International Shipholding Corporation, Inc.
International Shipholding Corporation, Inc.
Incorporated: 1947 as Central Gulf Steamship Corporation
Sales: $391.1 million (1997)
Stock Exchanges: New York
Ticker Symbol: ISH
SICs: 4449 Shipping Agents; 4412 Deep Sea Foreign Transport of Freight; 4489 Steamship Companies
Tracing its history to the formation of the Central Gulf Steamship Corp in 1947, International Shipholding Corporation, Inc. (ISC) is Louisiana’s oldest existing steamship company. Through its subsidiaries, ISC operates a diversified fleet of U.S.- and international-flag vessels that provides international and domestic maritime transportation services to commercial customers and agencies of the U.S. government under medium- to long-term charters or contracts. ISC is the only significant operator of the LASH transportation system, which it pioneered in 1969; the company owns 13 such LASH vessels, in addition to four LASH feeder vessels and 1,865 LASH barges.
The Originator of the LASH Shipping System
The company was founded as Central Gulf Steamship Corporation by Niels F. Johnsen and his sons, Niels W. and Erik F. Johnsen. Incorporated in 1947, the new company was backed by a group of New Orleans businessmen and professional leaders. It immediately purchased and began operations with one World War II Liberty ship, renamed the Green Wave in honor of Tulane University, alma mater of the two younger Johnsens.
Central Gulf undertook to consolidate its management and expand its fleet during the 1950s. The company opened offices in New Orleans and New York and formed a network of marketing and operating agents in major cities worldwide. During the 1960s, ISC increased its fleet to 36 vessels and became the number one U.S.-flag carrier between the United States and the Middle East. ISC also inaugurated its practice of becoming a niche operator during this period—identifying and meeting customers’ special shipping needs—and pioneered the LASH (Lighter Aboard SHip) system in 1969. That year and the next, the company began to operate the world’s first two LASH vessels, designed by naval architect Jerome Goldman.
The LASH transportation system used specially designed barges of uniform size which were loaded with cargo, towed to a centralized fleeting area, loaded aboard a large oceangoing LASH vessel by the vessel’s 500-ton capacity shipboard crane, and then transported overseas, where the process was reversed. In its transoceanic liner services, ISC used the LASH system to gather cargo in ocean ports as well as on rivers and island chains and in harbors too shallow for traditional vessels. ISC’s 400-ton capacity LASH barges were ideally suited to transport larger unit size items such as project cargo, forest products, natural rubber and steel that could not be transported efficiently to and from such areas in container ships.
Trans Union Corporation, a Fortune 500 company, was quick to perceive the advantages of the LASH system. In early 1971, Trans Union merged with Central Gulf, allowing it to launch three new U.S.-flag LASH vessels, which operated from the Gulf to the Middle East and Southeast Asia, and to commission and commence operating a new series of float-on/float-off heavy-lift vessels. In 1978, International Shipholding Corporation was spun off from Trans Union and formed to act as a holding company, its only significant assets the capital stock of its subsidiaries, which at the time consisted of Central Gulf and certain other affiliated companies. By 1981, ISC had paid off its remaining debt to Trans Union, after securing a $41 million, six-year loan, $9 million of which went to its LASH Carriers subsidiary. The company then, through its subsidiaries, began to operate a diversified fleet of U.S.- and international-flag vessels that provided international and domestic as well as government maritime transportation services. As part of the spinoff, common stock in ISC was issued to Trans Union stockholders in 1979.
Diversification in the 1980s
During the 1980s, ISC steadily expanded operations. It reflagged to the U.S. registry and began operating two ice-strengthened multipurpose vessels under charter to the U.S. Navy’s Military Sealift Command. In 1984, ISC moved to new headquarters in the Poydras Center Building in New Orleans. In 1986, Central Gulf purchased Forest Lines from International Navigation Ltd., a subsidiary of International Paper Company. International Paper had had contracts with ISC units since 1969, and this acquisition included ongoing, guaranteed transportation contracts with the paper manufacturer. Forest Lines began to operate three additional LASH vessels between New Orleans, Savannah—later Charleston—and the United Kingdom and North Europe. It also signed a 22-year contract with a Florida-based utility to transport coal from Mt. Vernon, Indiana, to Florida and began operating two of the first four pure car carriers to fly the American flag, transporting vehicles for Honda and Toyota beginning in 1987.
ISC had begun repurchasing shares of its common stock from time to time throughout the 1980s, and, in 1986, it announced its intentions to continue this practice. With net income of $11 million in 1988 and revenues of $170.4 million, the company’s business was booming. That year its stock hit an all-time high at $44.25 per share, and the company began offering its shareholders a dividend. After ISC’s 1989 purchase of Waterman Marine Corporation, Wall Street analysts were calling it “one of the premier U.S. shipping companies,” notably one of the few to add to its fleet during a period of industry decline. ISC offered 920,000 shares of common stock for sale in 1989, raising about $15.2 million, to help offset the $34 million cost of buying Waterman Marine Corporation, which operated the Waterman Steamship Corporation.
Acquiring Waterman Marine Corporation
Prior to the Waterman acquisition, ISC was operating eight U.S.-flag ships and ten international-flag vessels between ports in the U.S. Gulf and the Atlantic and those in the Red Sea, Indian Ocean, South Asia, and Southeast Asia. The purchase of Waterman involved the transfer of its six U.S.-flag vessels to a new International Shipholding subsidiary, Waterman Steamship Corporation, bringing ISC’s total number of vessels to 24. Three of the Waterman ships were chartered LASH vessels which ISC continued to use in a liner service between the U.S. Atlantic and the Gulf and ports in the Middle East and South and Southeast Asia, while the remaining three roll-on roll-off vessels were operated under existing charter arrangements with the Military Sealift Command. Also included in the Waterman deal were subsidy contracts worth about $13.1 million which Waterman held with the Transportation Department’s Maritime Administration (Marad). These subsidies were provided as part of the 1936 Merchant Marine Act enacted by Congress to help owners of U.S.-flag vessels, who were required to hire U.S. unionized labor, offset the cheaper operating costs of international-flag competitors. Waterman had suffered financial losses in the early 1980s so severe that it was forced to let these government contracts lie dormant. However, once ISC bought Waterman, Central Gulfs ships could be used by Waterman to fulfill its government charters, and its financial losses conferred tax benefits on ISC.
ISC’s purchase of Waterman was subject to the approval of Marad, since U.S. shipping law barred the operation of foreign vessels by subsidized carriers or their affiliates without prior Marad permission. The Administration consented to the Waterman purchase over the objections of the Seafarers International Union and another shipping company, Afram, both of whom contended that the merger was in violation of the 1936 act. The grounds for their objection was the fact that ISC owned two unsubsidized companies, Central Gulf and the Liberian-flag LCI, while Waterman received about $12 million in operating differential subsidies from Marad in 1988. Afram, which operated liners along the same trade route as Waterman, insisted that Waterman’s merger with ISC “could confer an unconscionable windfall on Waterman and ISC,” forcing Afram to compete with a subsidized line that also received a premium rate to transport government preference cargoes. The Maritime Administration’s Subsidy Board, however, ruled in favor of ISC’s acquisition once the company pledged to keep its other subsidiaries separate from Waterman. In fact, Transportation Secretary Samuel K. Skinner later decided in 1990 to revise and lengthen Waterman’s vessel subsidy contract on condition that the company use no more than four subsidized vessels on its newly consolidated trade route.
The company’s strategy is to (i) identify customers with high credit and marine transportation needs requiring specialized vessels or operating techniques, (ii) seek medium- to long-term charters or contracts with those customers and, if necessary, modify, acquire or construct vessels to meet the requirements of those charters or contracts and (Hi) provide its customers with reliable, high quality service at a reasonable cost.
Waterman, in fact, proved a boon to ISC’s financial strength and resources, making expansion possible for the company as it headed into the 1990s. ISC’s 1990 income totaled $15.1 million, up 20 percent from 1989 with most of this increase attributable to Waterman’s earnings. Meanwhile, ISC’s other subsidiaries continued to do business as usual. In 1989, Central Gulf was awarded a $6.4 million contract to provide transportation and safe storage for Department of Defense watercraft. In 1990, the company acquired a total of two new ships—one US-flag LASH vessel and a 148,000 dead weight ton Cape-Size bulk carrier, the largest ship in its fleet. Also in 1990, ISC purchased 159 additional LASH barges from Marad for $1.2 million and instituted a $30 million program to refurbish 1,000 barges, continuing an effort begun in 1989 when the company’s service arm, LASH Marine Services, awarded contracts worth $12 million to two shipyards to refurbish a total of 250 barges.
Uneven Growth in the 1990s
The Persian Gulf War of 1991 created ample opportunity for ISC to meet its goal of adding stable, military business to its more cyclical, commercial operations. The company’s 1991 earnings of $15.2 million on revenues of $328.4 million were bolstered in part by government contracts to charter vessels to carry equipment to Middle East ports, and once again led analysts, who praised ISC’s diversification, to rate ISC as a good buy. The company became listed on the New York Stock Exchange, which enabled it to broaden investor base.
By contrast, 1992 was a poor year financially for ISC. Profits and revenues were both down, to $3.28 million and $324.6, respectively, in part due to the drop in income after Desert Storm, and also partly due to the fact that cargo markets for products such as liquefied petroleum gas and iron ore were weak following recession at home and economic woes in Europe and Japan. The slump was clearly not part of a trend, however, and did not prevent ISC from expanding operations yet further that year.
One such expansion, by far ISC’s most unusual venture of the early 1990s, was the LASH Intermodal Terminal Company (LITCO), a 1992 partnership between Cooper/T. Smith Stevedoring Company and ISC, which resulted in a hub terminal, the largest fully enclosed barge warehouse in the nation’s midcontinent. This 237,000-square-foot facility (later expanded to 287,000 square feet) was used to transfer many types of non-containerized cargo, known as breakbulk, between barges and surface carriers in Memphis, and allowed LASH vessels to dispatch barges up the Mississippi to transfer cargo to motor and rail carriers at the new terminal. Another 1992 collaboration took place between ISC and a major mineral resource company, which agreed to build an oceangoing carrier to transport molten sulphur to begin operation in 1994 by ISC.
The next three years saw a steady rise in revenues on a relatively steady base for ISC. In 1993, revenues rose to $341.7 million, exceeding 1991 levels, while income increased 80 percent to $5.9 million. In 1994, the company reached $342.3 million, with profits of $13 million, and in 1996, the company set a new record of $378.9 million, despite the costs of buying out its partner in a Singapore shipping agency and expanding operations in Southeast Asia. The company took title in September 1995 of the S.S. Energy Independence, a self-unloading, conveyor-belt equipped U.S.-flag coal carrier eligible for domestic trade. The 38,000 dead weight ton vessel, renamed the Energy Enterprise, completed shipyard work and commenced service in February 1996 under a long-term charter to a New England electric utility company carrying coal in the coastwise and near-sea trade. In the mid-1990s, ISC bought out Cooper’s share of the LITCO terminal.
The 1993 Maritime Security and Competitiveness Act, part of the longer term legacy of the Gulf War, also created opportunities for ISC. As the United States withdrew from its bases overseas, it had come to rely increasingly upon prepositioned supply ships. During the Persian Gulf War, for example, the United States had had to turn to international-flag supply vessels for more than half the 365 commercial vessels it hired. However, the 1993 Act created a program designed to subsidize the U.S. merchant marine fleet and ensure that the nation had ample commercial vessels during a military emergency. This Act, which revamped the 1936 law, created the Maritime Security Fleet Program, stipulating payment to companies of about $2 million per vessel over the next ten years to keep 47 ships in U.S. registry and to replace old vessels with new, more efficient ships. In exchange for the subsidy, the company had to agree to make the vessel available to the government during wartime. The program later became the Maritime Security Act of 1996, which went into effect in 1997. ISC had a total of seven U.S.-flag vessels operating under provision of that Act when it began.
By 1997, ISC operated a diversified fleet of 31 ocean-going vessels, 18 towboats, 128 river barges, and 26 special purpose barges, in addition to its LASH barges and related shoreside handling facilities. The company placed one LASH vessel in reserve that year, acquired two others, and entered into an agreement to have two special purpose barges built. It replaced its international frame-relay network with an Internet connection between Singapore and its New Orleans headquarters, becoming the first in its industry to rely upon the internet as a wide-area network for financial and billing transactions. The company enjoyed revenues of $391.6 million, once again its highest yet, and raised its dividend paid to shareholders. However, operating profits were lower than in 1996 due to the cost of outfitting and refurbishing the newly acquired vessels, lower subsidy payments from the government for the Waterman liner service, and the fact that 1997 was a soft market period for the shipping industry.
As it entered 1998, ISC had to contend with a decrease in subsidies for four of its Central Gulf LASH vessels as specified by the Maritime Security Program and a loss from start-up costs for a planned service between the Gulf of Mexico and Brazil, which was later canceled. All told, however, the company was confident that this leveling off of ISC’s growth trend would be temporary. The company enjoyed by then a fairly balanced operation between its commercial and military shipping and had the resources necessary to weather leaner times.
Central Gulf Lines, Inc.; Forest Lines Inc.; Waterman Steamship Corporation.
Beller, Margo, “Shipowner Urges Release of Loss Data, ’Maverick’ Hits P&I Secrecy,” Journal of Commerce, September 14, 1994, p. 11A.
DiBenedetto, William, “International Shipholding Seeks OK on Purchase of Waterman and Units,” Journal of Commerce, November 18, 1988, p. 1B.
____, “ISC Completes Waterman Deal,” Journal of Commerce, March 31, 1989, p. 1B.
____, “Waterman Bidder Claims Hearings Aren’t Needed,” Journal of Commerce, December 16, 1988, p. 3B.
Dunlap, Craig, “New Breakbulk Hub Operation to Service Barges in Memphis,” Journal of Commerce, February 11, 1992, p. 8B.
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