FreightWaves Classics: JP Morgan seeks transatlantic monopoly
A recent FreightWaves Classics article provided an overview of JP Morgan’s activities in the US rail industry. This article will provide an overview of Morgan’s attempts to create a shipping trust.
Creation of IMM
The shipping industry was prosperous at the end of the 19th century; this led some to attempt to create a trust or monopoly that would control major US shipping lines. However, none of the efforts of the 1890s were successful. That changed, however, when John Pierpont Morgan, one of the richest men in the world, decided to set up a shipping trust.
Morgan struck an agreement with the president of the International Navigation Company (INC), to buy control of the company, which operated the American Line and the Red Star Line.
The Atlantic transmission line was owned by Bernard N. Baker. It had both passenger and cargo ships and was in direct competition with British and other shipping companies. Baker had sought to sell Atlantic Transport Line to John Ellerman, chairman of the Leyland Line, which specializes in freight transport. Previously, the Leyland Line had tried unsuccessfully to purchase the Cunard Line and HAPAG. In the end, negotiations between Atlantic and Leyland also ended in failure.
This was followed by six months of negotiations which culminated in the integration of Atlantic Transport Line with INC in December 1900. Later, INC negotiated with Ellerman to buy his company. The Leyland Line came under the control of the INC in April 1901. Then, and after long negotiations, the prestigious White Star Line was bought by Morgan in April 1902.
On October 1, 1902, JP Morgan & Co. announced the formation of the International Mercantile Marine Company, known as IMM. Funded by Morgan and JP Morgan & Co., IMM was founded by shipping magnates Clement Griscom of the American Line and Red Star Line, Bernard N. Baker of the Atlantic Transport Line, J. Bruce Ismay of the White Star Line and John Ellerman of the Leyland Line. The Dominion Line was also controlled by IMM. The company also had profit-sharing relationships with the German Hamburg-Amerika and North German Lloyd lines.
IMM was a holding company which controlled the various shipping companies listed above as subsidiaries with their own subsidiaries. While IMM was a holding company, it was also a trust, formed by Morgan for the purpose of dominating maritime commerce on the transatlantic routes. Morgan used interlocking directions and contractual arrangements with the railways, but the creation of a monopoly proved impossible for several reasons – the nature of shipping, US antitrust law, and an agreement with the UK government.
As an American citizen, Morgan could not directly own British ships; however, he could own a company that owned the ships, which is another reason the IMM was formed.
In 1902, IMM carried nearly 65,000 passengers (in part due to continued immigration to the United States). IMM had signed a partnership with Norddeutscher Lloyd and HAPAG, the two largest German shipping companies. Together, they carried nearly 67,000 passengers in 1902. The agreement was signed in New York on February 20, 1902; this was a major milestone in the formation of IMM, but did not fully resolve the “long-standing competitive frictions between and among the major German and British transatlantic shipping lines”.
Meanwhile, Cunard Line, an independent British shipping company, received government grants to build two liners, the Lusitania and the Mauretania, which made their first voyages at the end of 1907. This led to a competitive response from IMM in 1908; Harland & Wolff shipbuilding company was approved to build three Olympic-class liners for the White Star Line – RMS Olympic, RMS Titanic and HMHS Britannic.
In addition to new ships, IMM also transferred ships from one company to another. This allowed IMM to schedule a vessel each day from the UK. In addition, passengers were allowed to change their tickets to another IMM vessel.
In the early 1910s, IMM was severely affected by several key events. On April 15, 1912, the Titanic, flagship of the White Star Fleet (and IMM), sank as it sailed from Britain to New York on its maiden voyage. In addition to the human and financial losses, the sinking of the Titanic had repercussions on confidence. Using the US Commission of Inquiry into the sinking, US Senator William Alden Smith of Michigan openly attacked the IMM trust as well as JP Morgan.
Soon after, the president of IMM retired in 1913 and was followed by Harold Sanderson. Then Morgan died on March 31, 1913.
First World War
As serious as the sinking of the Titanic was, it did not cause IMM to fail. However, the company could not overcome its own financial problems, nor dominate the North Atlantic maritime trade as had been Morgan’s plan. The outbreak of World War I in August 1914 brought down passenger and freight bookings, hurting all companies competing in transatlantic trade.
Forensic accounting of IMM’s financial records showed that it was over-indebted and suffered from insufficient cash flow (exacerbated by World War I) which caused it to default on bond interest payments at the end of the year. 1914. As a result, a “friendly” bankruptcy was set up. in 1915; IMM was then headed by Philip Franklin, who managed to save the company by reorganizing its finances. IMM emerged from receivership in 1916. IMM was then able to take advantage of wartime demand to ship cargo and war material (and later troops) to Europe.
The years 1920-1930
In 1926 Franklin organized the sale of the White Star Line to the Royal Mail Steam Packet Co. for £ 7million. Sadly, £ 2.35million was still owed to IMM when the Royal Mail Group (which was over-leveraged and under-capitalized) collapsed in the early 1930s. In the late 1920s Franklin and IMM received government grants for US ships (those built in the US or flying the US flag). With the Great Depression once again impacting passenger and freight volumes, Franklin sought to downsize the company. In 1930 IMM owned 30 ships. In 1933, there were 19 and only 11 in 1935.
However, IMM was still in financial difficulty. It merged with the Roosevelt Steamship Company, parent company of the Roosevelt Line, in 1931 and formed the Roosevelt International Mercantile Marine Company (RIMM). Later that same year, RIMM acquired the financially struggling United States Lines; he began to consolidate the operations of the three companies under the United States Lines brand.
The Atlantic Transport Line was disbanded at the end of 1931 and its ships were divided among the remaining divisions of RIMM. In 1932, the American Line was merged with United States Lines; the Red Star Line was sold to Arnold Bernstein in 1934; the Baltimore Mail Line was merged with United States Lines in 1937; the Panama Pacific Line was dissolved in 1938 and its ships were sold; and the same year, American Merchant Line merged with United States Lines.
RIMM’s last act was the merger of the Roosevelt Line with United States Lines in 1940. Therefore, United States Lines was RIMM’s only remaining business. This was followed in 1943 by RIMM changing its corporate name to United States Lines Inc. In 1986 United States Lines declared bankruptcy.
JP Morgan was not able to use IMM to monopolize transatlantic freight and passenger transport (although IMM controlled a large percentage of this transport). The sinking of the Titanic, Senator Smith’s public attacks on IMM, and the deaths of Morgan and Morgan have taken their toll. Although IMM survived for several years, he was never able to carry out Morgan’s plan.
Ironically, several large companies now dominate much of the shipping world.