Decline of Moore-McCormack

The Decline of Moore-McCormack

 

Moore-McCormack, a company that was a leader in the maritime industry for over 60 years failed. Why?  Below is one explanation we found that might give reason for that failure. 

Moore-McCormack ("MM") was prospering in the 1950s with no signs of impending dangers.  In its routes from New York to the east coast of South America, MM had successfully met the challenge of the local steamship companies.  The long-standing relations with Lloyd Brasileiro remained firm, and after skirmishing with the new state-owned firm of Argentina, ELMA, MM had established a modus vivendi agreeable to both parties, avoiding the bitter clashes that had marred relations between Grancolombiana and the Grace Line on the Pacific side.  MM's fleet of 40 freighters and 1 tanker also linked (through its subsidiary the American Scantic Line) the ports of Scandanavia and the Baltic with those on the East Coast of the United States.  In an expansion move, the company acquired the Robin Line in 1957, thereby adding to its services from the United States the African ports stretching from Walvis Bay to Mombasa.

To maintain its leadership in these routes, MM began a vessel replacement program in 1956.  Fourteen new ships comprised the first wave, completed in 1965.  The freighters were essentially bigger and faster versions of existing ones, and the two new combination vessels delivered in 1958, the Argentina and the Brasil, carried cargo and also provided luxury accommodations for 550 passengers per ship.    MM realized that more of the same would not be suitable for the second generation of ships, and from 1965 on it decided upon a different type of vessel for its replacement program.  The dawn of the container age was starting to break upon a shipping world that still could not rid itself of the obsolete passenger liners.

MM soon regretted having ordered the new passenger liners, and it belatedly tried to get out of the passenger business altogether.  The company realized that containers were the wave of the future, but the realization was not easily acted upon because MM did not want to get burned with containers, as happened to the Grace Line in Venezuela in 1960.  The majority of the company‘s business was in South America and Africa–areas that, because of their rudimentary transportation and port systems, placed containers at least 10 and probably 20 years into the future.  Thus MM needed a highly versatile vessel that could readily adapt to general cargo, containers, and Roll on/Roll off vehicles (Ro/Ro), without forgetting special defense measures particularly important in the Vietnam War period.  The unique design MM created provided for false decks and the closing or opening of special hatches so that the vessel could increase its capacity of either container or Roll on/Roll off vehicles.  The ships were quite well suited to the African and South American trades, but when MM launched the first regular container route to Europe in February 1966 (two months before Malcom McLean's Sea-Land) the higher cargo-handling expenses in European ports ate away almost all of the profits.

The ports in Europe soon installed facilities to handle containers economically, and the European lines ordered full containerships, the smallest of which had twice the container capacity of MM‘s vessels.  The U.S.-flag company was sensing danger and, to raise capital, it sold its Straits of Magellan service to the Grace Line in 1966.  This was only a temporary fix, so MM sought more permanent help in merger talks with U.S. Freight (1966) and Farrell (1969), but both attempts failed.  Thus, when the North Atlantic rate war erupted early in 1970, MM had nothing to fall back on.  The combination freighter-container-Ro/Ro vessels were simply no match for the European lines, which, running bigger and faster full containerships with fat profit margins, could afford to ride out a long rate war.  In a few months it was all over for MM:  the company abandoned the North Atlantic service, and even after selling the four vessels to American Export, it still suffered a $17 million loss in 1970.

The company was on the verge of collapse, but in 1972 the sale of its two passenger liners, Argentina and Brasil (laid up since 1969), for cruise purposes to Holland-America brought a much-needed cash infusion that allowed the company to revive.  Since February 1971, the company had been under the leadership of a new president, James R. Barker, who had learned well the lesson of other steamship companies–that corporate survival depended upon diversification away from the highly risky and volatile shipping business.  Diversification began in 1964, but Barker made it his primary goal.  He sold 20 overage vessels from the fleet, and kept only the most modern and efficient ships running on the South American and African services.  With those proceeds, the $20 million from the sale to Holland-America, and loans, he invested in the natural resources field.  The biggest acquisition was Pickands, Mather, and Company in April 1973, a supplier of raw materials for the steel industry.  Pickands, Mather, and Company owned and operated iron ore and coal mines, as well as all supporting facilities, including Interlake Steamship Company, a Great Lakes fleet of bulk cargo ships.

Partly to meet legal requirements to reinvest in ships, Barker ordered three tankers in July 1973 for operation in the domestic routes.  Thus when the energy crisis struck in October 1973, he had positioned MM to take maximum advantage of the situation.  HOWEVER, he allowed himself to be swept away by the sudden enthusiasm, and soon MM was too deeply involved in a myriad of energy ventures.  A special subsidiary was searching for oil and gas in Texas, Louisiana, and the Rocky Mountains, while the parent company (whose name was now changed to Moore-McCormack Resources) had bought a small independent oil company, picking up along the way a cement factory as well.  Initially all these energy ventures were modestly profitable, mainly because of the temporary worldwide shortage of resources, but they offered few long-term prospects.  The glitz of the energy ventures had overshadowed the less glamorous South American shipping service with its slow but sure growth.  The no less solid Africa route was ignored until the opportunity appeared to consolidate the service with the other U.S.-flag line sailing to Africa; in 1980, with the purchase of Farrell‘s two 15-year-old U.S.-flag freighters (previously on that route), MM became the sole U.S.-flag service from New York to South and East Africa.

When the energy bubble exploded in late 1980, the collapse dragged down all those like MM who had built their survival strategy on the short-term opportunities.  One after another of the company‘s energy ventures sagged and began to pile up losses, with the exception of the three tankers now chartered to carry Alaska oil.  Belatedly MM had agreed to lengthen 4 of its fleet of 13 ships serving South America and Africa to handle a larger number of containers, but the company remembering how badly it had been burned with containers in the 1970 North Atlantic rate war, was still skeptical, so as Latin America finally entered the container age, MM was a reluctant participant.  The losses of the parent company began to pile up from 1981, and Barker desperately sought to sell off assets while buyers could still be found for the rapidly collapsing energy ventures.  At this moment Malcom McLean appeared, now the proud owner of United States Lines, who was preparing to establish a worldwide transportation network.  As the popularizer of container services, McLean was judged the ideal person to handle the transition to containers in the African and South American routes; after quick discussion, McLean purchased the fleet and routes of MM in December 1982. 

The steamship tradition of another company dating back to 1913 had come to an end, but the sale had not saved the parent company:  Moore-McCormack Resources remained locked in a tailspin, plummeting downward into the bottom ranks of corporate America.  Yet what remained of MM‘s fleet had been saved, and great hopes again appeared that under Malcom McLean a revitalized U.S.-flag fleet would continue to sail to South America and Africa.

[Of Interest:  In 1986 United States Lines filed for protection under Chapter 11 and never revived.]

 

Twayne Publishers has granted us permission to reprint the above from a chapter in the book entitled,

"The Rise & Decline of U.S. Merchant Shipping in the Twentieth Century," by René De La Pedraja,

published in 1992.

 

(Music on this page is "Gone with the Wind")

 

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