Box Boats: How Container Ships Changed the World

Chapter 7: After 1999 Horizon, Maersk-Sealand, and Beyond

AFTER 1999 HORIZON, MAERSK-SEALAND, AND BEYOND 7In January 1999, the CSX Corporation issued a seemingly routine announcement. It was splitting its Sea-Land subsidiary into three separate divisions. The international liner business would be one unit, and a separate division would be established to handle domestic container-ship services where Jones Act provisions had to be observed, while terminal operations at home and abroad would be the province of yet a third new CSX unit.1 All three units would be managed out of a headquarters in Charlotte, North Carolina —ironically, Malcom McLean’s home state—where CSX had moved all Sea-Land management functions some years earlier. The announcement suggested to many observers that far more than a merely internal reorganization was involved. Speculation quickly spread through the railway, the container -ship, and the investment sectors that this management action would facilitate CSX’s divesting itself of its international liner business entirely. Bloomberg News Service reported that the ‘‘move could make it easier for CSX to sell its ocean-shipping business and concentrate on its railroad,’’ while the Journal of Commerce claimed that the possibility of CSX’s divesting itself of Sea-Land had been a ‘‘persistent rumor over the past few years.’’2 The rumor proved to be predictive as well. Before 1999 had run its course, CSX had indeed divested itself of SeaLand Service. Moving the Hyphen The obvious company to acquire Sea-Land’s international liner business and merge it into its own worldwide operations was the steamship operator with which CSX had earlier developed a cooperative strategic alliance, the Maersk Line, a wholly owned subsidiary of Denmark’s A. P. Moeller Group. After acquiring Sea-Land from CSX in 1999, Moeller-Maersk combined its new property with its own international container-ship subsidiary and called the operation Maersk-Sealand. Five new vessels that Sea-Land had designed and ordered before the merger were delivered afterward and bore names such as Sealand Michigan and Sealand Illinois, telling with no hyphen between ‘‘Sea’’ and ‘‘Land.’’ Maersk ordered three additional vessels from the same shipyard and that were built to the same specifications. Like the earlier five, the three were owned by Costamare and chartered to MaerskSealand , but they bore the names Maersk Kolkata, Maersk Kobe, and Maersk Kalamata. CSX chairman John W. Snow—a man who would later serve as Secretary of the Treasury during the administration of President George W. Bush—felt the divesture would unlock more value at both CSX and SeaLand , and much was said about CSX’s being able to concentrate attention and effort on its ‘‘core business’’—which is to say running the railroad— now that Sea-Land and its deepwater container ships were no longer part of the corporate picture. As early as 1996, CSX made no secret of the fact that the Conrail acquisition was its first priority. ‘‘Because of the overriding importance of the Conrail transaction,’’ the company’s annual report warned that year, ‘‘our main public policy focus has been on rail issues.’’ Three years later, the 1999 report noted, ‘‘Selling Sea-Land’s international business was a hard but necessary decision.’’3 Even earlier in 1995, when rumors began to surface that CSX was thinking about selling Sea-Land to Maersk after the two companies had established a strategic alliance, the same John Snow emphatically denied that any such development was even possible. ‘‘Sea-Land is not for sale,’’ Snow insisted.4 The following year Tommy Thomsen, the chief executive at Maersk, issued a parallel denial. Despite such seemingly unambiguous assertions, though, in the years after 1995 Snow began to hint broadly that CSX was disappointed with Sea-Land’s earnings. Fourth-quarter income in 1998 fell 79 percent over the previous year, for instance, the sharpest profit decline of any CSX unit. The corporation summed matters up in its 1999 annual report: ‘‘Recent years have seen profit margins decline as a number of strong, well-capitalized competitors entered the business . Projected worldwide vessel overcapacity and substantial, ongoing 188 : : : box boats capital requirements pointed to a worrisome outlook, and we made the strategic decision to sell Sea-Land’s international business assets to Danish carrier Maersk Line.’’5 It took most of 1999 to iron out a number of regulatory details associated with the sale, and the formal date of Sea-Land’s transfer from CSX to Maersk was December 10...