SIW1095In March 1963 the minutes of a meeting at Blue Funnel, arguably the Maersk of its day, noted that containers were “probably not required substantially for 10 years”. Later in the year the head of cargo handling followed up with a paper arguing that 3,000 miles was the limit for viable containerisation. Meanwhile Malcolm Maclean was setting up Sealand.

History Lessons

Although this sounds like management myopia, in the 1960s things were not as clear as they look with hindsight. Liner shipping was being crushed by the massive cost of handling a mix of small parcels, unit loads and minor bulks like forest products. Palletisation, containerisation, ro-ros and LASH all offered potential solutions and dealing with cargoes that would not fit into containers was a big worry. In the end containers swallowed the containerisable cargo and the rest ended in specialist carriers. But it was a massive change.

20 TEU Vision

Fortunately these seminal turning points don’t happen often – companies are lucky (or unlucky) to hit one in a lifetime. But when they happen, the decisions are agonising. The misjudgements made by Blue Funnel illustrate three points. Firstly when companies arrive at the crossroads, the track ahead is not clear because there is no track – they have to make it. Secondly containerisation needed a new organisation and capital investment which made the existing system obsolete. How many chairmen can cope with that? Thirdly, being biggest does not help. Blue Funnel had a cargo liner fleet to worry about. Much easier to be Mr Maclean with a blank sheet of paper.

50 Years Later

Today container companies, with a fleet of 5,137 ships worth $100 billion, are still struggling with the track ahead. The business is maturing and in 2009 trade declined for the first time. And despite its key role in the global economy, liner companies suffer from patchy returns from asset heavy balance sheets. How can corporate boards escape from this trap? The current strategy is to grow out of trouble by investing in much bigger ships. The average size of containership delivered has edged up over the years, from less than 1000 TEU in the early 1970s to 3300 TEU in 2006 (see graph). Since then there has been a great leap to 6600 TEU and the biggest ship has jumped from 8,400 TEU to 18,270 TEU. Meanwhile trade which grew at 10% pa in the last decade has edged back to 4-7% pa.

Big, But is it Beautiful?

So, as Blue Funnel found 50 years ago, it’s tough at the top. In the end they set up the OCL consortium with three other liner companies, made some highly speculative bulk shipping investments, and gradually faded away. Is there a moral to the story? Well, in interesting times, shipping businesses should worry less about ships and focus on the basic reason why they’re there – better, cheaper transport. Of course ships are part, but not the heart, of that strategy. Have a nice day.