malcom knew which salesman was associated with the account and picked up the phone and called him at home.

Malcom indicated to the salesman that because the load was below the minimum profitability standard, he had instructed it to be returned to the shipper. When the salesman said that the shipper was a big, important shipper, Malcom said that was good and they would therefore understand. That was one of the last times he came across a freight shipment that didn’t meet the minimum profitability standards in effect. As it would turn out, that shipper whose load was returned did in fact become an even larger customer of McLean Trucking.

This story underscores an aspect of Malcom’s business philosophy regarding costs, rates and profit. While his strongest focus was on developing freight businesses that had lower costs, he was resolute that you had to see a profit in each and every freight transaction, just as the regulators believed. Malcom thought that some of the lower cost should be passed along to the customer to get the business, but that his company should retain as much as possible of that lower cost to achieve higher profits.

The costs in the trucking industry are primarily variable and this no doubt played a role in Malcom developing a strong view that each load or transaction had to be profitable on a full cost basis. The regulatory framework at the time requiring that new rates would only be approved if they were deemed to cover all costs certainly reinforced this approach.

Malcom’s focus on profits was captured in a short poem he authored and shared at a meeting of all the salesmen at McLean Trucking. The poem Malcom recited for me decades later is shown below.

May the sun never rise

On the day in a driver’s run

When cargo isn’t a prize

And freight is hauled for fun

Malcom would take this philosophy with him to a shipping industry that was anything but a variable cost business. With a much larger percentage of fixed costs than the trucking industry, the shipping industry lent itself to rates sometimes focused more on incremental costs than the full cost of the shipment.

While Malcom would rail against this, at the same time he would recognize the dynamics of real world situations in the shipping industry and the leverage cargo providers often had. Malcom would frequently observe that the easiest thing in the world to do is a cut a rate. Referring to situations where he himself was involved, he noted that sometimes you didn’t need to do anything but sit in a shipper’s office and “the rate would decline almost by itself”.

By the early 1950’s, McLean Trucking had grown to be the largest trucking company in the south and the fourth largest trucking company in the entire country. It owned and operated 1,776 tractor trailer rigs across a network of 37 terminals spanning most of the eastern U.S. The company had dozens of major routes, but few were as important to its business as the long haul freight moving between New York and Texas and Florida.

With this growth, Malcom was a large purchaser of tractors and became one of the largest customers of General Motors. By now, the entire trucking industry had switched to diesel engines, but Malcom remained focused on specifications that would result in the most cost efficient tractors. His insightful views on tractors, and his importance as a customer, resulted on his being asked to be on an advisory board that would meet a couple of times each year in Detroit with senior management at General Motors.

The subject of one of those meetings in 1953 was a freewheeling discussion of what the future held. Malcom painted an optimistic picture regarding freight demand and highlighted what he saw as key factors related to tractors going forward. He then volunteered that he anticipated that more automotive buyers would eventually embrace the operating cost focus of the trucking industry. When that happens, Malcom saw that clearly favoring the production of small cars like the ones he knew were starting to be made in Japan. Referring to rough calculations he had done on his yellow pad the night before, he came up with a meaningful estimated difference in the operating cost of those small cars compared to a typical General Motors car.

Malcom was asked to share his views about small cars with the General Motors board of directors, which was meeting the next day. After outlining those views, one director said “Americans don’t want small cars and it will never be more than 3% of the market, which we’ll leave to Nash”. A few years later in the same month and year Malcom would launch his revolutionary business idea, Toyota would import its first car into America, beginning a shift in average new car size that continues to this day. Several decades later, General Motors would belatedly recognize that small cars would become the large majority of the new car market. Malcom’s observations relating to the future of the car business were prescient, but unfortunately nobody at General Motors cared to listen to him.

Despite success underscored by having the second highest profits of any trucking company in the country, Malcom was constantly looking for ways to further improve his costs. As he reflected on his business in 1953, he found himself going back to his observations on the Hoboken dock back in 1937. The instant catalyst was a growing concern that domestic ship lines, able to buy surplus Liberty ships from the government for low prices, might be able to encroach on his important long haul business even with their laborious traditional breakbulk loading and unloading methods.

As he thought more about it, his concern about those existing domestic ship lines lessened, but he became intrigued with the costs that would result from implementing his idea from sixteen years ago of more efficiently moving full-loads on vessels. Weeks of his own longhand analysis on his ever-present yellow pad got him even more excited. While everything he was doing on paper was new, his decades of analyzing costs in granular detail put him in position to accurately model this new approach. Indeed, it is hard to imagine that anyone was in a better position than Malcom to estimate those costs.

In addition to what he believed his idea could do with costs, it addressed an increasing concern he had about highway congestion on many of his key routes and the adverse effect it was beginning to have on his costs. It is worth remembering that the beginning of the Interstate Highway System was still three years away at that time.

The sporadic congestion that trucks experienced in 1953 on long hauls between, for example, Florida and New York was significant without the network of arterial four lane highways we have today. Malcom’s concept not only involved taking advantage of a lower cost marine highway, but of linking that with trucks he controlled on both ends so that a single company handled the entire freight movement from initial pickup to final destination.

The initial implementation planning of Malcom’s idea revolved around putting truck trailers on vessels and ferrying them between North Carolina and New York and Rhode Island, bypassing the worst highway congestion areas. By the end of 1953, Malcom had developed a plan to build waterfront terminals where trucks would drive up ramps in order to place their trailers on the decks of vessels. A real estate firm working for McLean Trucking began looking for terminal sites.

The timing of Malcom’s property search coincided with an initiative by the Port Authority of New York and New Jersey to find a new tenant for its under-utilized docks in Newark, New Jersey. Malcom visited the proposed site and liked that it had plenty of space to marshal trailers, was adjacent to the newly opened New Jersey Turnpike and was a short trip to most freight locations in the New York City area. He outlined his concept to port authority officials who embraced the idea and became early proponents of his plans. An agreement to lease the site was quickly reached and the port authority began preparing the facility with its own funds.

Malcom was now focused on buying S.C. Loveland, a small barge operator, to get their coastal operating rights and begin service by putting his trailers on barges that would be towed along the East Coast. Like the trucking business, the domestic marine business was highly regulated at the time. Among other regulations, you needed to have operating rights to serve specific U.S. ports.

Key among those regulations was the Jones Act that required that movements between U.S. ports must be on U.S. built, crewed and owned vessels. Malcom had developed plans to build new larger roll-on, roll-off vessels which he anticipated could be largely financed through an available government loan guarantee program. However, he first wanted to prove his concept with the Loveland barges.

While Malcom was in discussions to buy Loveland, he was also studying the shipping industry in detail. In reviewing Moody’s financial manual in 1954, he came across Waterman Steamship Corportation, a large traditional shipping company based in Mobile, Alabama whose stock was publicly traded. In learning more about that company, he became intrigued that its Pan-Atlantic Steamship subsidiary might be a better platform for him to begin his new service.

Pan-Atlantic had coastal operating rights to serve 16 ports and had four ships in coastwise voyages between Boston and Houston. The more he looked at and analyzed the Waterman numbers, the more Malcom became convinced this was the way to go. The plan he came up with involved getting Pan-Atlantic by first buying all of Waterman Steamship Corporatation and then selling the parts he wouldn’t utilize.

The acquisition of Waterman bears close examination not only for what it set in motion related to the shipping industry, but also as an extraordinary example of Malcom’s financial acumen. This was a trait shared by many of the shipping pioneers. Given the capital-intensive nature of the shipping industry, a comfort with finance and a strong analytical ability was a required skill.

What particularly attracted Malcom to Waterman Steamship Corporation was its balance sheet. The company had no debt and its assets included 37 ships, most in services to Europe and Asia, along with $25 million in cash. Malcom’s preliminary inquiries had him believing that all of Waterman could be purchased for $42 million. Malcom was confident he could finance much of the purchase. He also thought that by disposing of assets he didn’t envision using, he could effectively reduce his cost basis in the assets he would utilize. While that type of financial engineering approach is fairly typical today, it certainly wasn’t in the mid-1950’s.

Malcom was now committed to transitioning all of his business interests to his new integrated truck-ship service. With agreements in principal in place in late 1954 to buy Pan-Atlantic and Waterman, Malcom turned his attention to financing the acquisition and taking other preparatory steps related to the transition. An initial matter that he had to deal with was the legal structure as the ICC encouraged modal separation and wasn’t expected to waive a regulation that precluded a trucking company from also owning a domestic shipping company.

While McLean Trucking was a publicly traded company at the time, Malcom and his siblings Jim and Clara owned the large majority of the stock and controlled the company. To address this, they all placed their stock in a trust where the independent trustees were authorized to take all actions, including selling the stock. With this move, Malcom effectively severed his ties with the extraordinarily successful trucking business he had built over the previous twenty years, in order to start an entirely new transportation business. This was a brazen entrepreneurial move, but one that Malcom’s own analysis of the underlying costs had him highly confident that his next business would be even more successful than McLean Trucking.

At the same time he moved away from S.C. Loveland, Malcom moved away from his plan to use complete trailers and instead decided his vessels would just carry the trailer bodies without the wheels and landing gear. Like everything, this resulted from his detailed analysis of what process would result in the lowest costs. By stacking just the truck bodies, he could get more units on a given sized vessel.

Malcom was also already envisioning a second generation of larger vessels and realized that new purpose-built vessels to accommodate lots of regular highway trailers would cost more than various ways of converting existing ships he had already mapped out for moving just the truck bodies. With that change, however, Malcom needed to develop his own truck bodies, or containers, as nothing presently existed that would fit his needs.

A review of various trailer manufacturers resulted in his circling in on Brown Industries, a Spokane, Washington based company that specialized in building unique and custom containers. A meeting was scheduled and Keith Tantlinger, Brown’s chief engineer, flew across country to meet with Malcom. Outlining his plan in a level of detail that impressed Tantlinger, Malcom said he wanted containers that were 33’ long and 8’ wide. Those dimensions fit with the then current maximums allowed with highway trailers. In addition, that length fit with the planned deck space on the T2 tankers Malcom had identified as ideal. That space would be evenly distributed on a metal framework that would be constructed above the myriad of piping on the two tankers that would be converted.

Having determined that the initial route will be between Newark and Houston, Malcom planned to also carry crude oil on the northbound leg. To secure the containers to the framework and to each other, Malcom outlined his idea of attaching six pieces of foot long steel, each with a hole in the bottom, to the sides of each container. These pieces would fit into slots in the framework and a rod would then be inserted through the holes to lock the container in place. With some minor refinements that Tantlinger recommended, Brown immediately began building two prototype 33’ containers based on Malcom’s basic design.

Simultaneously, Malcom was actively pursuing financing to close on the Waterman acquisition. Those discussions led him in late 1954 to meet Walter Wriston, a 35 year-old Assistant Treasurer at First National City Bank of New York. Wriston had just been put in charge of the bank’s nascent shipping loan division. Malcom outlined his ideas to Wriston who saw it as viable. He was also impressed with Malcom’s analytical approach and justification of the concept with straightforward comparisons of his costs to traditional ways of moving freight. Malcom also highlighted Waterman’s debt free balance sheet and considerable asset value in a matter of fact way that made the banker realize this entrepreneur was financially savvy. After a couple of initial meetings, Wriston was sold on the concept and Malcom indicated he would come back to him with a specific proposal on the financing he wanted the bank to consider.

With a net worth of some $25 million at the time, Malcom was a very wealthy man. However, information regarding stock holdings and personal wealth was quite limited back then. There was little about Malcom’s manner that telegraphed this and he was then and always would be loath to talk about his personal finances. Just as he had in the past, Malcom would use this to his advantage in one financial negotiation after another. He had adroitly used debt financing while he was in the trucking industry, and he would make even more use of it when he transitioned into the much more capital intensive shipping industry.

This episode telegraphed a view on negotiation and financial privacy that Malcom had developed and that would be evident for the rest of his career. It is best summed up by his expression of “don’t count someone else’s money”. While I suspect this was in part reflected his annoyance at people asking and talking about his wealth, it was primarily driven by his direct approach to business matters that focused on his position and making a solid presentation to the other party. Any speculation on the other party’s position, just like an estimate of their finances, would often draw Malcom’s rebuke.

Malcom of course already had a specific financing request in mind that he refined further and presented to Wriston. A new McLean Industries entity would be setup and capitalized primarily with $7 million in preferred stock. Malcom agreed to personally backstop that issue by buying any preferred stock that couldn’t be placed with outside investors. First National City Bank would then loan McLean Industries $42 million, which would fund the acquisition of Waterman. As security, the bank would have first mortgages on all 37 Waterman vessels and UCC filings giving it a security interest in all other Waterman assets.

Immediately after the closing, Waterman would declare a large dividend to McLean Industries, which would be used to payoff more than half of the loan. Systematic sales of other assets would then commence to further reduce the loan balance over the near term. In addition, the cash flow from Waterman’s existing operations as well as the projected cash flow from the new truck-ship service was more than sufficient to meet regularly scheduled loan payments.

Wriston analyzed the proposal and indicated that he anticipated the bank would be willing to move ahead as he had concluded that the bank’s interests would be fully protected. There is no doubt that his favorable impression of Malcom, his track record and his new concept also played a key role in reaching that determination. A closing date was scheduled for the financing and Malcom turned his full attention to other issues related to the pending acquisition that needed addressing. Among those were several legal obstacles that had been thrown up along the way.

The most serious one involved several railroads who were protesting with the ICC, claiming that the McLeans would effectively control McLean Trucking and Waterman in violation of the law requiring separation of the modes. Malcom was no stranger to fighting with the railroads at the ICC and that experience had influenced the trust structure he and his team created. The court supported that structure and ruled that the acquisition of Waterman wouldn’t violate the law. Not long after the court’s decision, the subject was made moot when the trustees sold the McLean Trucking stock. With that sale, Malcom realized some $20 million in cash.

Shortly before the scheduled closing on the Waterman purchase, Malcom received a disturbing call from Wriston who said the transaction was getting some pushback from superiors of his at the bank and he should come downtown. Malcom immediately went to the bank’s headquarters where he met with two of Wriston’s superiors.

Malcom expressed surprise that there were further questions, as he indicated he had already addressed those questions with Wriston who had given his approval to the transaction. In response, one of the vice presidents said, “Wriston is just a clerk around here”. Taken aback, Malcom responded that “Wriston may just be a clerk, but he’s going to be the boss of both of you pretty soon”. Malcom then went on to address all of their questions and they too became supporters of the loan and of Malcom.

With the financing now fully committed, the closing occurred a few days later in Mobile on May 6, 1955. As there was a rumor of a competing bidder interested in Waterman, it was decided to move quickly and simultaneously close on the loan and the acquisition. One problem that came up was that they lacked a quorum for the Waterman board to take various corporate actions. This was solved by one of Malcom’s lawyers rushing outside and offering a passerby $50 for less than an hour of work.

With a quorum now in place, the $42 million loan was drawn and that amount was paid to acquire Waterman. The Waterman directors were then replaced by Malcom’s nominees and the new Waterman board authorized a $25 million dividend to its new McLean Industries parent, which immediately used that dividend to reduce the amount outstanding on the loan. Just as all the transactions had been completed and the meeting was breaking up, lawyers for the opposing bidder served papers to prevent the dividend, but they were too late.

Malcom’s financial engineering skills had resulted in him acquiring one of the largest shipping companies in the country where his total personal investment was only $10,000. Many decades later similar such transactions would be referred to as leveraged buyouts. The Waterman transaction was not only ahead of its time, but also near the top in terms of the actual return on investment.

Walter Wriston became not only the boss of those two vice presidents in quick order, but eventually the boss of everyone at the bank when he became the CEO of what became known as Citibank in 1967. In his fourteen-year tenure leading what became the largest commercial bank in the world, Wriston oversaw the introduction of numerous innovations including automated teller machines, interstate banking, negotiable CD’s and multiple firsts related to its pioneering pursuit and growth in credit card. Wriston is widely regarded as the single most influential commercial banker during the second half of the twentieth century.

Malcom and Wriston would remain friends for the rest of their lives. On reflecting on the Waterman transaction, Wriston would later be quoted as saying, “In a sense, Waterman was the first LBO”. His regard for Malcom’s business judgment was such that in the early 1980’s when he was contemplating who he would recommend as his successor, he met privately with Malcom as an independent sounding board. Outlining the various candidates and their respective merits, Malcom strongly recommended the man he had read about who had revolutionalized back office operations and knew the cost of processing a check to five decimal points. This in fact was the person who became the next CEO.

As an aside, I would see this same sort of situation play out again and again as CEO’s and board members referred to Malcom would seek out his advice on major strategic decisions of companies both within and outside the transportation industry. Through word of mouth, Malcom’s judgment and insight became something that was actively sought by leading businessmen across the country.

With Waterman now his, Malcom moved full steam ahead with all the preparations related to implementing his concept. Two T-2 tankers went into Baltimore’s Bethlehem Steel shipyard to be converted to carry containers on deck as per plans put together by Malcom’s engineers. Because what Malcom wanted to do was so radical and unheard of, traditional naval architects weren’t particularly useful at this point. Indeed, one shipyard naval architect volunteered that putting that amount of cargo weight on deck would most likely result in the ship capsizing.

Malcom brought on some key people whose operational experience and judgment he valued. Many of these folks had experience with innovative initiatives that Malcom had implemented at the trucking company, so they were accustomed to doing something different. Cecil Egger, who was in charge of all maintenance activities at McLean Trucking, brought a practical approach to refining the design of the load bearing framework on the vessel where the containers would be put on the vessel.

As the shipyard conversion work was being performed, the two prototype containers were delivered to the shipyard. Keith Tantlinger had assured Malcom that his design had enough strength in the aluminum sides and roof that loaded containers could be stacked on top of each other. While Malcom appreciated the lightweight of the aluminum, he still had a nagging concern that the thin roof might not stay rigid under pressure and that this could result in the failure and buckling of the container.

Prior to Tantlinger arriving at the shipyard one morning, Malcom decided to perform his own test. When Tantlinger arrived, he saw Malcom, Jim McLean, Cecil Egger and several additional associates jumping up and down on the roof of the container. Despite their best, prolonged efforts at disproving Tantlinger’s confidence, the roof remained rigid. With this highly practical yet no doubt humorous test passed, Malcom immediately ordered 200 containers just like the prototypes. Now totally convinced of his technical skills, Malcom then made Tantlinger a job offer to be the chief engineer of his new company, which he accepted.

There was a myriad of innovations that occurred throughout 1955 as Malcom and his team prepared to launch the pioneering service. Because almost everything they were doing was new, they had to rely on their own judgment to come up with practical solutions.

Typical shipboard winches could not lift loaded twenty-ton containers, so they obtained large land based revolving cranes and moved them to Newark and Houston for dockside installation. After reinforcing the dock to accommodate the added weight, the cranes were mounted on rails allowing them to move alongside the vessel. Between that mobility and the 72’ boom on the cranes, they could reach any position on the vessel. Tantlinger devised a spreader bar paralleling the size of the container that positioned the crane. Special attachments on the spreader engaged the corners of the container, eliminating labor and making the actual loading and unloading of containers fairly automated.

Throughout 1955, the terminal facilities in Newark and Houston were being prepared. Unlike traditional terminals that primarily involved dockside warehouse space where breakbulk cargoes were stored, Malcom wanted flat, paved areas where the only obstruction would be light towers in order to work at night. Containers waiting to be loaded would be in one area and containers that have been unloaded and are waiting to be picked up by a truck for final delivery would be in another area. All containers in the terminal would be on a chassis, a steel framework with wheels.

When a container is mated with a chassis, it looks very similar to a highway trailer. However, no such chassis existed at that time and they had to be designed and built. While this was a new product, the experience of Malcom and his team with trailers was significant. Their development of the chassis rotated around deconstructing the trailer and adding some reinforcing beams.

For Malcom, the space and layout of these new marine terminals had broad similarities to the trucking terminals they knew so well and so they had a clear guide to follow. Indeed, a defining characteristic of Malcom’s philosophy then, and for the rest of his career, is that he saw himself more in the trucking business than in the shipping business.

As the conversion work on the ships neared completion and the other equipment needed was put in place, Malcom hoped to start Pan-Atlantic’s new service in late 1955. However, two government agencies weren’t moving as fast as Malcom. The Coast Guard wanted proof that the vessel was seaworthy and that the stacked containers wouldn’t come off in heavy seas, presenting a danger to both the crew and other ships at sea. Tantlinger orchestrated a test where two containers filled with coke briquets, a cargo of average density and little value, were loaded on top of each other on the first vessel to be converted. Tantlinger went to a local toy store and bought out all the modeling clay they had. He then cut it into small pieces and wedged them between the containers such that indentation would show movement. That vessel then sailed between Newark and Houston and back, with the Coast Guard checking the loads after each voyage. At no time, including after one leg when the vessel encountered heavy seas, did the containers shift or move at all.

With that actual test, the Coast Guard signed off on the seaworthiness of the vessels. That approval in turn resulted in the American Bureau of Shipping, a classification society that set standards for maritime insurers, to also approve the vessels. The ICC also had to approve Pan-Atlantic’s new service and the hearings related to that went on for months. The objections of the railroads, however, were overruled by the ICC, which gave its formal approval in late 1955.

Malcom’s plans were getting increasing attention in the media as word spread about a successful businessman jettisoning his former business for an untested startup. One of the inquiries he received came from Helen Bentley, a 32 year-old reporter for the Baltimore Sun. Bentley exclusively covered maritime and waterfront issues for the newspaper and also hosted a local Baltimore television program entitled The Port That Built a City. Becoming aware of Malcom’s plans through her contacts at the Bethlehem Steel Shipyard, she tracked Malcom down by phone to learn more. As Malcom would recall decades later, the knowledgeable maritime reporter opened the conversation with the pointed question of “Are you for real?” After answering with a laugh that he thought he was, Malcom went on to explain his concept in detail. That no doubt would be a recurring thought that many would have, as they became aware Malcom’s various initiatives in the decades to follow.

That conversation began a close friendship that would bridge 46 years. Bentley would go on to be appointed Chairman of the Federal Maritime Commission, where she was the highest-ranking woman in the Nixon administration. She then went on to serve five terms in Congress where she was a staunch advocate for U.S. flag shipping interests and the city and port of Baltimore. Her support for the latter was so effective and outstanding that the official name of the port, one of the busiest in the country, was officially renamed the Helen Deliche Bentley Port of Baltimore.

Bentley was also a strong advocate for women and in a dozen or so industry events I attended where she was the main speaker, she always started with “I’m pleased to be with you here in ____, the year of the woman”, where the blank represented whatever year we were in. She was a trailblazer for the advancement of women and I suspect would have been even more recognized nationally if she had been a Democrat and not a Republican. Coincedentally, my daughter Caroline’s college years were spent in Baltimore at Johns Hopkins University. On the night before her freshman orientation, we had a memorable dinner with Helen Bentley. I was delighted that my daughter could meet and hear firsthand the advice from such an extraordinary female role model.

With the vessels, equipment and terminals in place in early 1956, a precise schedule was established that called for the first sailing from Newark on April 26, 1956. The vessel that would be used was a T-2 tanker built in 1945 at the Marinship shipyard in Sausalito, California. Originally named Potrero Hills, Malcom renamed the vessel Ideal X.

Many decades later Malcom would share with me the two factors that he was thinking of when he came up with that particular name. The first was fairly straightforward, as he believed his new service was the ideal way of moving merchandise freight between Newark and Houston. The second factor, however, came from Malcom’s view that the concept was experimental, so he appended the X that was being used by the military to designate experimental aircraft, such as the X-15, at that time.

The Ideal X had been converted to carry 58 33’ containers on deck while retaining the ability to carry 15,000 tons of bulk petroleum products in its tank holds. Customers for whom McLean Trucking had moved cargo from New York to Houston were lined up. By offering an attractive rate compared to trucking that could readily be justified to the ICC, all 58 slots were booked. What had made traditional shipping unattractive compared to trucking at the time was the cost and time involved in the loading and unloading, so it was those metrics that Malcom was most focused on as the inaugural sailing approached.

In large part due to media coverage and promotional activities on the new service by the port authority, almost one hundred people including many government dignitaries were present on the morning of April 26. As the Ideal X was tied up alongside berth 26 in Port Newark, they watched firsthand as one container after another was loaded every 7 minutes by the crane. A couple of hours after a luncheon hosted by the port authority, the vessel was completely loaded and preparing to sail. In less than eight hours of cargo activity, the new process had loaded the same amount of cargo that it would have taken some three days to load with the traditional breakbulk loading process.

Throughout the day, Malcom was intently watching the loading operation and all the various processes related to moving the loads from the terminal and positioning them under the crane. Walking up and down the ship, he was looking at alignments and clearances and making mental notes on what could be done to refine and improve the processes. He was doing much of this by himself and, as a still generally unknown figure, his observations went unnoticed. The crowd largely dissipated after the luncheon was completed.

Shortly thereafter, however, Malcom noticed a man stationed up on the fly bridge of the Ideal X, closely watching the loading operation. Seeing that he was still in the same place thirty minutes later, Malcom climbed up the ladder to the fly bridge. He was curious as to the observations of someone else who was clearly paying attention. Coming up alongside and leaning on the rail next to him, Malcom said “So, what do you think about this?” Not knowing whom the stranger asking this question was, without looking at Malcom he immediately replied “I think we ought to sink this sonna bitch right here and right now”.

Malcom chose not to engage him in any further conversation. He would find out later that day that this man was a top official for the International Longshoreman’s Association, the union that represented the dockworkers. Except for Malcom, that gentleman had more insight than anyone into what the future held based on what occurred on April 26, 1956.

The successful loading operation without any glitches and in one-tenth of the time it would have previously taken was the main event that reinforced and proved Malcom’s concept. The uneventful sailing from Newark to Houston also affirmed that all the engineering calculations were correct and the containers on deck did not make the vessel unstable. While Malcom was confident about both based on his painstaking analysis and planning, even he breathed a sigh of relief as everything rolled out as he had thought it would.

Apparently he wasn’t the only one, as while the inaugural sailing from Newark to Houston was fully booked a week before, there was still available space on the return voyage from Houston to Newark. However, as word spread about everything working as expected, it and subsequent voyages quickly began to fill up with bookings. Malcom and his key executives flew to Houston and were there when the Ideal X arrived five days after leaving Newark and saw a repeat of successful cargo operations.

Malcom and his team were pleased with what they saw, but Malcom anxiously awaited the final actual cost numbers of the cargo operation. Based on previous analysis, they had already benchmarked the total cost of loading loose breakbulk cargo on a typical ship at $5.83 per ton in 1956. The actual cost of loading the Ideal X in Newark came in at 15.8 cents per ton. With cost savings of 97% on a key activity related to shipping, any doubt that container shipping didn’t have a very bright future was completely removed. While that view was initially just held by Malcom and his team, over the next couple of decades it would become a view held by everyone in the shipping business.

The expansion and technical improvement from that initial sailing proving the concept was rapid and continuous. The two converted T-2 tankers would be joined in late 1957 by six general cargo ships transferred from Waterman to Pan-Atlantic and converted to each carry 226 containers. By both putting containers in the hold of the vessel and stacking higher on deck, they would have a capacity more than four times the capacity of the Ideal X.

The containers would now be 35’ long, two feet longer than before and in line with the new regulations related to maximum trailer length on the highway. A number of innovative engineering solutions were developed during this heady period to go along with what would be the first pure container ships. For instance, a framework of cell guides made from ninety-degree angle steel was developed to guide the containers into the hold that is fundamentally the system still used today. With a crane loading and removing a container at various angles and various instruments to measure stress and clearance, Tantlinger spent weeks determining the best spacing for the cell guides. To make the vessels self sufficient, shipboard gantry cranes that moved on top of the vessel on rails were designed and installed. New container chassis were designed with sloping edges so that a container being deposited by crane would be guided into place. Those chassis now had locking system that could be engaged by moving a handle at each corner of the chassis.

The new 35’ containers were built with heavy steel posts at the corners to handle the additional weight, as they would now be stacked up to six high in the holds of ships. These containers had steel castings with an oblong hole on all eight corners. The gantry cranes now had spreader bars, which included couplings that could be automatically twisted into the casting to lift the container. These castings would also accept a specially designed twist lock that would secure the containers to one another. Those key inventions are effectively the same as what is still being used today. Refrigerated containers to handle perishable products were designed and built.

All of these various technical improvements shared the characteristic of reducing the labor necessary to load and unload container ships. With the delivery of the first four converted vessels, additional ports and sailing frequencies were added to Pan Atlantic’s coastwise network.

Malcom’s research of potential new routes had resulted in his turning his attention to Puerto Rico, an island economy which was tied to the mainland for most of what it consumed as well as the market for most of what it produced. As a U.S. commonwealth, Puerto Rico is covered by the Jones Act which requires that its imports and exports to the mainland move on U.S. flag vessels. Malcom knew his container ships could move cargo much more efficiently than existing traditional shipping companies serving Puerto Rico. He earmarked the last two of the converted vessels to begin his first offshore service in March 1958.

When the first ship arrived in Puerto Rico, what Malcom wasn’t prepared for was the reaction of the longshoremen on the island. The longshoreman in San Juan simply refused to provide any labor to unload the initial shipment of containers. Because the local union chapter had a lock-hold on the port, the first ship and then the second ship sat alongside for weeks and then months as discussions continued.

Malcom’s coastwise services on the mainland weren’t popular with the longshoreman, but there had been no work stoppages. Even though the requests for labor were well below what would be requested for a similar sized traditional ship, perhaps because those services were still a small percent of total activity, they weren’t a priority and no action was taken. In Puerto Rico, however, presumably the longshoreman there decided they needed to nip this in the bud or it may quickly spread across their particular universe.

After four months of the two loaded ships being tied up alongside in San Juan, with the delay costing millions of dollars, Pan-Atlantic agreed to the longshoreman’s demands to use a minimum of 24 men to work his container ships in Puerto Rico. This minimum gang size, regardless of whether that many men were actually needed, would become a precedent in Puerto Rico and then on the mainland that would mitigate some of the cost advantages of the new container shipping process.

However, the savings compared to traditional shipping were still significant and this compromise with labor had no impact on the time difference. Pan-Atlantic’s new Puerto Rico service with two full container ships providing weekly service quickly took off with customers. Instead of competing against the rail and trucking modes like the coastwise services, here Malcom was competing against traditional shipping companies and his underlying cost advantage allowed him to offer rates they simply could not match. One of his ships at full capacity could be turned in San Juan in less than a day, whereas a similar sized traditional ship would need a week in port.

The initial problems in Puerto Rico had Malcom realizing that Pan-Atlantic was still too rooted in a maritime culture. He thought the company was too bureaucratic without as much of the entrepreneurial qualities that had helped McLean Trucking grow. From what he could see, the U.S. shipping industry was populated by managers who eschewed competition and looked to the government and its legislative support and subsidies as the prime economic driver.

On Malcom’s first trip to Washington, D.C. to attend a conference of all of the U.S. flag ship operators just after he purchased Waterman, he would see this attitude firsthand. After a full day of listening to speeches, during the Q&A period, Malcom said “I’ve heard lots of talk about what the government should do for us, but I’ve heard nothing about what we should do for ourselves”. Malcom got his response when he heard from the back of the room someone say “Who is that fool?” More than ever, he recognized an overhaul of the culture at Pan-Atlantic was needed to maximize the benefits and expansion of container shipping.

That observation by Malcom would come to epitomize the way I would see years later that he consistently approached business situations. After looking and observing, he would come up with ideas and plans for improvement. He was constantly pushing and stretching his companies, even when that in effect meant competing with and disrupting his own assets. Status quo was a condition that didn’t sit easily with Malcom and he always turned inward to see what constructive steps he could take.

In June 1958, Malcom moved Pan-Atlantic’s headquarters from Mobile to a warehouse near the Newark docks. Pan-Atlantic was now just operating container ships and Waterman, still operating traditional breakbulk ships, remained headquartered in Mobile. To inject more aggressiveness and initiative into Pan-Atlantic, he turned to the trucking industry. He reasoned that the pure ship part of Pan-Atlantic’s business was now relatively small and the cargo handling, terminal and inland transportation parts of the business were more similar to trucking. Besides, with all the new and different approaches being implemented by Pan-Atlantic, the experience of traditional shipping folks in those areas wasn’t even relevant.

Malcom’s sister Clara and his brother Jim moved to New Jersey and were given responsibility for administration and day to day operations, respectively. In enlisting the skills that had worked so well at McLean Trucking, they helped shift the focus away from the ship and towards moving freight from end to end for the lowest cost. The involvement of these trusted lieutenants also freed up Malcom to focus on improving and growing the new system. Malcom established a lean and flat corporate structure that suited his desire to walk around the office, getting the information he wanted firsthand. New hires mostly from the trucking industry came in and brought with them the aggressiveness and creativity that Malcom wanted.

Key new hires by Malcom included Paul Richardson, Ken Younger, Bernie Czachowski, Charles Cushing, Ron Katims and Ken Johns. Richardson joined McLean Trucking out of college years earlier and was one of the first to go through its management training program. A Boston native with an outgoing personality, he quickly rose to be one of the best performing salesman at the trucking company. Malcom hired him away as New England sales manager and within six months put him in charge of all sales. Younger was hired from Roadway Express to run the Puerto Rico service and in short order also was put in charge of cargo operations at all of the terminals. Czachowski came from McLean Trucking and in his new role managed the key relationships with all the independent truck lines that Pan-Atlantic contracted to pickup and deliver loads between customer locations and the terminals. Cushing was hired after getting an advanced degree in naval architecture from MIT. Malcom wanted to have someone in-house who he could talk with about a range of vessel conversion possibilities and who could provide engineering and architectural context to the array of ideas he was developing. Katims came out of Cornell University where he majored in civil engineering. He was the land-based equivalent of Cushing and someone Malcom could bounce the further ideas he had regarding terminal layouts, shoreside cranes, container and chassis equipment and the interactions of all of those components. Johns was hired upon graduating from Auburn University where he was a star player on their football team. One of the first to go through a management training program patterned after what Malcom had established at McLean Trucking, Johns quickly became a key contributor in all areas of the company. All of these talented men would advance through the organization and would eventually lead their own companies.

Malcom would develop close professional relationships with all of these key new hires. They all became staunch disciples of container shipping and Malcom himself. This would be the core team around which the company would refine and expand its unique freight system. From moving cargo in containers through its Newark terminal totaling 228,000 tons in 1957, over the next two years it quadrupled its volume to 1.1 million tons 1959.

With all of the initial customers, using Pan-Atlantic’s new service was a radical change. Whether their cargo had previously moved by truck, rail or traditional steamship line, the switch to what was effectively a new mode needed to be laid out in an easy to follow manner. Working with Richardson, Malcom developed a form called the “Total Transportation Cost Analysis” which became a required document for salesmen to present at each meeting.

This form was a side by side comparison of the cost of moving the customer’s product by truck, rail, traditional ship and container ship. It included not only the carrier rates, but also the local pickup and delivery costs, warehousing costs, insurance costs and any other costs involved in the entire movement.

Looked at that way, Pan-Atlantic’s overall cost was always lower than whatever the mode the potential customer was using. The salesmen were instructed to highlight the savings per load and to multiply it by yearly volume to show the annual savings. Those annual numbers were typically significant and memorable.

This straightforward, analytically driven sales approach proved quite effective. In addition to the savings involved in total transportation costs, as Pan-Atlantic moved cargo in containers, customers saw firsthand the very low incidence of cargo damage or theft and this became increasingly recognized as an added benefit.

The success Malcom was having implementing his new transportation concept was getting noticed. Media accounts even got the attention of the White House and an event was scheduled where Malcom would be recognized by President Eisenhower as an example of an innovative startup that was making the economy more efficient. The story of what happened on the way to this event is anecdotal evidence of Malcom’s fertile mind and its constant focus in always thinking about more efficient ways of moving freight.

On the morning of the event scheduled for that afternoon, Malcom and his wife Margaret took the train from New York to Washington. He had his yellow pad out and was going through several pages of calculations, explaining to his curious wife that he was estimating what the cost per container would be if this same train moved containers rather than people. On his pad, Malcom had developed two different cost per container mile estimates. One was based on moving individual containers on flatcars and the other was based on stacking containers two high. This was based on Malcom’s view that special lower flatcars could be developed so the train didn’t exceed height restrictions due to the various overpasses he was observing as the train headed to Washington.

When the train reached Union Station, upon exiting Malcom immediately went down on his hands and knees to get a better look at the clearance to see how much lower the flatcars could go. Getting his answer, when he got up his wife was more than a little bit upset to notice that his inspection had resulted in a small tear in his suit pants. With no time to have that fixed and certainly not wanting to be late, they proceeded immediately to the White House. Apparently the tear wasn’t noticed, but this story underscores that on that day, Malcom really was more focused on this freight idea and the related analysis than in being honored by the President at the White House.

With the potential of containers moving on railroads, his interest was driven by what the railroads might be able to do to compete with his new service. As a trucker who had spent years in competitive battles with the railroads, he gave little thought at the time to separately developing an idea where a platform wasn’t available to him. More importantly, he had satisfied himself that his new service offered costs that couldn’t be matched by the railroads. In particular, his further research underscored the hundreds of overpasses that would need to be raised for the more efficient two containers high method to have broad domestic coverage.

It would be almost three decades before the railroads would see what Malcom saw in 1959 and begin moving double stacked containers. That straightforward concept played a large role in revitalizing the rail industry and it would revolutionize domestic transport in the U.S. Indeed, it was the transition of more freight moving from road to rail due to the cost efficiency of double stacking that was one of the catalysts that attracted famed investor Warren Buffet to Burlington Northern Sante Fe. After initially investing in the railroad, in 2009 Buffet reached an agreement to purchase all of the remaining shares in what was his biggest investment ever.

In 1960, Malcom changed the name of Pan-Atlantic to Sea-Land Service to better describe the integrated end to end transportation it was providing to customers in its coastwise and Puerto Rico routes. That name fit squarely with Malcom’s straightforward and direct way of describing something as it was in fact a new service that moved freight on sea and land. However, Malcom was more creative in the Sea-Land logo that he designed. Only a handful of people knew what the real inspiration for the red and black logo dominated by a stylized “S” in the middle. Malcom would confide in me that he viewed the logo as a graphic representation of a dollar sign.

The 1960’s would be periods of halcyon growth in container volume at Sea-Land. It would become the dominant carrier to Puerto Rico, as traditional ship lines simply couldn’t compete on either a cost or time basis. Sea-Land’s service was credited with helping to ignite a manufacturing boom in Puerto Rico as manufacturing went from 18% of the economy in 1955 to 25% in 1970.

Sea-Land started a new service to Alaska that followed a similar upward trajectory and displaced traditional operators. A new intracoastal service connecting the East Coast and the West Coast was also started by Sea-Land with much success. Additional coastwise routes and frequencies were added to the company’s growing domestic freight network. As each new route unfolded, initially skeptical shippers and competitors were turned into converts and the container revolution began to spread throughout the domestic U.S. Jones Act markets.

For the additional container ships to move this cargo, Sea-Land was redefining the number of ways existing ships could be converted to meet its needs. By inserting new mid-bodies, existing ships were lengthened and made even more cost efficient. Extensions were developed that widened the space where containers could be loaded on deck. The bridges on ships were relocated or raised to improve line of sight visibility and allow containers to be stacked higher on deck. The first several generations of container ships, each much bigger than the ones before, all resulted from significant physical conversions to existing ships.

Sea-Land became the experts in vessel conversion and established its own shipyard on the Gulf Coast to do much of this work. At the same time they were refining and improving the vessel assets used in their system, they were doing the same with the equipment and terminals used in their system. It was a period of constant innovation and refinement. The entire Sea-Land team was focused on putting in place hard assets that allowed cargo to be moved from one place to another more efficiently.

The first ten years of Malcom’s container shipping system was exclusively within the domestic Jones Act markets. As the new system spread from one domestic market to another, there were many naysayers consistently indicating why it wouldn’t work. Initially they said it wouldn’t work in any market. Then they said it would only work coastwise and not in any offshore market. When Puerto Rico and Alaska were successful, they said it would only work in domestic U.S. markets and couldn’t work in international markets.

In each market Sea-Land entered into, the strongest proponents ended up being the customers that moved containers on the new services. As they monitored their overall costs and compared them to prior costs, they saw tangible and meaningful savings. When they became more accustomed to using containers, they became better at loading them and using more of the cubic space available in the container, which made the savings even greater. This leaning curve experience was fairly consistent across markets and resulted in early customers becoming very loyal customers and strong proponents of using containers.

In 1965, Malcom began planning to launch a transatlantic service that would be the first international container route. By this time, his domestic services were all successful and expanding. Sea-Land had some twenty container ships operating, all of which were conversions, typically of Waterman general cargo ships.

There was a dozen additional conversion projects in progress, including one that would result in his largest container ships yet for a transatlantic service. Malcom knew that he would be going up against large traditional shipping companies with his transatlantic initiative and was determined to reinforce Sea-Land’s financial condition and liquidity. He did this be entering into two outstanding financial transactions.

The first involved selling $10 million of stock in Sea-Land’s parent McLean Industries to Daniel K. Ludwig, a major tanker owner who also owned American-Hawaii Steamship Company. Beyond the additional equity capital that also allowed more borrowing, by bringing Ludwig in Malcom pre-empted American-Hawaii’s plans to build its own container ships and put them in a domestic intercoastal service.

Malcom would recount decades later the lunch meeting he had with Ludwig where he initially outlined his proposal. Ludwig was ambivalent over lunch and the discussion continued as Ludwig walked to an awaiting car outside the restaurant. Getting in the car, Ludwig said, “I don’t want to do it. I’ve made too many mistakes recently”. Malcom then immediately responded “Don’t let this be your biggest mistake”. When Ludwig asked him what he meant by that, Malcom said he was as confident about his next steps as anything he had ever done and that this had him believing that Ludwig’s investment will come back to him many times over. Driven by Malcom’s confidence, Ludwig committed to the investment, beginning a close business relationship that would last for more than three decades.

The second transaction Sea-Land entered into was a sale and leaseback of nine container ships for $28 million with Litton Industries, a large conglomerate that owned Ingalls Shipyard on the Mississippi Gulf Coast. As part of the transaction, Ingalls would also be building and inserting mid-bodies and performing other conversion work on vessels formerly operated by Waterman.

In addition, Litton Industries agreed to convert certain notes it held from Sea-Land for previous shipyard conversion work into McLean Industries stock. With this series of transactions, Malcom was getting the larger ships he wanted for the new transatlantic service along with the liquidity to weather whatever initial startup problems he may have. The unexpected issues he had with the startup of his Puerto Rico service was top of mind and he wanted to be fully prepared for any startup hiccups that may unfold.

Sea-Land launched its transatlantic service in 1966. On the first voyage, the majority of the containers were booked by the military, which had significant ongoing shipments to supply the American troops based in Europe. The military had previously used Sea-Land for domestic and Puerto Rico shipments and was willing to be an early user of the new international service.

Indeed, at each leg in the expansion of container shipping, the military was there. In addition to being a large shipper, moving supplies is a core part of the military’s mission and this had them analyzing the cost and time of shipmnets in detail and always on the lookout for better methods. This attitude had previously resulted in the military developing something called the conex box. Conex, which stood for container express, was an 8’ x 6’ x 6’ steel box developed in 1952 during the Korean War. With a capacity of 9,000 pounds, it was filled with various supplies. The box was then loaded as another item of breakbulk cargo on a traditional ship. These mini-containers weren’t stacked on each other and lacked many other attributes, but from using them the military was undoubtedly more receptive to Malcom’s innovations.

The receptivity of international commercial shippers to Sea-Land’s new transatlantic service was a different matter and wasn’t universal. While customers who had successfully used Sea-Land’s domestic services were onboard, companies that hadn’t used it were generally circumspect of the new shipping method. Their concerns were exacerbated by traditional shipping companies’ active campaign to discredit Sea-Land’s new service. When Sea-Land threw a party in Rotterdam to introduce its new service when its first ship arrived, many of the guests booed. The head of Holland-America Line, one of the largest traditional shipping lines in the transatlantic, told Sea-Land’s Paul Richardson “You come back with the next ship and take all those stupid containers home”.

The shipping companies that were resisting the introduction of container shipping in the transatlantic were following a pattern frequently seen across businesses when an innovator disrupts the status quo. Existing participants in almost all industries don’t like change because it tends to devalue their existing assets and business models. It is for this reason that most innovation results from outsiders who don’t have this installed base issue.

This is particularly the case in the capital-intensive shipping industry where long-lived multi-decade assets make the installed base issue even more pronounced. A ship owner who just invested in a series of general cargo ships it expected to use for twenty-five years had little interest in swapping that for a new system. In that sense, the traditional shipping companies that fought the introduction of container shipping weren’t really questioning the method, which most likely recognized as superior. They were against it solely because they saw it disrupting their own assets and business.

Because Malcom was such a disrupter himself, he was always on the lookout for what could potentially disrupt his businesses and never developed a similar concern. He had and would continue to take steps that effectively had him disrupting his own businesses. Malcom would say in later decades that if you weren’t open to competing with yourself with better assets, other people would. A favorite saying of his was that you “had better not stand in the way of progress”.

Shortly after Sea-Land launched its transatlantic container service, both Moore McCormack Lines and U.S. Lines launched transatlantic container services themselves. As U.S. flag carriers, they had followed closely the success of Sea-Land in its various domestic services and were concerned about the competitive effect if they didn’t have a similar offering in a market they were both already involved.

While Sea-Land’s transatlantic service had more frequent sailings and had more efficient cargo operations owing to their experience, all three carriers and their customers reported sharp efficiencies in terms of both cost and time. In addition to the military cargo that was large eastbound volume for all three carriers, the container carriers immediately gained large volumes of liquor shipments on the westbound return leg. In addition to direct freight cost savings, the liquor companies embraced the security that came with moving their valuable products in locked containers. These companies had long complained of the systematic pilferage that occurred on the docks as their products moved on and off traditional breakbulk vessels.

The speed with which container shipping spread over the next couple of years was amazing. From three lines offering container service in early 1966, there were a dozen offering some form of container service in mid-1967. Traditional shipping companies that had initially resisted learned that customers were demanding the new system and they really had little choice. For these new entrants, moving containers on breakbulk ships gave way to moving containers on converted ships, which then gave way to moving containers on the first full container ship newbuildings.

By 1968, there were ten transatlantic container sailings a week and total annual volume was 200,000 TEU’s, four times the volume in 1967. Sea-Land, still operating converted ships which were also the largest vessels in the trade, was at the top of the pack both in terms of revenue and cost efficiency.

With Sea-Land’s Europe volume growing and more of it originated or destined in the Midwest, Malcom developed a plan to build his own rail yards and put containers two high on his own specially designed railcars. He envisioned contracting with a railroad to pull these dedicated all-container trains between his docks in Elizabeth, New Jersey and the Midwest.

Malcom knew that on relatively long inland movements, the rail system he had in mind would be lower cost than moving the containers on the road via truck. The discussions on implementing this with one railroad ended when it merged with a railroad that opposed the plan. It would be another two decades before the railroads implemented unit trains moving just double-stacked containers in initiatives that would revolutionize domestic transport.

As meaningful as the experience in the transatlantic trade was as a catalyst to expand container shipping internationally was, at around the same time there was another catalyst developing on the other side of the world that would have even more effect. That catalyst was another initiative driven by Malcom and it related to military cargo moving to Vietnam.

The buildup of American soldiers in Vietnam starting in 1965 resulted in significant logistical problems in unloading and dispatching the growing amounts of cargo. By late-1965, there were 45 ships being worked by the military in Vietnam with another 75 ships waiting off the coast or in the Philippines to be unloaded. The problems only got worse as the months went by and this issue was getting attention at the highest levels of government. Changing how supplies were ordered, having ships unload all their cargo at a single port rather than going to multiple ports and using more conex boxes mitigated the issue, but major logistical problems remained.

Secretary of Defense Robert McNamara invited shipping executives to Washington and sought their input. Malcom immediately saw it as an opportunity to demonstrate what container shipping could do to solve the problem. After meeting with defense department officials, Malcom flew to Vietnam with Ron Katims to visit various ports and get additional briefings directly from the military on the problems they had along with key freight needs and goals. Convinced more than ever that container shipping could be made to work in Vietnam, Malcom lobbied the Pentagon to give him the opportunity to prove what he could do.

Sea-Land’s first foothold was an April 1966 contract to run a trucking operation to distribute cargo from the port of Saigon. While this had nothing to do with containers, Sea-Land managed it well and gained increasing support within the military. Malcom had several high-ranking military people championing using containers for Vietnam cargo, but there was still very strong resistance from factions that would be displaced if this occurred.

As an aside, when I joined his holding company McLean Securities in 1980, there were only around ten people in our small suite of offices in New York City. It was fairly clear to me what everyone’s role in supporting Malcom was except for an older gentleman named Harry Jetay. A delightful man, who knew a little bit about everything, I would learn that Jetay occasionally worked on special projects for Malcom. More importantly, I became aware that Jetay had managed that initial trucking operation in Vietnam. His recounting hiding under a jeep as Viet Cong were attacking an inland trucking depot was a chilling reminder of the dangers even civilians faced. In a measure of Malcom’s loyalty, when Jetay was later laid-off from Sea-Land, he was placed on Malcom’s personal payroll even though there was no real job that he performed.

In May 1966, Sea-Land got a contract to run three container ships between Oakland and Okinawa, a Japanese island that was a large staging point for cargo moving on to Vietnam. In short order, Sea-Land was able to demonstrate that it could move the same amount of cargo with half the number of ships and one-sixteenth as much labor at traditional breakbulk ships. In July 1966, Sea-Land was awarded a contract to move containers to Subic Bay, a major naval base in the Philippines and another staging area for Vietnam. By this time, there was a general acknowledgement that container service directly to Vietnam should be implemented, but the timetable kept getting pushed back, mainly by the military unit overseeing current port operations.

However, Secretary McNamara’s visit to Vietnam in October 1966 where he spent much of his time visiting ports and seeing firsthand the backlog had the effect of moving things into high gear. That same month, a contract was awarded to Sea-Land to not only move containers directly to Vietnam from the West Coast, but to also operate the terminals and provide trucking service under a fixed priced contract. Sea-Land’s willingness to provide service under a fixed price contract instead of the usual cost plus arrangement underscored Malcom’s confidence in what they could do.

Sea-Land began direct service to Vietnam in March 1967. Using seven container ships in total, with three large ships and four smaller feeder ships, this network began improving the logistical bottlenecks in Vietnam immediately. The success was well beyond even what Sea-Land had expected. In short order, three linehaul ships would replace more than a dozen general cargo ships.

Because container shipping was solving such a high profile problem, its success quickly became widely known and written about. Shipping companies and their customers who had been ambivalent were now onboard. An overriding view was that if container shipping could do what it did in Vietnam with its unique challenges, imagine what its potential in other areas and trade lanes without those challenges.

Malcom would be the first one to exploit what could be done in one of those other trade lanes. In spite of the significant cost savings the military was getting, Sea-Land was generating a solid profit with its Vietnam service even with his three large ships returning with empty containers to the West Coast. As a trucker at heart, Malcom abhorred empty miles.

Looking at the map, Malcom reasoned that they should approach Asian manufacturers to solicit their interest in shipping products back to the U.S. in containers. In a whirlwind business trip to Japan in 1967, Malcom received commitments from Mitsubishi and several other large shippers. The initial shipments they made met or exceeded expectations. As these manufacturers compared the actual total costs and time of moving products in containers versus in general cargo ships, they wanted to move all of their products by container. The late 1960’s saw Sea-Land grow exponentially in eastbound container shipments in the pacific as one shipper after another saw the benefits in moving their manufactured products in containers.

Sea-Land’s success with both its transatlantic and transpacific services was quickly copied by other companies as word on the effectiveness of this new system spread. Some dozen years after the advent of container shipping as a domestic conveyance system, it was now rapidly morphing into the international conveyance system that has shown extraordinary growth ever since.

The international expansion of container shipping was aided by Sea-Land relinquishing patents it had obtained and not pursuing other patents it could have likely obtained. Malcom knew that standardization would assist in the progression of container shipping and he willingly passed on the technology that he and his company had invented.

Almost all of the new assets and processes that made container shipping possible were developed by Sea-Land. It was an amazing lab of innovation during those halcyon early years. Besides passing along its technology, the shipping companies that converted to container shipping were meaningfully assisted in doing so by former Sea-Land employees. In populating the industry, these managers passed along the operating know-how and experience that allowed container shipping to expand geometrically in the late 1960’s and beyond.

Had Malcom’s sole focus been wealth accumulation, he would have acted differently in a number of ways. Instead, he was both internally and externally the strongest proponent for the adoption of container shipping. Whether meeting with his own team, shippers, port authority officials or government leaders, he was constantly attempting to help others see the future that he saw. His focus was directly on container shipping itself and not solely on the peripheral monetary aspects.

I had a firsthand example decades later when he was talking about one of his early trips to Japan and referred to an opportunity he had to buy 200 acres of what was then rundown dock land in Tokyo. Pulling out a map from an ever-present stack of atlases in his office, he roughly outlined the land in question and tasked me with coming up with an estimate of the current value of that land. Returning to his office a couple of hours later, I said the developed property was worth in the tens of billions, which would certainly put the land value alone in the billions. Malcom smiled, saying that he knew the $2 million that could have bought the land would have been a great investment. However, he said that just wasn’t his business and his capital was focused on ships and equipment.

In 1969, on the heels of strong growth and financial performance at Sea-Land, R.J. Reynolds acquired the company for $530 million. Even though that is a relatively small acquisition by today’s standards, it was one of the largest acquisitions ever at that time. It was driven by the desire of the large tobacco company to diversify itself.

Much of the acquisition price was in the form of a new class of convertible preferred stock. With Malcom owning some 40% of Sea-Land at the time of the acquisition, he became a board member and the largest shareholder at R.J. Reynolds with close to 10% ownership. The $10 million that Ludwig invested a few years earlier was now worth $100 million. Malcom’s siblings Jim and Clara each received almost $50 million in value from the acquisition.

Malcom served on the R.J. Reynolds board through the mid-1970’s. He championed the 1970 acquisition of Aminoil, an oil exploration company based in Kuwait, as both a good investment and a hedge against Sea-Land’s fuel cost. It was a prescient call, as Aminoil would be sold for $1.7 billion in 1984, some thirty times the original purchases price.

Sea-Land continued to grow and in 1972 built its first new container ships, the eight SL-7 vessels. With a capacity of 1,960 TEU each, the SL-7’s were the largest container ships in the world. With a 33-knot speed, they were also the fastest cargo ships ever built. For the names of Sea-Land’s new ships, Malcom initially wanted them to be called #1 through #8 but relented over objections that this would be too far outside of maritime tradition. Malcom had little fondness for maritime tradition and as a trucker at heart viewed a ship as another power unit to move cargo. His new tractors were numbered and he thought the same framework should be used for ships.

Despite this straightforward approach when it came to naming ships, Malcom had a more flamboyant side when it came to marketing how his ships were different. A key differentiating factor of the SL-7’s was their speed and Malcom would recount for me the plan he had developed to get customer attention as they were deployed in various services. As an SL-7 approached a port for the first time, Malcom envisioned surfers riding the wakes on each side. His research had confirmed that the size of the wave and its speed were sufficient for a professional surfer to continuously ride. Malcom was confident that such an event would get local news coverage that would favorably highlight the maiden entries of these large and fast ships. Concerns developed related to where the surfers would begin and what happened if they fell off their surfboards. In the end, the capabilities of the SL-7’s were announced by press release in each port they first entered without this tangible example of one of those capabilities.

When the SL-7’s were ordered, crude oil was selling for $3 per barrel and the residual fuel used in ships was at a slight discount to the price of crude. At those prices, the overall cost economics of the 33-knot SL-7’s were competitive and the transit time advantages were attractive to Sea-Land’s customers. However, with the formation of OPEC shortly after the SL-7’s were delivered, oil prices quadrupled and the SL-7’s suddenly had a meaningful cost disadvantage at their design speed. To mitigate this, they operated at slower speeds and the service they offered was more in line with that of competitors.

Malcom’s other key initiative as a Reynolds board member was pushing for the acquisition of U.S. Lines, a shipping company that had transitioned to container vessels. The government, however, blocked this combination on the grounds that it would reduce competition.

During the period he was on the Reynolds board, Malcom founded a major real estate development company that began building houses in a number of communities in the Southeast. In one instance, he built modular sections of homes in a central location and moved them by barge to where they would be assembled. He also bought Pinehurst, the premiere golf retreat in his native North Carolina. After the spike up in oil prices in 1973, Malcom acquired 200,000 acres of land in North Carolina with large peat deposits where he explored using it as a fuel source for utilities. Among his other investments during this period was a life insurance company and various venture capital related situations brought to his attention by his investment bank.

These investments were funded from sales of his R.J. Reynolds stock as he was increasingly restless in the role of an individual board member. Malcom’s hands on approach didn’t sit well on a large corporate board. From his growing up in North Carolina and hauling tobacco products in the trucking industry, he knew the tobacco industry. Aware of a competitor initiative with a new cigarette with a distinctive colored filter, enroute to a board meeting he counted cigarette butts in large sand filled ash urns in the hotel he lived in.

Armed with data from his impromptu survey, Malcom indicated to the board that the initiative was much more successful than expected and R.J. Reynolds needed to move quickly to come out with a similar product. Management dismissed his observations as being inconsistent with their more detailed data. Six months later after the actual volume figures had been tabulated, the board would learn that Malcom’s observations were almost exactly on point. Unfortunately, by that point the competitor had a big jump and R.J. Reynolds attempts to catch up with its own similar product failed. With the success of its new Malboro product, the title of largest cigarette producer in the world had passed to Phillip Morris.

In another example of Malcom’s recognition that board service was not his highest and best calling, he recounted a board meeting where R.J. Reynolds management along with its investment bank outlined a potential acquisition that was being reviewed. Because of a confidentiality agreement, they said they weren’t able to reveal the name of the company. Malcom asked, “If we guess who it is, will you tell us if we are right?” As the characteristics of the company were described, Malcom would in fact guess who it was. Around the same time, he came to a final determination that this board role just wasn’t for him.

Malcom would observe to me more than once that “after someone has worked for himself, he is ruined to work for anyone else”. While that’s an accurate assessment for just about anybody, I believe it was particularly applicable to Malcom himself. He had effectively worked for himself since he was 21 and had grown accustomed to implementing decisions based upon his own rigorous analysis and judgment. R.J. Reynolds preferred passive directors who followed management’s direction and this was chafing to Malcom.

In 1972, Malcom’s investment bank arranged a luncheon meeting for him with a 26 year-old named Fred Smith who was seeking an anchor investor for a startup transportation company moving packages overnight by air. At that point in time, nobody offered such a service and the market for it was largely undefined. Malcom was very impressed with Smith but admitted that with his constant focus on the lowest cost method of moving any freight, he was a little out of his element on air transport, the highest cost mode. Nevertheless, he had studied Smith’s business plan carefully and his biggest questions related to the pricing of this new premium service.

In his projections, Smith had used $1.50 per package for his revenue estimate. Malcom told Smith he thought that was too low, and that $3.00 per package made more sense to him. When Smith asked Malcom how he came up with that, Malcom said that the cab fare from where they were in midtown to downturn Manhattan was $3.00. Malcom said that was the closest comparable he could think of for quick delivery of important documents. He reasoned that Smith should get at least that for a package going overnight across the country.

Smith appreciated Malcom’s insight. When he returned a couple of months later still seeking an anchor investor, the projections were based on revenue of $3.00 per package. Malcom enjoyed telling the story of his tangential role in the birth of Fedex. While it would have been an even better story had he agreed to invest a million dollars at the second meeting that would have been worth billions today, Malcom would remain friends with Fred Smith for decades.

By the late 1970’s, Malcom had come off the board of R.J. Reynolds and was focused on getting directly back into a transportation business himself. He indicated to his investment bank what he wanted to spend and that he would like to know about any transportation business that they believed was available within that range. His bankers came back with two candidates they believed could be bought for something in his range.

Those transportation companies were American Airlines and U.S. Lines. While American Airlines intrigued him, its passenger focus and higher cost mode couldn’t really compete with the other company that he knew well and that fit squarely into his area of expertise.

Malcom bought U.S. Lines in 1979 for $160 million. At the time, it was one of the larger container shipping companies with a network of transatlantic and transpacific services. Those included domestic services connecting the east and west coasts as well as Hawaii. However, it had an aging fleet and little that differentiated it from the rest of the industry. U.S. Lines was a U.S. flag carrier and a distant second in size to Sea-Land. Malcom would now be going head to head with his former company. In an article in Forbes magazine, the purchase was aptly described as “as if Henry Ford after leaving Ford decided to buy Chrysler.”

It was at this point in time that I entered into Malcom’s orbit. I was in my first year at Harvard Business School after having spent a few years in corporate banking with a large New York City bank. In March 1979, Business Week had Malcom on the cover with an accompanying article entitled “Malcom McLean’s $500 Million Gamble”. My managerial accounting professor started his class by holding up the magazine and saying it was a great read and an example of the sort of initiatives we hope to teach you about here. I read the article, which rotated around Malcom’s idea to rebuild a moribund shipping company with new vessels, and was fascinated. I had heard stories about him growing up, as he had become a local legend in my hometown of Mobile when he bought Waterman Steamship to start the container revolution.

Ditching my plans to take a summer job at an investment bank, I sought and obtained a summer job at U.S. Lines. It seemed like a fairly low risk way to explore what looked like an exciting entrepreneurial situation. My summer job exposed me to an exciting, tangible industry and I was hooked, particularly after meeting Malcom. He was at a separate holding company where he worked with a small group of professionals. Presumably Malcom was curious about the interest of a young Harvard Business School student and agreed to a meeting. I spent an hour with him and heard firsthand his plans for reinvigorating U.S. Lines. When back at school, I stayed in contact with Malcom’s office and upon graduating from business school, I went to work at the holding company.

Reporting to the chief financial officer of what was then called McLean Securities, I assisted in analysis and obtaining financing related to revitalizing U.S. Lines fleet and assets. The key element of that related to building twelve new vessels known as Econships. Tasking his naval architects with designing the biggest container ship that could transit the Panama Canal fully loaded, these ships would have 30% container capacity than any vessels afloat.

When delivered, the Econships would be deployed in a unique eastbound round-the-world deployment. In doing so, they would cover the strongest legs of U.S. Lines routes, such as the Far East to the U.S. and the U.S. to Europe, with more capacity. The round-the-world deployment would also open up major new routes to the Middle East and a multitude of smaller routes within the overall deployment. Smaller feeder vessels would augment the deployment at key hub ports. The Econships were also designed to operate at a relatively slow 18 knots to conserve fuel.

Malcom was focused on the Econships having the lowest cost per container mile, by a wide margin, compared to any ship in the world. With that in hand, and the core existing business from the 19 older vessels in transatlantic and transpacific services the Econships would replace, Malcom was confident that his latest ideas made sense.

Malcom had always been comfortable with debt and his confidence in the low cost economics of the Econships resulted in our seeking significant financing for the vessels and related containers. Over a course of a couple of years, we obtained various financing commitments for ships and related equipment of over $1 billion.

One sticking point with a key lender was not the new Econships themselves, but the round-the-world deployment. To address their specific concerns, I prepared a detailed analysis demonstrating that if the Econships were simply deployed in U.S. Lines current routes carrying only existing container volume, profits would increase. This allayed their concerns and they accepted the view that the best deployment of the significant capacity of the Econships was the eastbound round-the-world route.

In 1982, the trigger was pulled on contracts to build the twelve Econships along with all of the related container equipment. Daewoo Shipbuilding in Korea would build the ships under what was the largest shipbuilding contract in history. That contract was a key catalyst in moving Korea to displace Japan as the largest shipbuilding country in the world. To provide additional liquidity and financial flexibility, McLean Industries, the renamed parent company of U.S. Lines, went public and also issued several hundred million of public debentures.

When Malcom acquired U.S. Lines, it had annual revenue in the $600 million range. It operated on the largest routes in the world but an aging fleet near full capacity constrained its growth. Malcom’s plans to revitalize its fleet and assets put the company on a strong growth curve. Additional vessels were chartered and acquisitions were made. Moore McCormack Lines, a large U.S. flag shipping line with services to South America and Africa, was purchased along with Delta Lines and Farrell Lines, two U.S. flag operators serving the South America and Europe markets, respectively.

As the Econships were being built, they were criticized by many in the shipping industry as being too big and not needed. One competitor derisively referred to them as “Malcom’s canoes”. There was even a rumor originating in the industry that the Econships were too wide and wouldn’t be able to fit through the Panama Canal. Malcom took all of this in stride, quietly re-affirming his confidence in ships that would have a materially lower cost per container mile compared to any of the competitors. One of his favorite expressions was “you can’t stop progress” and he clearly viewed these behemoths as the next step in the natural progression of container shipping.

Fundamentally a private man with no interest in generating press coverage, Malcom’s latest efforts nevertheless had him more in the public light. He turned down all requests by business and industry publications for interviews. A voracious reader himself of newspapers and magazines where he gleaned useful information on competitors, Malcom had no interest in providing his competitors the same insight. When he wasn’t reading or working through an analysis on his yellow pad at his midtown Manhattan office, he was likely to be doing the same thing a block away at his residence in the Pierre Hotel.

For relaxation, one of Malcom’s favorite activities was to walk his dog, a small Shih Tzu named Lucky, in nearby Central Park. One of those walks in 1982 resulted in an encounter one summer evening that said much about Malcom. Sitting on a park bench and playing with his dog, Malcom noticed a young man at the other end of the long bench reading a magazine. Several minutes later, the young man noticed Malcom and his dog and a conversation ensued, rotating around the cute dog. The young man then said, holding up and pointing to his Forbes magazine, “I’ve been reading about all these rich people in the Forbes 400. None of them understand the joy of walking dogs. Don’t ever get where you can’t walk your dog”. With that, the young man departed. In that issue, Malcom was listed among the top fifty in the Forbes 400 with an estimated net worth of $500 million. Because the young man had referred to the conglomerate he worked at as assistant treasurer, Malcom thought about reaching out to him to highlight the irony in his comments. Not surprisingly, he decided not to do something that would have been out of character for him.

The only public presentation Malcom would make during this period was in 1983 at the Merchant Marine Academy at Kings Point, New York. He acquiesced to repeated requests by alumni and friends of Kings Point who had worked with him in the early days of Sea-Land. They wanted him to share his insights on the shipping industry with students at the federally chartered college tasked with turning out trained mariners. Malcom did so by walking the students through a series of whimsical cartoons that he had produced, with the assistance of my sister as the artist. An auditorium packed with students and alumni listened to and enjoyed this rare public presentation by Malcom.

In 1984, Malcom was named the recipient of the Admiral of the Ocean Sea Award, the highest recognition given by the U.S. merchant marine sector. President Reagan sent a telegram to Malcom which read “America was built by men and women possessed of a dream for a better future and the courage and conviction to realize their vision. Your career has exemplified this spirit of determined optimism.”

Around the same time, Walter Wriston, the junior banker who worked with Malcom three decades earlier on the purchase of Waterman, published his own autobiography. Wriston had risen to the top of Citibank and was widely recognized as the most influential and powerful banker in modern times. In the foreword of his autobiography, Wriston referred to only one other person and it was Malcom, who he called “the sort of entrepreneurial risk-taker that America could use more of”.

Beginning in mid-1984, the Econships started to be delivered and were slotted into service. Volume and revenue at U.S. Lines stepped up to a new level. By late 1985, annualized revenue was running at more than $2 billion, some four times what it was when Malcom acquired the company. U.S. Lines was now the largest container shipping company in the world, with slightly more revenue than Sea-Land.

However, the operating results were poor and the company was losing money. Less than expected vessel utilization on the Econships and U.S. Lines network of other vessels resulted in debilitating rate reductions. In addition, a sharp reduction in oil prices reduced the cost advantages of the Econships. The 18-knot vessels also had a service disadvantage compared to other ships that increased speed due to lower fuel costs.

The Econships had been ordered when oil prices were at historical highs and projected by many leading economists to go even higher. With the collapse of oil prices, this turned out very differently. The Econship design wzs influenced by relatively high oil prices, just as the SL-7 was influenced by low oil prices. The impact of both of these then largest container ships in the world was mitigated by the unexpected price changes of energy. While Malcom was on the wrong side as it turned out, in both cases the speeds the vessels were optimized for was a logical decision based on the facts that existed at that time. As analytical and focused on the current facts as he always was, Malcom was not someone to spend much time on speculating about fundamentally unknowable things like the future direction of oil prices. He dealt squarely with the facts that were in front of him which for the most part served him very well.

Against this backdrop, competitors in the industry were also doing everything they could to make things difficult for U.S. Lines. Competitors would take turns having what was referred to in the industry as a “fighting ship” arrive in a port a few days ahead of an Econship and offer low one-time rates to divert cargo. In addition, U.S. Lines belonged to a rate setting conference that refused to allow lower rates for all-water Far East to East Coast service compared to faster service with double stack trains via the West Coast. This made it easy for shippers to select the faster service, as it had the same price as the slower service. Malcom was particularly frustrated by the illogic of setting equalized rates for a premium intermodal service compared to an all-water service with two weeks more transit time. His efforts to get conferences and regulators to intervene in this nonsensical policy were unsuccessful. While competitors had derided the Econships just a couple of years earlier, by their actions they feared them and there was a concerted effort to defeat them.

The poor operating results at U.S. Lines were stanched by cash injections from McLean Industries. The parent company had several hundred million in liquidity owing to its public equity and debt offerings that I was managing in short-term money market investments. However, lenders became increasingly concerned as losses continued and cash dwindled. Various discussions and negotiations with lenders failed to come up with any agreeable restructuring and by mid-1986 the situation was becoming tenuous.

Malcom’s focus returned to his earlier idea of a combination between U.S. Lines and Sea-Land. This time, his idea was that both would be acquired by CSX, the large railroad. Malcom envisioned that U.S. Lines newer fleet, the services of the two biggest container carriers and largest eastern railroad would combine into a formidable transportation juggernaut. Starting in mid-1985, Malcom would travel to Richmond, Virginia, the headquarters of CSX, more than half a dozen times to promote his plan. At each of those meetings, CSX’s receptivity increased and we further refined the deck highlighting the benefits of such a combination.

In the end, CSX implemented just part of Malcom’s plan by acquiring Sea-Land for $700 million in mid-1986. We would learn that Sea-Land executives had convinced CSX that U.S. Lines was headed for bankruptcy and its key assets could be purchased for less at that time. As an aside, the financial advisor to CSX on its acquisition of Sea-Land was the newly formed Blackstone Group in what was their first major assignment. A young Steve Schwartzman came by Malcom’s office as part of his due diligence. Blackstone received a large fee for that transaction, but Malcom was the real catalyst behind the deal. Today, Schwartzman heads up Blackstone Group, which is considered by many to be the most powerful financial institution in the world.

In November 1986, U.S. Lines filed for bankruptcy protection. Due to the intertwined corporate relationships, this also resulted in bankruptcy filings by McLean Industries and its real estate subsidiaries. It was the largest international bankruptcy filing in history. Because many overseas locations didn’t recognize the jurisdiction of the U.S. bankruptcy court, the ability to continue various services was severely constrained as vessels and assets were subject to random seizure. The round-the-world service was discontinued and the twelve Econships were laid-up in friendly jurisdictions.

Concerned about having their cargo adversely affected, customers abandoned U.S. Lines for other carriers who were actively fanning the flames of those risks. Various attempts to reorganize as a smaller shipping company failed and the bankruptcy proceedings evolved into a process of auctioning off vessels and remaining services. Sea-Land purchased the Econships and the Hawaii service at bargain basement prices. At the end of the bankruptcy proceeding, the only thing that remained to reorganize around were large tax loss carryforwards of over $1 billion each at both U.S. Lines and its parent McLean Industries.

The bankruptcy filing and the process that ensued after the filing devastated Malcom. This went beyond the economic loss to him, even though no party was more economically harmed than Malcom. His stock in McLean Industries, once worth over $800 million, became worthless. He had never sold any of his stock, either at the initial public offering or as performance later declined, and maintained his holdings equal to 85% of McLean Industries total outstanding stock.

Furthermore, because the predecessor to McLean Industries was his personal holding company, many assets that were more personal in nature remained and were drawn into the bankruptcy. This included a 25,000 acre hunting preserve and $10 million of R.J. Reynolds stock, both at such a low cost basis that they were unknown to investors but that became a windfall for creditors. While Malcom recognized early on in the process that there would be no recovery on his stock holdings, he stayed involved. He had never known failure like this, but he was still committed to doing what he could to maximize the recovery to creditors. There is little doubt that he was also motivated to do what he could to restore his reputation.

Despite a number of ideas suggested by Malcom to operate a smaller shipping company, the creditors were ill disposed to give any of those ideas serious consideration. When it came down to selecting a strategy to monetize the net operating loss carryforwards, the creditors exhibited the same bias against Malcom.

By this point, I was working directly with Malcom on an idea I had developed to monetize the large tax loss carryforward. He was willing to provide the capital for a new company formed by McLean Industries that would issue adjustable rate preferred stock and invest the proceeds in the highest rated commercial paper. The dividend income on adjustable rate preferred is effectively tax free to the corporations that buy it and they are willing to accept lower rates than comparable taxable investments. Because the net operating loss carryforwards would shield all income taxes on the taxable commerical paper, this investment vehicle could capture the 1.5% historical spread between these securities. With the initial capital, the commercial paper securing the adjustable rate preferred and the quality of the securities, the rating agencies told us they would give their highest rating to an investment vehicle that could be leveraged twenty times.

This elegant financial arbitrage would therefore result in a 1.5% times 20, or 30%, annual return on whatever capital was invested. Rather than moving ahead and joining Malcom on this approach, however, the creditors elected to turn the net operating loss carryforwards over to private equity sponsors who convinced them that the carryforwards would make their returns even bigger. In exchange, the creditors got small minority positions in new leveraged buyout vehicles. Nothing came out of that ill-fated decision and the rejection of a tangible way to monetize the tax benefits for what was a speculative bet was extremely wrongheaded. However, the creditors blamed Malcom for all of their problems and didn’t want to be associated in any way with him.

Malcom’s legacy was certainly impacted by the U.S. Lines bankruptcy, but the reasons behind the failure are still much misunderstood. While most put the blame on the Econships and pointed to Malcom’s hubris in pushing ahead on such an ambitious expansion and deployment, neither was the primary catalyst. The Econships in fact lived up to projections of having the lowest cost per container mile slot of any vessel afloat. It wasn’t them, but it was other vessels that proceeded them.

Departing from the original plan, the acquisition of additional vessels and companies in the lead up to the delivery of the Econships collectively represented a financial commitment as large as the Econships. These acquisitions were championed by operating management at U.S. Lines. Anytime U.S. flag vessels or companies became available, they pushed to acquire, both to ramp up volume in anticipation of the Econships and to minimize potential competition. While that may have made for a smoother transition, when the Econships were delivered, the existence of that higher cost capacity was very problematic. The market for U.S. flag vessels is limited and there was no ability for U.S. Lines to rid itself of high cost, high debt burdened vessels that were no longer needed.

Management at U.S. Lines included a near family member as CEO, Malcom’s son as president and his two son-in-laws in senior executive positions. Neither they nor other associates brought into senior positions had particularly relevant work experience. There were no material changes in management at U.S. Lines during a period when the company more than quadrupled in size. In my view, this operating management group was over their competence level from the beginning and the gap increased over time.

The involvement of family members also complicated the ability to remedy the situation. While all of this was still Malcom’s responsibility in the end, he fulfilled his role as visionary with the introduction of the Econships. He was however poorly served by people around him in the implementation of the original plan. It is fair to say that he viewed the relative cost benefits of the Econships to be so pronounced that anybody could succeed so he minimized the role of operating management. Among other things, the failure at U.S. Lines is also a case study in the inherent dangers of nepotism.

With the wind down of the U.S. Lines and McLean Industries bankruptcies, Malcom asked me to stay with him and further develop some ideas he had. Our focus quickly moved to what we might be able to do with a new transportation venture focused on the domestic U.S. trade lanes. This came at a time that the truckload sector in the U.S. was quickly transitioning to larger equipment sizes. The container shipping industry has historically achieved less utilization on the inland segment of intermodal movements. In the continental U.S., much of that was due to the fundamental fact that the 40’ container typically used was now much smaller than the equipment moving pure domestic freight.

The truckload industry had already transitioned to 48’ equipment and was beginning a further shift to 53’ equipment in some states. This equipment was not only longer, but higher and wider than typical containers and had up to 50% more inside cubic space. We were determined to address this directly by adapting our vessels to what works best on the highway rather than vice versa.

This resulted in our buying two large barges with almost 15,000 linear feet of lanes on three decks which could be adapted to accommodate any length equipment. A detailed and systematic review of each of the Jones Act markets lead to the conclusion that our relative competitive cost advantages would be most pronounced in the Puerto Rico market.

It was during these formative years of analyzing, discussing and implementing his next steps that Malcom would begin sharing with me firsthand accounts of his earlier days at McLean Trucking and Sea-Land. Over long lunches and dinners that would often go late into the night, Malcom gave me an oral history of all the key points in his extraordinary business life. More than once, I encouraged him to work with a biographical author to have his story put in a book so that the public and history would benefit from a firsthand account of his extraordinary life.

Malcom was fundamentally a very private man and almost everything written about him had been without his cooperation. When I gave him a copy of such a biography just written about J.B. Hunt, a pioneer in the truckload sector, he seemed to be warming up to the idea. At the time, we were in discussions with Mr. Hunt to participate with us in our new Puerto Rico service.

In the end, however, it went too much against the grain of who he was. Malcom remarked that long after he was gone, maybe I should write the book. My wanting to add to the historical record on Malcom’s life was a large part of the inspiration in undertaking to write this book. History would have been better served if he had cooperated with a professional writer on his biography. However, my hope is that people and history will learn more about this extraordinary man from my attempt to be the James Boswell to his Samuel Johnson.

One prominent characteristic of Malcom was his ability to constantly absorb new information. He was consistently focused on taking in new inputs, both through direct observation and from a voracious appetite for reading relevant periodicals. Malcom was always learning. This extended to words and one of his favorite reference books was a large unabridged dictionary that was always open on its own rostrum in his study.

When he heard or came across a word that was used in a way that puzzled him, he looked it up in his dictionary. Perhaps because of this habit and his preference for precise language, one of his few pet peeves was the use of buzzwords by business people in general and transportation people in particular. In the latter category, few words raised his ire as much as “logistics”.

That came up one day in his study when Malcom, looking at his dictionary, pointed that it is primarily defined as the military procurement of supplies. His view was that it was a broadly misused term often used by people who knew little about transportation. Indeed, on many occasions when someone had used that term in Malcom’s presence, I would hear Malcom say “Logistics. What do you mean by that?”

In any case, what made that day in the study memorable was Malcom’s observation of the word that came just after “logistics” in his dictionary which was “logjam”. Malcom smiled, noting that transport folks who talk about logistics rather than just efficiently moving freight from one point to another will often find themselves in a logjam. He would share his observation with J.B. Hunt, another plainspoken transport pioneer who also began as a truck driver. That observation would be repeated often by Mr. Hunt at many of his own presentations.

Malcom’s curious nature and his constant learning mode translated into very little confirmation bias in the business decisions he reached. Confirmation bias is the tendency to have past decisions channel and direct present decisions and it is typically present to one degree or another in almost all business people. But just as Malcom started with a clean sheet on his yellow pad for any detailed calculation, he tended to look at each business matter he focused on as a separate event requiring its own analysis.

This extended the decision time but almost always resulted in better decisions. Like expert carpenters say, measure twice and cut once. Malcom would look at things from many different angles prior to making a decision. Indeed, discussions with Malcom could sometimes be confounding because of his ability to see the merits in various sides of a given situation. Just when he seemed to be leaning in one direction, he would come up with the arguments against that approach before landing at a conclusion. In Malcom and other exceptionally gifted thinkers I’ve come across, I believe the ability to recognize contrasting arguments and the absence of any strong confirmation bias results in both insight and the best decisions.

The ability to look at and weigh both sides of a given situation didn’t mean that Malcom was without core business principles from which he wouldn’t vary. First and foremost was his overriding view that cost was everything when it came to moving freight. One of his favorite expressions was that “freight was something added to the cost of the product” and as such he always believed the focus of manufacturers has been and always will be minimizing that cost.

To succeed in the freight business, Malcom believed the prime focus had to be on minimizing your underlying cost to be in synch with the goals of your customers. When anybody would say that service or some other aspect was more important than cost, Malcom would gently probe those assertions. Invariably, the core of those assertions would turn out to be costs expressed in a different way.

One element of his focus on costs rooted in his days as a trucker was that using the largest available equipment size resulted in the most efficient system-wide costs. Among other things, this resulted in a strong disdain for 20’ containers that even extended to using the term TEU for twenty-foot equivalent units to describe vessel capacity. Everyone who dealt with Malcom knew that the appropriate metric to use related to vessel capacity was the size in terms of forty-foot equivalent units. They also knew that if Malcom saw any twenty-foot containers in one of his terminals there better be a very good reason for it being there. While he recognized that equipment size worked for selected shipments, his overriding concern was it didn’t work for the large majority of shipments. These smaller containers result in low utilization, which is never good for transport efficiency.

Malcom would recall a trip to Puerto Rico in the mid-1960’s where he was walking the terminal with his local manager. Coming across a 20’ container on a chassis at the edge of the terminal, it was surrounded on all sides by grass almost three feet high. Malcom expressed his displeasure in seeing that equipment and asked the manager how long it had not moved. His answer of a couple of days wasn’t credible to Malcom who pointed to the grass. The manager said, “Mr. McLean, you have no idea how fast the grass grows down here in Puerto Rico”. His point having been made, Malcom would never again see a 20’ container in Puerto Rico or in any of Sea-Land’s other terminals in future visits.

Given his edict against those small containers, I was flabbergasted when he came into the office one morning in 1989 and said “Maybe I’ve been wrong about 20’ containers. There is a legitimate use for them.” I must have been slack jawed, for it was as if Moses had said not to worry about the commandments. Recognizing my confusion, Malcom smiled and said from watching the news the previous night, he saw that Iran’s Ayatollah Khomeini was buried in a twenty-foot container.

While Malcom spent most of his time thinking about his businesses and working through numbers on a yellow pad on how to improve them, he relaxed through his favorite pastimes of golf and quail hunting. Most of this occurred at Sehoy, his 25,000-acre hunting preserve in Hurtsboro, Alabama. The property included a large antebellum house, private nine-hole golf course, large lake, assorted outbuildings and a private runway for Malcom’s Gulfstream II. His luxurious 12-passenger jet was used almost exclusively to fly Malcom and assorted guests from New York to Sehoy, which was named after a native-American princess. Sehoy was originally owned by the DuPont family and was one of the largest privately owned plantations in the south. Malcom was an extraordinary host and time spent at Sehoy was always a very enjoyable and memorable experience.

Malcom had taken up golf later than most people had but he embraced it and enjoyed the sport immensely. His private golf course at Sehoy was among the first in the country and it and the beautiful countryside that surrounded it was a central part of almost every day at Sehoy. Malcom’s passion for the game had earlier become evident when a real estate company controlled by him purchased Pinehurst, the legendary golf resort in North Carolina, in 1971. At Sehoy, he could indulge in that with a close knit group of friends whose company he enjoyed. At a lunch we had with an investment banker who knew of Malcom’s interest in golf, he volunteered that Malcom must have done lots of business and deals on golf courses over the decades. Reflecting for a moment, Malcom said “I don’t think I’ve ever done any business while golfing. I just like to play golf with friends.”

Sehoy was located in the eastern part of Alabama near the Georgia border in an area referred to as the plantation belt. That area contains some of the best natural quail hunting in the country. Sehoy was a venue allowing Malcom and his guests to engage in this sport at the highest level while enjoying five star accommodations. To ride on horseback through magnificent countryside, watching the dogs work the fields, come to a point when they sense a covey of quails and then see the covey being flushed is to commune with nature in the grandest manner.

Malcom’s friend Sam Walton shared his passion for quail hunting and several times piloted his own small plane to Sehoy, accompanied only by his favorite hunting dogs. Walton reciprocated with invitations to his own quail-hunting place in West Texas that Malcom went to once. Quite different from Sehoy, it was more of a typical rustic hunting camp with sparce accomodations in trailers. Malcom would not return, recounting later that he “didn’t like to travel somewhere to be uncomfortable”.

In 1992, at the age of seventy-eight, Malcom launched Trailer Bridge, which provided weekly service between the mainland and Puerto Rico in the largest vans that moved on the highway. Malcom’s simple analogy was that if there was an actual bridge to Puerto Rico, all of the full-load freight would move in the same efficient sizes that the same freight was moving in on the mainland. In effect, the vessels were floating highways, hence the name Trailer Bridge.

Rather than typical container vessels, the cargo Trailer Bridge handled was moved on two large roll-on, roll-off barges that were towed by 8,000 horsepower ocean-going tugs. Trailers and containers on chassis were moved on and off the vessels by driving them on via a ramp with no cranes used. That the inventor of container shipping would choose to use the roll-on, roll-off method underscores the fresh, driven by the analysis approach Malcom took to all major business decisions.

The value proposition Trailer Bridge offered was well received by customers and it consistently grew its business by a double-digit percentage in a flat market. Starting with two vessels, Trailer Bridge grew to seven vessels in 1998 when it began taking delivery of new vessels it built following its initial public offering of stock. They were the first vessels in the world designed to exclusively move 53’ containers. To load and unload these vessels, we developed a new process was was patented with Malcom and I as co-inventors. Ironically, that is the only actual patent that lists Malcom as an inventor.

The naval architect we relied on as Trailer Bridge first mid-bodied existing vessels and then built new vessels was Charles Cushing who was an early employee at Sea-Land. A decade earlier his firm had designed the Econships.

Many of our meetings would start with Malcom asking “Charlie, how many of those too-big container ships are now operating around the world?” Over the years, the answer went from 20 to 50 to 100 to hundreds. Today, the number of container ships now operating equal to or larger than the Econships stands at 2,146 vessels. With an average capacity of 7,703 TEU’s, the typical vessel in that gargantuan fleet is almost twice the size of an Econship. The largest vessels are more than five times the size of an Econship.

Malcom’s vision of Econships and the economic benefits they would deliver was clearly ahead of its time. The Econships redeployed by a healthy Sea-Land in its key routes more than proved their cost efficiency. To compete with those vessels, competitors were required to build new vessels that size. Not content to just match sizes, it was predictable at some point that the Panamax barrier was broken. This cycle accelerated as China entered the World Trade Organization. Each step up in size would lead to another round of matching and exceeding to both stay competitive and gain an edge. This effectively became an arms race to get ever larger and more efficient container ships. While this resulted in excess capacity and poor results for the container shipping sector itself, world trade volume benefited immensely from the rates resulting from this arms race.

A strong case can be made that Malcom’s leadership with the Econships and what flowed from that innovation was almost as ground breaking as his earlier invention in terms of the economic benefits it delivered to the world. Just as the sailing of the Ideal X in 1956 was the beginning of the container revolution, the deliver of the Econships in 1984 and the larger vessels they ushered in started a second container revolution that lowered shipping costs further and dramatically increased world trade. The first revolution was from specialization with similar sized vessels. The second revolution was from the geometric expansion in size of those specialized vessels. Malcom was the catalyst for both.

The advent of container shipping had pronounced effects on labor on the docks and even on the ships. Both the number of men needed to work a ship and the total time it took to work a ship went down geometrically, decimating the employment ranks of longshoremen. The manning level on a typical ship carrying merchandise cargo also came down as with containers there was little for the crew to do relative to cargo.

However, these were never primary goals of Malcom. He was focused solely on developing a new and better process. He was known to say “a ship earns money only when she’s at sea” and his recognition of that truism certainly played a role in developing the groundbreaking process he invented. That this significantly faster process also required significantly fewer men was a causal effect.

From my direct experience with him, I never heard him make a single negative comment about labor. Quite the opposite, in all his analysis he assumed that prevailing manning and wages would apply. More that once, Malcom said that container shipping was the natural progression and someone else would have come up with it if he hadn’t.

Malcom saw progress as inevitable. Everyone, however, did certainly not share his views. I vividly recall being at a shipping industry event with Malcom honoring a maritime labor leader. Also in attendance was Teddy Gleason, the 90-year-old former President of the International Longshoreman’s Association during many of the early growth years of container shipping. When he passed our table, Mr. Gleason was heard to say, with a sneer, “There he is, Mr. Automation”.

I suppose it’s understandable that a leader of a union whose membership would drop by more than a factor of ten wouldn’t like container shipping, but his animosity towards Malcom was misplaced. In an industry that is often viewed as anti-labor, Malcom embraced the dignity of labor and never went out of his way to hurt labor.

On the 40th anniversary of the sailing of the Ideal X in 1996, there was a large industry dinner featuring former Secretary of State Henry Kissinger as the speaker. In his speech, Dr. Kissinger extolled the role of trade in promoting peace worldwide. President Clinton sent a message which read as follows “Four decades ago, when the Ideal X sailed with the first shipment of containerized cargo, few could have foreseen the global impact of your innovative idea. Containerization has created international trading relationships that have fueled the world’s economy and helped to keep its peace. You have helped to ensure a brighter, more secure future for us all.”

Around the same time, Malcom was inducted in the Business Hall of Fame by Fortune Magazine and was named by American Heritage Magazine as one of ten outstanding innovators over the past 40 years. Forbes also described him as “one of the few men who changed the world”.

Malcom’s personal life was not without loss and drama. The death of his wife Margaret in 1992 after 55 years of marriage was a sharp blow. Malcom would spend much of the next couple of years at his hunting preserve in Alabama. Following his return to his apartment at the Pierre Hotel in New York, he would meet a woman who worked at the Pierre. They began spending time together and would eventually marry in 1995.

Because Irena McLean was significantly younger than Malcom, this relationship resulted in a fair amount of acrimony among various members of Malcom’s family. Malcom went into the relationship with his eyes open and required that Irena agree to a pre-nuptial agreement, which would provide a relatively modest sum for Irena. She cared for Malcom and he cared for her over the course of their marriage. Over the years, Malcom would elect to make additional provisions that would provide for Irena beyond what was in the pre-nuptial agreement.

While less involved in his business interests following his marriage, Malcom took great satisfaction in the success of Trailer Bridge. Its initial public offering in 1997 represented the fifth IPO of a company Malcom had founded. Those companies were McLean Trucking, the first McLean Industries which owned Sea-Land, Diamondhead Corporation, a large real estate development company, the second McLean Industries which included U.S. Lines, and Trailer Bridge. From research by stock exchange officials at the time, that was a record as there was no other individual involved in founding five completely separate public companies.

In 2000 at a large ceremony held at the United Nations in New York, the International Maritime Hall of Fame recognized Malcom as the “Man of the Century”. In his brief remarks, Malcom, as he always did when he was given such an award, referenced the contributions of others that were involved in the development of container shipping.

Following a brief illness, Malcom died at his home in New York on May 25, 2001 at the age of 87. Dozens of newspapers and magazines ran articles on this largely unknown individual and a summary of his innovative life. Previous quotes from presidents were referenced, such as Reagan’s characterization of Malcom as having a “spirit of determined optimism” and Clinton’s statement that Malcom helped to “fuel the worlds economy”. The Baltimore Sun said “he ranks next to Robert Fulton as the greatest revolutionary in the history of maritime trade”. Secretary of Transportation Norman Mineta said “Malcom revolutionized the maritime industry in the 20th century. His idea for modernizing the loading and unloading of ships, which was previously conducted in much the same way the Phoenicians did 3,000 years ago, has resulted in much safer and less expensive transport of goods, faster delivery, and better service. We owe so much to a man of vision, ‘the father of containerization’, Malcom P. McLean”.

A crowd that overflowed onto Fifth Avenue attended Malcom’s memorial service at a large Manhattan church. Business leaders such as Walter Wriston, the banker who helped finance his purchase of what would become Sea-Land almost half a century earlier, were in attendance. The eloquent eulogies by Charles Cushing and Helen Bentley touched on the personal relationships they had developed over more than four decades of friendship with Malcom.

Midway through the service, container ships around the world sounded their horns in tribute to Malcom. What had started with our instructing Trailer Bridge vessels to sound their horns, and then making calls to people at Sea-Land to request they do the same, had quickly spread to dozens of shipping companies around the globe. At the appointed time, there were literally thousands of ships at sea that made three long blasts, a traditional maritime acknowledgement, in a final salute to Malcom. Given that one of his favorite expressions was “Don’t honk your horn until you’re ready to pass”, I’m certain that Malcom would have smiled at that tribute.

As Malcom’s executor, over the next few years I would take on the added responsibility of administering his estate and distributing his assets as he instructed in his will. That would prove to be a role with its own set of challenges given the dynamics at work. However, the estate was successfully settled and more than two hundred million in value was distributed collectively to the beneficiaries.

There are a multitude of thoughts and memories that come to mind when I think of Malcom. Over the last twenty years of his life, I had almost daily contact with him, either in person or by phone. First and foremost, he was a man of great insight and foresight. When you reflect on the arc of his life and what resulted from his innovations, its hard not to conclude as I have that he was the greatest transportation thinker in history. I think much of his extraordinary vision came from an insatiable curiosity that always seemed to be present in Malcom.

This repeatedly showed itself in matters big and small. Malcom prioritized the big business matters and always had a way of separating the wheat and chafe to circle in on the core issue. He liked to break things down into granular components as part of his analytical processing. Malcom also had a gift for reconstructing the pieces into easy to understand examples. In the case of a freight movement, that included the estimated cost per load at each node and how that compared to competitors.

Malcom saw everything in relative terms and one of his favorite expressions was “If you don’t have a comparison, you don’t have anything”. His business decisions came from a bottom up analytical approach that he was constantly revisiting and refining. Numbers were the language he was most comfortable with when it came to talking about any business decision.

He took the same methodical and analytical approach to key personal decisions he made. While Malcom was a teetotaler who never drank alcohol the entire time I knew him, he did drink earlier in his life. He recounted to me an evening decades earlier when he found himself awake in the middle of the night after having had too much to drink earlier. He went to his study and on a yellow pad, proceeded to list those things he did better after drinking on one side and those things he did worse on the other side. After spending a fair amount of time thrashing out both lists, Malcom surveyed the results and determined then and there that he would never have another drink with alcohol. However, that was a quiet resolution and with his graciousness as a host many of his guests were never aware that he didn’t drink. Malcom would later show the same direct and immediate approach when he went from a heavy smoker to a non-smoker overnight.

Malcom’s curiosity about how things do and should work extended beyond his own business interests. Whether it was something he read about that morning or saw on television the night before, conversations over lunch would sometimes go into interesting tangents that would often result in a friendly wager. The number of cows in Florida, whether the U.S. treasury would accept a donation and the number of people migrating out of New York in a given year were among dozens of such discussions, often involving a $1 wager related to the outcome.

He took everything in like a sponge, whether walking around a freight yard, reading multiple newspapers and periodicals or listening to colleagues. Malcom took all the relevant information in, worked up his own numerical analysis and came to a decision driven by his own counsel. He was a man of action who was confident in his decisions without being arrogant.

The combination of a strong intellect and a sharp focus on the key cost factors had Malcom confident in and comfortable with the business decisions he made. Because he had usually broken the situation down, looked at it from every angle and put it back together on his yellow pad, his bottoms up approach gave him insight. Malcom was certainly smart, but he was also wise. There are many more smart people in business than there are wise people. I believe Malcom’s higher level insight emanated from his detailed first-hand experience from the ground up in the freight business and the businessess in which it interected. Whether on a customer loading dock or driving to the destination with hours to reflect on the cargo and the business, he was absorbing the relevant information. Malcom would in effect utilize that same framework when he was at his desk analyzing a particular business situation. His analysis was smart and focused, but the judgment coming out of his process was usually wise.

Malcom had a genteel, unassuming manner in how he dealt with everyone. Like the young man in Central Park who said he should never quit walking his dog, if you didn’t know who he was, a discussion with Malcom would be recalled as a talk with an unusually polite southern gentleman rather than a businessman whose thoughts and efforts changed the world. A shipping industry colleague who knew him well captured this characteristic when she referred to Malcom as a “gentle giant”.

The consistent thread in everything Malcom did was about using superior assets. In the freight businesses that dominated his life that meant using better hard assets that by themself resulted in a cost advantage. One of his favorite sayings was that freight was something that was added to the cost of the product. He thought freight decision-makers were similarly motivated and if you could show that your freight service resulted in lower costs, you would get their business.

Malcom’s mission in life was developing and utilizing better hard assets that would give his companies a cost edge. He was always looking for how he could move freight from one point to another point for a lower cost. Malcom achieved that time and time again in both the trucking and shipping sectors. While his focus was on what those efforts could do for his companies, his greatest initiatives were copied and the benefits were spread throughout the economy and the world. To the extent that imitation is the greatest form of flattery, Malcom is probably the most flattered businessman in history based on the eventual economic impact of his genius.

There are dozens of stories that I could recount that highlight Malcom’s insight into matters related to shipping, transportation and business. There are two stories, however, that come to mind that in my view underscore the curiosity and observation skills that under-girded his incredible insight. Both involved site visits, one of Malcom’s favorite ways to absorb primary data about whatever he was working on.

The first story related to spending most of a Saturday morning watching a container ship being discharged in Port Newark. The company was in the process of being sold and after looking at the numbers we wanted to observe firsthand its unloading process. We were intrigued with the possibility of buying this company and transitioning its business to something more similar to the Trailer Bridge model. Coincidentally, the ship was being worked just a few hundred yards from where the Ideal X began its pivotal voyage more than four decades earlier.

Much of Malcom’s observations related to that historic day and his vision that containers would be handled just as we could see them now being handled in front of us. At one point, after ten minutes of intently watching a series of containers being discharged, he turned and asked “So do you think this new system is going to work?” His big smile gave away that he was channeling the skepticism from decades earlier. He went on to note that, after seeing this operation, we would be better off to organically grow Trailer Bridge.

The second story involved inspecting an operating tanker that was for sale on the market. One of the paths to growing Trailer Bridge we were considering was to acquire a tanker and convert it to move 53’ containers on its deck. No doubt Malcom was in part influenced by what he had done four decades earlier. We were met at the gangway by a young second mate who had recently graduated from one of the merchant marine academies. The ship’s agent had alerted the captain that a potential purchaser wanted to inspect the ship and the captain assigned the second mate to accompany us.

As we toured the deck and engine room of the vessel, the second mate heard us talking about our potential conversion plans. Malcom responded to one of his questions by saying he had once converted a tanker to carry containers and he was thinking about doing it again. The second mate stopped in his tracks and pulled the pad out of his pocket, which had our names that he had written at the gangway. Looking at his pad, he said, “Are you THAT McLean?” Malcom smiled and nodded, to which the young man said, “I thought you died a long time ago!” Malcom, in his early 80’s at the time, laughed and couldn’t have been more tickled at the reaction of this young mariner.

That someone the second mate immediately recognized as an industry legend was still walking around a ship to see firsthand if it might fit an innovative idea he had says much about Malcom. Beyond that interchange which would make Malcom smile each time he recalled it, the visit re-affirmed our plan to build new vessels to move 53’ containers. This was primarily because the unique cargo handling method we had devised for those new vessels would be more cost efficient than what could be accomplished with converted tankers.

Malcom was an extraordinary entrepreneur whose keen insight allowed him to see new innovative ways of moving things from one point to another. Just like any man, however, he had his weaknesses. One of those weaknesses was that he didn’t put as much of a premium on the experience and competence of other managers as he should have. His innovations resulted in using different assets and processes that resulted in meaningfully lower costs, and once that was accomplished, he perhaps minimized the role of operating management in implementing a better system.

More than once, I observed to folks that Malcom didn’t really like to compete. By that, I didn’t at all mean that he didn’t like to go head to head against other companies to secure customers business as he embraced the challenge of the marketplace. However, he didn’t believe that challenge was won by just more work with the same hard assets. Malcom wanted to have a tangible edge in the hard assets his companies deployed to move freight from one point to another. He always wanted to have a built-in advantage in his business model.

It is in that sense that Malcom didn’t like to compete, for his best innovations did in fact give him such an edge cost-wise that it really wasn’t a real competition to gain customers and grow well above other freight providers. With that model top of mind, he didn’t always pay appropriate attention to the effectiveness of management in implementing his vision.

That certainly was the case of the Econships and the failures at U.S. Lines where he was ill served by family members and others with which he had historical relationships. Like the proverbial frog in boiling water, by the time Malcom realized his colossal mistake in the managers he selected, the die had been cast and it was too late. While in later conversations with me it was clear that he recognized and took ownership of that mistake, he also learned from it. A core edict of Malcom’s while we were building Trailer Bridge was that none of his family members would be involved in managing the company.

It was my great pleasure and distinct honor to work with Malcom. While I benefited from a great education at Harvard Business School, I learned about the freight and transportation business from a master and true giant. It was that constant state of learning that most comes to mind when I reflect on that period. You rarely came away from a meeting, lunch or dinner with Malcom without learning something.

What started as my high respect for Malcom only grew over the years. While he had no reason to view me as anything other than someone with potential when our relationship began, his respect for me also grew over the years. Through time spent together and perhaps something akin to osmosis, I believe I came to look at and process things the way Malcom did. I’d like to think that some of his insight and foresight on all matters related to transport rubbed off on me in our work over two decades. Among other things, that contributed to two patents in my name and a focus on innovative processes at Trailer Bridge. Customers embraced our differentiated transportation system and by 2005 Trailer Bridge had the highest profit margins of any container shipping operator in the world.

Malcom was not someone who gave out many compliments, but his highest compliment to me came over a lunch shortly after Trailer Bridge’s IPO in 1997. Musing about where I was in his organization some fifteen years earlier, Malcom said he thought U.S. Lines would have turned out very different if we had the same relationship back then that we had now. I’d like to think he was right on that observation.

As we go to press, there was a recent recognition of Malcom that it many ways best sums up his contributions. The Cato Institute, a well regarded think tank based in Washington, D.C., recently initiated a project known as Human Progress. Their goal is to share data that shows dramatic improvement in human well being throughout the world. As part of this effort, they have published a series referred to as “Hero of Progress” where they profile individuals whose lives have tangibly improved human well being. People profiled include Johanness Gutenberg, the inventor of the printing press, and Jonas Salk, the discoverer of the polio vaccine.

The 17th Hero of Progress recognized by Human Progress was Malcom McLean. In its profile, they recognized that the lower cost from container shipping was the key to the growth in world trade that lifted hundreds of millions of people out of poverty. Malcom is the first and so far only businessman to be so recognized by the Cato Institute. That’s an incredible legacy for anyone, but one that is entirely deserved when you understand what sprang forth for the world from the genius of this remarkable giant.