LESSONS IN CHAPTER 11

EXPECTED THOUGH IT WAS, the grim fact of United States Lines filing for reorganization under the bankruptcy code is a blow to the entire U.S.-flag shipping industry, its users, and to all in this country who perceive the need for a strong merchant marine.

No competitor can fail to see a clear warning in what happened to this most prestigious ocean carrier, under the tight control and direction of a man recognized for years as the visionary pioneer who single-handedly created the container revolution, the age of intermodalism. From a one-truck highway operation in North Carolina, Malcom McLean made himself one of the towering figures in world shipping, first building Sea-Land Service into the biggest containership operation on the seas, then spurning what could have been a luxurious retirement to take on the problems of United States Lines. He did it with a mixture of nerve, daring and vision. That he finally overreached

himself - so it must seem - does notdiminish his place as the great innovator in modern shipping.That United States Lines is filing for reorganization under Chapter 11 of the bankruptcy code rather than taking the alternate route of outright liquidation means that there is still hope that it can be kept alive. It faces an uphill struggle, given its outstanding obligations of $1.7 billion. It must produce a plan to satisfy its creditors, and that in itself will be a challenge unprecedented in U.S. shipping. The record of companies filing under Chapter 11 indicates that the chances of success are less than even.

Before the 12 big Korean-built containerships began their round-the-world service, a banking expert with considerable experience in shipping predicted that the new McLean ships would "knock the socks off" the competition. Seemingly, they had the "numbers" to justify this forecast, cargo ton-mile costs so low that no ship afloat could match them. What happened was that to a considerable extent the competition matched the low USL rates. It was a familiar story.

The ownership of USL would not venture into a round-the-world service without the most careful surveys of the markets it would serve, it can be assumed. Only that would justify the tremendous financial obligations involved in building such a new fleet. The risk was taken in a time of depression, and surely with the knowledge that profits in a round-the-world service can change, in locale and direction. Yet others apparently made a go of it. The lure of a round-the-world operation is that it can, under fortuitous circumstances, eliminate the losing direction in back-and-forth trades.

"Numbers" about a ship or a fleet unfortunately don't tell the whole story. What will the reaction of the competition be? What proportion of the cargo space will be loaded with cargo moving at profitable rates? What will be the trend of the economy in the countries served? These are elementary questions, but they can't stay unanswered in taking a big plunge in fleet expansion.

The most important lesson in USL's experience is that destabilized low rates help no one. Shippers who favor any slash in ocean rates may be persuaded to think twice about the consequences for the carriers on which they depend. A close look at USL's experience may tell the government something about the freight rate initiatives permitted under the Shipping Act of 1984.

Chapter 11 for McLean is a sad occasion indeed, but perhaps its teachings will be worthwhile. Meanwhile, all must hope that the United States Lines will emerge whole and regain a position comparable to the brighter periods in its history.

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