#61 Malcom McLean The Box How the Shipping Container Made the World Smaller and the World Economy Bigger

In the 1956 maritime revolution, Malcolm McLean's vision of container shipping reshaped global trade, reducing costs and streamlining transport. His company, SeaLand, pioneered the use of standardized containers, propelling efficiency in an industry constrained by tradition and regulation. However, despite his initial success and the industry's rapid growth, McLean's aggressive leverage and misjudgments, particularly during the oil price collapse of the 1980s, led to the bankruptcy of his new venture, United States Lines. Reflecting a common entrepreneurial plight, McLean's strengths became his downfall, as his relentless pursuit of innovation and growth ultimately outpaced market stability and his company's financial resilience.

• On April 26, 1956, the first commercial container shipment took place, marking the start of a logistics revolution.
• The Ideal X was the aging tanker ship used for this first container voyage from Newark, New Jersey to Houston.
• Containerization transformed global trade, making it routine to find international products in local stores.
• Before containerization, the cost of transporting goods was prohibitively high, limiting trade.
• The shipping container's importance is not in its physical form but in its role within a system that minimizes cost and complexity in global trade.

On April 26, 1956, a crane lifted 58 aluminum truck bodies aboard an aging tanker ship moored in Newark, New Jersey. Five days later, the ideal x sailed into Houston, where 58 trucks waited to.

This quote marks the historical moment when containerization began, highlighting the date, the number of containers, and the ship's name, Ideal X.

The container is at the core of a highly automated system for moving goods from anywhere to anywhere, with a minimum of cost and complication on the way.

The quote emphasizes the container's role in a larger system that drastically reduces the cost and complexity of moving goods globally.

• "The Box" by Marc Levinson is the book discussed in the podcast, detailing the impact of the shipping container on the global economy.
• The podcast, "Founders," hosted by David, focuses on extracting useful ideas from the life stories of entrepreneurs.
• Toby Lütke, the founder of Shopify, recommended "The Box," highlighting the entrepreneurial spirit of Malcolm McLean, the key figure behind containerization.
• McLean's focus was on the problem of moving things efficiently rather than on specific transportation methods.
• The podcast draws parallels between McLean's approach to problem-solving and Lütke's philosophy at Shopify, emphasizing solving the core issues customers face.

The premise of this podcast is really straightforward. Every week I read a biography, an autobiography, a book about the life story of an entrepreneur, and I try to pull out ideas all of us can use in our lives.

David introduces the podcast's premise, which is to derive actionable ideas from entrepreneurs' biographies and stories.

A few weeks ago, I was listening to a fascinating podcast with the founder of Shopify. His name is Toby Luke, I think. Is how you pronounce his last name. And I've heard him on a few podcasts, and I've just been fascinated with the way he thinks, like the way his mind works.

David recounts how he came across "The Box" through a podcast featuring Toby Lütke, expressing interest in Lütke's thought process.

• Malcolm McLean was an outsider to the shipping industry, coming from a trucking background.
• McLean's vision was to solve the problem of moving goods efficiently, which led to the creation of the container shipping system.
• The podcast emphasizes the importance of focusing on the fundamental problem that customers care about.
• The notion that people don't want drills, they want holes, illustrates the importance of addressing the underlying need rather than the product itself.
• McLean's approach to problem-solving is likened to the approach of Shopify and other successful entrepreneurs.

Malcolm McLean was the only person who cared about moving things. Everyone else was focused on a particular transportation method, be it trains or ships. But by focusing on the actual problem, which is what is the best way to move things around the world, he came up with a better solution.

The quote highlights McLean's unique focus on the underlying problem of efficient movement of goods, which led to his innovative solution.

They're not paying us for our ships, they're not paying us for our trains, for our trucks. They don't care about any of that. They'll send their goods all over the world in the most efficient manner. So why don't we focus on that?

This quote reflects McLean's understanding that customers are interested in the efficiency of transporting their goods, not the transportation methods themselves.

• Containerization led to a dramatic reduction in transportation costs and time.
• The container, alongside the computer, enabled just-in-time manufacturing, which significantly reduced inventory costs.
• Containerization faced opposition from industry titans and labor leaders, leading to strikes and resistance to change.
• Governments struggled to balance the benefits of containerization with the disruption to existing jobs and social arrangements.
• The Vietnam War proved the effectiveness of containerization in a practical setting.

Even seemingly simple matters such as the design of the steel fitting that allows almost any crane in any port to lift almost any container were settled only after years of contention.

The quote illustrates the complexity and resistance to standardizing even the simplest aspects of the container system, showing the challenges in achieving widespread adoption.

You can't stop it once it starts. So it's saying they don't want to disturb the profits. Well, the profits got disturbed. They don't want to disturb the jobs. The jobs got disturbed. And the social arrangements tied to those jobs and profits certainly got disturbed after this.

This quote acknowledges the inevitable disruption caused by containerization, despite attempts to maintain the status quo.

• The podcast will focus on Malcolm McLean's life story and his contributions to the shipping industry.
• McLean's journey began with the Ideal X and evolved into a system that moves tens of millions of containers annually.
• The podcast aims to draw lessons from McLean's entrepreneurial mindset and his approach to business.
• McLean's success is attributed to his intuition, trial and error, and a focus on solving the core problem of transportation efficiency.

Getting from the ideal x to a system that moves tens of millions of boxes each year was not an easy voyage.

This quote encapsulates the challenge and scale of McLean's achievement in revolutionizing the shipping industry from its modest beginnings.

Malcolm Clean was not in the shipping industry. He was in the trucking industry. That's how he got a start.

The quote highlights McLean's background in trucking, which provided a different perspective that contributed to his innovative approach to shipping.

• Shipping industry faced numerous problems: high transport costs, pilferage, damage, and inefficient port operations.
• Shippers, ship owners, truckers, and port city businesses all demanded improvements to boost efficiency and reduce costs.
• Despite these demands, traditional methods like increasing longshoremen workload were the focus, not innovative solutions.

"Interest in such a remedy was widespread. Shippers wanted cheaper transport, less pilferage, less damage, and lower insurance rates. Ship owners wanted to build bigger vessels, but only if they could spend more time at sea earning revenue and less time in port."

The quote highlights the widespread desire across various stakeholders in the shipping industry to find a solution to reduce costs and increase efficiency.

• Malcolm McLean, a trucking magnate with no maritime experience, revolutionized the shipping industry.
• Born in a small, rural town, McLean worked various jobs before starting his own trucking business.
• McLean's business acumen and drive for success led to rapid growth of his trucking company.

"The solution came from an outsider who had no experience with ships."

This quote emphasizes that the transformative solution for the shipping industry's challenges came from someone outside of the maritime sector.

• McLean's early life in Maxton, North Carolina, was marked by poverty and the Great Depression.
• Resourcefulness and local connections helped him secure initial jobs and eventually start his trucking business.
• McLean's determination and business savvy allowed him to expand his business rapidly through various opportunities.

"Malcolm McLean's early life and his first business, reshaping. The business of shipping was left to an outsider with no maritime experience, a self-made trucking magnet named Malcolm McLean."

This quote introduces Malcolm McLean as a pivotal figure who would reshape the shipping industry despite his lack of maritime background.

• McLean's trucking company grew from a single truck to a fleet, driven by his ambition and innovative business strategies.
• He utilized government loans for veterans to expand his fleet without bearing all the financial burden.
• McLean's focus on frugality and efficiency was key to his success in the competitive trucking industry.

"By 1940, as preparation for war revived the economy, the six-year-old McLean trucking owned 30 trucks and grossed $230,000."

This quote demonstrates the rapid growth of McLean's trucking business, highlighting his entrepreneurial success before venturing into shipping.

• The Interstate Commerce Commission (ICC) regulated the trucking industry, often protecting established companies and railroads at the expense of competition.
• McLean creatively circumvented regulations by acquiring existing routes and leasing truck lines.
• His strategies allowed for continued expansion despite the regulatory environment.

"Regulation protected the interest of established truck lines, also known as regulatory capture, still happens today by limiting competition."

The quote points to the practice of regulatory capture, where regulations serve established industry players rather than the public interest, and how McLean navigated this challenge.

• McLean was known for his cost-cutting innovations and an obsession with efficiency.
• His management training program and strategic business practices set McLean Trucking apart as a dynamic company in a traditional industry.
• Despite his frugality, McLean also employed high leverage in his business operations, a practice that would later pose risks.

"An obsessive focus on cutting costs was the key to McLean's trucking success."

This quote encapsulates McLean's business philosophy, emphasizing the importance of cost reduction as a driver of his success in the trucking industry.

• McLean conceived the idea of transporting truck trailers via ships to avoid highway congestion and potential competition from domestic ship lines.
• His vision was to create an integrated transport system, combining trucks and ships in a way that violated the then-current regulatory separation of modes of transportation.
• McLean's idea was revolutionary for its time and faced regulatory and industry barriers.

"Rather than driving down crowded coastal highways, why not just put truck trailers on ships that could ferry them up and down the coast?"

This quote reveals the initial concept that led to the innovation of containerization, which would transform the shipping industry by enabling the combination of truck and ship transport.

• To avoid regulatory issues, McLean established McLean Industries and strategically maneuvered his business assets.
• He sold his trucking company to focus solely on his new shipping venture, demonstrating total commitment to his innovative idea.
• McLean's approach involved significant financial risk and a complete departure from his established trucking business.

"Malcolm McLean did not fare badly in the process. He cleared $14 million in the sale of McLean trucking. His net worth in 1955 was $25 million, or the equivalent of $220,000,000 today."

This quote indicates the financial outcome of McLean's business restructuring, showing both the significant profit he made and his willingness to invest in his new shipping venture.

• McLean realized the inefficiency of transporting trailers with wheels and sought to improve the concept.
• He aimed for a more efficient system that would further reduce costs and streamline the shipping process.
• McLean's continuous pursuit of innovation led to the development of containerization as we know it today.

"McLean reconsidered his plan. He had realized that carrying trailers on ships was inefficient."

The quote highlights McLean's realization that his initial idea could be improved, setting the stage for the development of modern container shipping.

• Malcolm McLean, owner of Pan Atlantic, innovated container shipping.
• World War II tankers were repurposed to haul truck trailer bodies.
• Containers allowed for stacking and reduced space by one-third compared to trailers.
• The process involved detaching trailer bodies and lifting them onto the ship.
• Container shipping was significantly cheaper than traditional break bulk shipping.

"A truck would pull the trailer alongside the ship, where the trailer body, filled with 20 tons of freight, would be detached from its steel chassis and lifted aboard ship."

This quote describes the process of how containers would be loaded onto ships, highlighting the efficiency of McLean's system.

• Container shipping was 94% cheaper than break bulk shipping.
• This cost reduction was seen as an "insane improvement" in the shipping industry.
• The Ideal X was the first container ship, launching from New Jersey.
• The cost savings were substantial, dropping from $5.83 per ton to 16 cents per ton.

"Would be 94% cheaper than brake bulk shipping of the same product, even allowing for the cost of the container."

This quote emphasizes the dramatic cost savings that container shipping introduced to the industry.

• The appearance of container ships was initially shocking to onlookers.
• The Ideal X was a tanker with boxes on deck, an unusual sight at the time.
• The silence and size of these ships were noted as eerie and fascinating.

"We had seen thousands of tankers, but never one like this. So everybody looked at this monstrosity and they couldn't believe their eyes."

This quote captures the public's initial reaction to the novel sight of a container ship.

• Malcolm McLean's insight was that the shipping industry's business was moving cargo, not sailing ships.
• He recognized that reducing shipping costs required a complete system overhaul, including ports, ships, cranes, and more.
• McLean did not get bogged down in details but focused on solving problems through trial and error.

"Malcolm McLean's fundamental insight, commonplace today but quite radical in the 1950s, was that the shipping industry's business was moving cargo, not sailing ships."

This quote summarizes McLean's revolutionary perspective that reshaped the shipping industry.

• The maritime industry was resistant to change and protected by regulations.
• McLean's company, Pan Atlantic (later Sealand), faced challenges due to the industry's slow-moving culture.
• McLean brought in aggressive trucking executives to adapt to the new business model.

"This sheltered culture led to excesses... It did not breed the sorts of creative, aggressive, hungry employees that suited Malcolm McLean."

This quote discusses the challenges of a complacent industry culture that McLean had to overcome.

• McLean's sales strategy involved demonstrating annual savings to industrial traffic managers.
• The strategy used a total transportation cost analysis to compare different shipping methods.
• Savings were presented in memorable annual figures rather than per ton costs.

"The form provided a side by side comparison of the cost of shipping a product by truck, rail and container ship, including not just transportation rates, but also local pickup and delivery, warehousing and insurance costs."

This quote explains the comprehensive cost analysis approach used to sell the container shipping concept.

• McLean's management style was cost-conscious and decisive.
• He emphasized cost control in every aspect of the business, from telephone calls to container lifts.
• His focus on financial results was intense and drove the company's success.

"Limiting long distance telephone calls to 3 minutes would save $65,000 a year."

This quote illustrates McLean's meticulous attention to cost-saving measures.

• Container adoption led to significant changes in port labor and location dominance.
• New Jersey embraced containers, while New York resisted, leading to a decline in New York's port business.
• Automation and containerization led to a drastic reduction in longshore labor.

"In 1963 to 1964, Manhattan employers used 1.4 million days of longshore labor... ten years later, that number drops down to 127,000."

This quote shows the dramatic impact of containerization on labor in the shipping industry.

• Standardization of container sizes was initially driven by the Navy's interest in logistics during wartime.
• The Mayrad (Maritime Administration) pushed for standardization but ultimately compromises among various stakeholders led to success.
• Malcolm McLean's testimony highlighted his flexibility and market-driven approach to standardization.

"I don't care what size container is adopted as a standard. If the marketplace can find one that moves cheaper, that is the way the marketplace will dictate it."

This quote reflects McLean's practical and adaptable attitude towards container standardization.

• The maritime industry was tradition-bound and resistant to the container revolution.
• Malcolm McLean, an outsider, was able to see past the industry's traditions and drive innovation.
• The industry's reliance on government coddling made it difficult for traditional players to adapt to change.

"For men who had prospered in this environment, an artificial environment, Malcolm McLean's wholly unromantic interest in moving freight in boxes had little appeal."

This quote contrasts McLean's pragmatic approach with the traditional maritime industry's resistance to change.

• Container shipping was a niche business at first but showed potential for growth.
• Malcolm McLean was committed to the container and foresaw its impact on the shipping world.
• The container revolution required changes in land-based transportation costs and standardization.

"No one was more aware that the world was about to change than Malcolm McLean."

This quote acknowledges McLean's foresight into the transformative potential of container shipping.

• Books serve as a medium to connect ideas and lead readers from one concept to another.
• David highlights the value of books by ordering an expensive old biography, which leads to a discussion about a relatively unknown yet influential figure in the shipping industry.

"Books are the original hyperlinks." "They lead us from one idea to another."

These quotes emphasize the role of books as connectors of ideas and knowledge. They are not just sources of information but pathways to new discoveries and insights.

• Daniel K. Ludwig was a contemporary of Malcolm McLean, born in 1897 and entered the shipping business at age 19.
• Known for his extreme cost-consciousness, exemplified by his decision not to repaint a ship to save $50.
• By the 1950s, his company, National Boat Carriers, was the largest American-owned ship line, and Ludwig was one of the world's wealthiest men.

"According to one famous story, he bought a tanker called the oh, my goodness. Anahawk and decided to keep the name because it would have cost $50 to paint it out." "By the 1950s, his national boat carriers... was the largest american owned ship line, and Ludwig was one of the world's wealthiest men."

These quotes illustrate Ludwig's stringent focus on cost reduction and his significant success in the shipping industry, which parallels the rise of Malcolm McLean's containerization concept.

• Container shipping experienced rapid growth, disrupting the traditional shipping industry.
• Companies that were initially skeptical about containerization felt pressured to invest heavily to stay competitive.

"A few years later. And this is the result in the industry. Companies that had watched containerization from a distance for years curious but non committal, now felt that they had to put up real money or be swept away in the flood."

This quote describes the swift change in the shipping industry's attitude toward containerization, from doubt to urgent adoption, reflecting the transformative impact of new technologies.

• Malcolm McLean's vision was to integrate railroads, trucks, and ships into a unified freight transportation solution.
• He proposed building railroad yards and consolidating freight into his own containers and rail cars, aiming for complete control over the transportation process.

"So his idea was McLean Industries offered an audacious proposal to build railroad yards in Chicago and St. Louis at its own expense." "He'd own the ships, he'd own the railroads, he'd own the rail... cars."

These quotes outline McLean's ambitious plan to streamline and control the entire freight transportation process, showcasing his innovative approach to solving logistical challenges.

• Container shipping's dominance led to the decline of traditional ports that could not adapt to the new technology.
• Major maritime centers emerged from those ports that embraced containerization and invested in necessary infrastructure.

"A government report declared in the early 1970s such long standing ports as Boston and San Francisco, Gulfport, Mississippi, and Richmond, California, would have to find other roles."

This quote highlights the consequences of technological advancements on established industries, demonstrating how innovation can render traditional methods obsolete and force adaptation or decline.

• Malcolm McLean's entrepreneurial spirit led him to sell his company at an opportune time and later regret the decision.
• His story exemplifies the challenges of entrepreneurship and the importance of learning from both successes and failures.

"On January 1069, the maritime world was shaken by an unexpected piece of news. Malcolm McLean, the father of container shipping, was selling out once again, his timing was impeccable."

The quote captures a pivotal moment in McLean's career, selling his company at its peak, which is later contrasted with his regret and the complex emotions associated with entrepreneurship.

• Malcolm McLean's second venture, United States Lines, ended in bankruptcy due to misjudgments and a reliance on external factors like oil prices.
• His attempt to innovate with slower, fuel-efficient ships backfired when oil prices plummeted, leading to financial disaster.

"Disaster was not long and coming. Instead of rising from twenty eight dollars to fifty dollars a barrel, as McLean had expected, oil prices collapsed to $14." "Staggering under 1.2 billion of debt. McLean industry suspended all service and filed for bankruptcy."

These quotes detail the financial collapse of McLean's second company, underscoring the risks of entrepreneurship and the difficulty of predicting market forces.

• The podcast concludes with reflections on the nature of entrepreneurship, the drive to build, and the dissatisfaction that can come with selling a successful company.
• Entrepreneurs often struggle with when to listen to advice and how to apply past lessons to current situations.

"But as container shipping made the transition from the emerging technology of the early 1960s to the booming business of the early 1970s." "So this is him selling his company. And then what happens when, inevitably, he comes to regret that decision?"

These quotes encapsulate the essence of entrepreneurship, the decision-making process, and the emotional journey that accompanies the life of a builder and innovator.