Sea Containers Ltd.

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Sea Containers Ltd.

41 Cedar Avenue
P.O. Box HM 1179
Hamilton HM EX
(441) 295-2444
Fax: (441) 292-8666
Web site:
Sea Containers House
20 Upper Ground
London SE 1 9PF
United Kingdom
Fax: 0171-805-5900

Public Company
Founded: 1965
Employees: 8,000
Sales: $1.267 billion (1998)
Stock Exchanges: New York Pacific London
Ticker Symbol: SCRA; SCRB
NAIC: 483212 Inland Water Passenger Transportation; 483211 Inland Water Freight Transportation; 48832 Marine Cargo Handling; 332439 Other Metal Container Manufacturing; 72111 Hotels (Except Casino Hotels) & Motels; 72211 Full-Service Restaurants

Sea Containers Ltd. (SCL) operates in more than 80 countries through three main businesses. In mid-1999 its passenger transport division operated 21 ferry routes, ranging from cross-Channel to between Wall Street, Manhattan, and Brooklyn; high-speed passenger trains between London and Scotland; and three ports in England. The leisure division owned or managed 23 luxury hotels on five continents, five tourist trains, two restaurants, and a river cruise ship. These properties included New Yorks 21 Club, the venerable Orient Express train, and the Copacabana Palace Hotel in Rio de Janeiro. The companys largest business, marine container leasing, was conducted primarily through GE SeaCo SRL, a 50/50 joint venture with GE Capital Corporation. SCL also made and repaired marine containers and held several patents. Other company activities included property development, fruit farming, and publishing. Registered in Bermuda, the company was based in London and owned primarily by U.S. stockholders. With its ferries and leisure divisions accounting for 60 percent of its revenue, Sea Containers announced in 1999 that it was considering a name change to more accurately reflect its business.

The First Years: 1965-75

James B. Sherwood founded Sea Containers Inc. in 1965, with initial capital of $100,000. Born in Pennsylvania, Sherwood grew up in Lexington, Kentucky and earned a degree in economics at Yale. He learned about shipping first in the U.S. Navy, spending three years as a cargo officer, and then working for U.S. Lines and CTI for six years.

The company leased cargo containers to ocean carriers and shippers. Initially providing standard steel dry cargo containers, the company soon began offering refrigerated boxes (reefers), tanks, and other specialized types of containers. It also bought and operated its own fleet of small containerships. These were particularly useful in the Mideast for transporting cargo from bigger ships that could not get into the crowded ports. The fleet and the specialization contributed to nine years of earnings increases, despite a global recession and reduced international trade. During this period, Sea Containers established two subsidiaries, Sea Containers Atlantic, based in Bermuda, and Sea Containers Pacific, out of Hong Kong. For 1975, when world trade dropped by six percent, the companys earnings grew by 60 percent on sales of $45 million. Most of its competitors in the fast-growing business saw earnings drop sharply, or even experienced losses. We have a larger percentage of our fleet fully paid for, or nearly so, and this enabled us to take lower charter rates and still have a positive cash flow from our tonnage, Sherwood explained in a 1976 Forbes article.

But Sherwood had more interests than his shipping business. That year he wrote and published James Sherwoods Discriminating Guide to London, a gourmet dining and shopping guide.

Pairing Shares: 1976-83

In 1976 world trade began growing again and the U.S. Congress returned to exploring how to tax reinvested foreign earnings, such as those from ships flying under foreign flags. Sea Containers Inc. made its Bermuda subsidiary an independent company, to lease ships, containers, and cranes in Europe, the Mideast, South America, and Africa. The new companys shares became a dividend for owners of Sea Containers and were listed on the New York Stock Exchange on a paired basis along with the parent. Under the law, a shareholder had to buy or sell equal amounts of stock in both companies at once, and stocks actually were printed back-to-back, giving rise to the term stapled stock. As a result of this maneuver, New York-based Sea Containers growth would be much slower, whereas Sea Container Atlantics earnings were not subject to U.S. corporate taxes. Sea Containers and Sea Containers Atlantic were not the only U.S. companies with this arrangement. Four others, including Santa Anita Consolidated Inc., the California racetrack, traded as stapled shares.

While arranging this reorganization and overseeing shipping and leasing operations that brought in $56.5 million in revenue for the year, Sherwood started what he called his frivolous ventures, buying the luxurious Hotel Cipriani in Venice. Acquired mainly as a tax loss, the hotel turned a profit within two years and laid the foundation for what would become the companys leisure business.

During the rest of the decade, the container leasing business boomed. In 1977 Sea Containers revenues were up more than 50 percent to $90 million, with $26 million in profits. The following year, the company earned nearly $32 million on revenues of $163 million.

Sherwood and his wife Shirley began collecting vintage railroad sleeper and parlor cars in 1978. Four years later, with 35 restored antique railroad cars (and some 250 recreated silk-shaded lamps, bud vases, dinner plates, and other artifacts), they reinaugurated the Venice Simplón Orient Express. The trains ran from London to Venice, taking 24 hours to complete the 926-mile trip.

Also in 1982, the two paired companies changed their names and clarified, respectively, their business focus. The New York company, the original Sea Containers, became SeaCo Inc., the owner of the Orient Express train, property, and hotel interests, including a hotel in Florence, Italy, and the Lodge in Vail, Colorado. Bermuda-based Sea Containers Atlantic, which became Sea Containers Ltd., concentrated on the shipping business.

Two Separate Companies: 1984-88

In 1984 the two companies unstapled, having saved about $65 million in U.S. taxes since the arrangement began in 1976, according to a 1984 Forbes article. Again the IRS provided the impetus, as it moved to force all such pairs to separate by 1987. Under the restructuring, SeaCo Inc. got out of the container and ship leasing business all together, selling most of those assets to Sea Containers Ltd. Sherwood, however, remained president of both companies.

Although registered in Bermuda, Sea Containers Ltd. operated out of London. It took advantage of the privatization occurring under the Thatcher government to purchase Sealink U.K. Ltd., the ferry subsidiary of the government-owned rail service. The $86.9 million price bought the company 37 ships on 24 routes to Ireland and Europe, ferry services on Lake Windermere and the Thames River, and facilities at ten harbors.

In 1985 Sea Containers bid unsuccessfully on a cross-Channel link with the Channel Expressway, a twin-bore road tunnel and a separate rail tunnel. The same year the company began joint marketing of commercial ship designs that could be converted quickly to auxiliary helicopter carriers in wartime. The idea was born in 1982 during the Falklands war, when containerships, with their strong main decks, proved able to support helicopters.

Meanwhile, SeaCo changed its name to Orient-Express Hotels Inc., hoping that name would help give it more prominence. By 1986, the company was strapped for cash, due to its inability to sell its containerships quickly at the price Sherwood wanted and the drop in the number of American tourists booking at its European luxury hotels or riding the Orient Express.

Sea Containers experienced its first loss ever in 1986, primarily because of overcapacity in the industry and the failure of several large shipping companies. Taking the traditional route of closing money-losing ferry and freight routes, laying off workers, and selling off surplus containers and ships, Sherwood got the company back on track. Over the next two years, he bought more of the specialty type containers, refurbished ferries, bought Hoverspeed (U.K.)a cross-Channel ferry competitor, announced plans to launch an express train service from Thailand through Malaysia to Singapore, and began building residential housing on real estate around the companys U.K. ports.

By 1988, the industrys excess capacity had vanished through consolidation. The freshness of produce was becoming increasingly important to consumers, particularly in the United States, and companies such as Dole, United Brands, and Del Monte wanted refrigerated and tank containers for their bananas and other fruits. With those reefers and other specialty boxes making up 70 percent of its container fleet, Sea Containers had little trouble leasing its inventory. But the number three container lessor in the world was about to run into a storm.

A Restructured Sea Containers: 1989-94

In 1989 Swedish shipper Stena AB bought an eight percent stake in the company. That move initiated a year-long takeover battle, with lawsuits and a stock buyback. Sea Containers ended up selling its Sealinks ferry operations to Stena and its dry cargo and tank containers to Tiphook PLC, partners in the takeover bid. The price of the deal, $1.14 billion.

The slimmed-down Sea Containers, although now the worlds sixth largest container leasing company, remained the biggest in terms of refrigerated and specialized containers. It also kept its extensive hotel, property, and container manufacturing interests. Sherwood quickly began rebuilding the companys dry freight container fleet.

He also caused a big flap on June 23, 1990, when the Hoverspeed SeaCat Hoverspeed Great Britain broke the trans-Atlantic speed record for passenger ships and won the prestigious Hales Trophy, the Blue Riband of the Atlantic. Many traditionalists were upset at the idea that a twin-hulled ferry would hold an award associated with luxury liners such as Normandie and United States. But Hoverspeed held the trophy for eight years, until its record of three days, seven hours, 54 minutes, with an average speed of 37 knots, was broken.

With the SeaCat, the company began operating the worlds first car-carrying high-speed catamarans across the Channel between Dover and Calais. The Hoverspeed Great Britain was soon joined by other SeaCats in the companys ferry fleet, replacing Hoverspeeds hovercraft, and by 1993, there were six SeaCat routes, including one between Argentina and Uruguay and one in Australia. Revenge may have been sweet, as Stena AB laid off workers in 1991 because of mounting losses in the U.K. ferry operations it bought from Sea Containers.

Although Sea Containers also was experiencing losses in its ferry operations, the company continued to make acquisitionsincluding new SeaCats, the Copacabana Palace in Rio, and, at a price of $55 million, the Windsor Court Hotel in New Orleans. That purchase brought to 11 the number of hotels managed or owned by Orient Express Hotels Inc. To finance its acquisitions and capital expenditures, such as berths for the SeaCats, Sea Containers carried some $649 million in long-term debt in 1991.

Among the companys other forward-looking activities was the work going on in its container factories, including materials to reduce the weight of containers and new refrigerants to comply with new international regulations that would take effect in 1995. With factories in Britain, Singapore, and Brazil, Sea Containers was a major container manufacturer, producing some 60 different types of containers. The company was willing to build specialty containers on speculation to test customer reaction and was the first to develop refrigerated tank containers. Other products included open-top, flat-rack, and ventilation containers. In 1993 it had about 46 percent of the specialty leasing market.

During 1992, in what may have been a defense against another takeover attempt, Sea Containers announced a dual capitalization proposal. It would issue two classes of common shares, with Class A paying higher cash dividends but allotted fewer voting rights. The proposal would allow the company to increase the number of shares it was authorized to issue, giving it greater financial flexibility.

Continuing to expand, the company explored but eventually backed out of running a car ferry between Seattle and Victoria. More successfully, in 1993, it launched the Eastern & Oriental Express from Singapore to Bangkok, a 41-hour, 1,207-mile route. The train included three dining cars, two bar cars, an observation car, five service or baggage cars, and 11 sleeping cars, with everything air-conditioned. The undertaking cost Sea Containers some $25 million. Shirley Sherwood explained to Andrew Ranard of the International Herald Tribune, We would like to give [people] the chance to see the countryside, the life that seems to happen along the trackthe villages, rice paddies, the water buffalo.

The year 1994 was a busy year for the company. It saw the opening of the Chunnel, the tunnel under the English Channel. Sea Containers had prepared for a drop in ferry traffic by shifting some of its ferries to routes in the Southern Hemisphere. That same year, the company bought Orient-Express Hotels Inc. in a stock exchange. The two companies were together again, but what had once been the subsidiary, Sea Containers Atlantic, was now the parent.

Continuing To Diversify: 1995-97

During the second half of the decade, Sea Containers expanded its leisure properties with the purchase of the 21 Club in New York City and the launch of its river cruise ship, the Road to Mandalay, operating in Myanmar. It also bought up luxury hotels, including a share in Charleston Place, in historic Charleston, South Carolina; Reids Hotel on the island of Madeira; La Samanna beach resort in St. Martin, French West Indies; and Hotel da Lapa in Lisbon. Orient-Express Hotels managed these and also took over management of non-Sea Container properties, including the Hotel de la Cite in Carcassonne, France and the Bora Bora Lagoon Resort in the South Pacific Society Islands.

The passenger transport division also grew. In 1996 the company was awarded the InterCity East Coast rail franchise in the final privatization effort by the John Major government. Sea Containers renamed the line, which ran from London to Scotland and included the Flying Scotsman train, the Great North Eastern Railway Ltd. The following year the company signed an agreement to buy two Italian-built tilting trains for the line, to come into service in 2000. New ferry services opened between Scotland and Northern Ireland and between Liverpool and Dublin and, in 1997, the company launched its SuperSeaCat on the Dover-Calais ferry route. The new ship, a monohull vessel that could carry 774 passengers and 175 cars, was slightly faster than the two-hulled SeaCats that carried up to 600 passengers. At $30 million a ship, they were also less expensive to build than other large single-hulled ferries. That year, the companys combined profits from passenger transport and leisure activities for the first time exceeded those from container leasing.

But the company was not ignoring its container business, introducing a new patented SeaCell unit that was as wide as two-pallet containers and could be easily moved in ordinary container ships, unlike other two-pallet wide dry cargo units. In 1997 the company created a new means of financing its container fleet. The ability to securitize container debt in the commercial paper market enables the company to increase its container leasing business significantly without many of the constraints normally imposed by banks, the company explained in a Journal of Commerce article. What Sea Containers did was to create negotiable commercial paper, like a bond or stock, that was secured by cargo containers. The cost of the new notes was less than the interest paid to banks for lines of credit and enabled the company to reduce its long-term debt by a full percent a year, a savings of at least $2 million annually.

1998 to the Present

The companys big news in 1998 was the formation of a 50/50 joint venture with GE Capital Corporation. This new entity, GE SeaCo SRL, combined the container fleets of Sea Containers and Genstar, becoming one of the largest marine container operating lessors in the world. Sea Containers continued to operate its own leasing business in countries in which GE Capital did not want to operate.

On the ferry side, the company bought 50 percent of Holyman Sally Ltd., taking over management of its United Kingdom-to-Belgium passenger and car ferry services, and became a majority shareholder in Neptun Maritime Oyj, the leading cruise ferry operator in the Baltic. In 1999 the company entered the U.S. ferry market,.buying Express Navigation Inc. for $5 million and taking over ferry service between ports in New Jersey, Wall Street in Manhattan, and Brooklyn. The number of tourist trains grew to five, with the acquisition of Regency Rail Cruises in the United Kingdom and the assumption of the management of the Great South Pacific Express, a luxury train in Queensland, Australia. Orient-Express Hotels bought a third hotel in Portugal, two in Peru, and one each in Virginia and Maryland. This brought to 23 the number of owned and managed hotels.

New ferry routes and new hotels, combined with falling lease rates for marine containers, pointed the direction of the company. Sherwood reiterated it at Sea Containers 1999 annual meeting: For several years our strategy has been to transform the company from what was primarily a marine container asset leasing business into a company which is largely passenger transportation and leisure based. To underscore the changing focus, he also announced that a name change would be proposed before the end of the year.

Principal Subsidiaries

Orient-Express Hotels Inc.; Sea Containers Ferries Ltd.; Hoverspeed Ltd.; GE SeaCo SRL.

Further Reading

Batchelor, Charles, Tilting Trains Service Set to Start in 2000, Financial Times (London), September 10, 1997, p. 10.

Beman, Lewis, et. al., Orient Express, Fortune, June 5, 1978, p. 22.

Berss, Dormán Marcia, Kicked While He Was Down, Forbes, January 30, 1984, p. 104.

Blue Riband of the Atlantic Exhibition, Hoverspeed press release, October 22, 1998.

Britain Is Selling Ferry Line, New York Times, July 19,1984, p. D15.

The Chunnels Railpolitik, Economist (U.S. Edition), December 14, 1985, p. 54.

Gadsden, James, What the Credit Analyst Should Know About Securitization, Business Credit, March 1998, p. 54.

Heins, John, Back on Course, Forbes, October 31, 1988, p. 66.

Jacobs, Jon, Catamaran Sets Speed Record, Journal of Commerce, June 26, 1990, p. 1B.

Jones, John A., Sea Containers Breaks Seasonal Loss as Traffic Picks Up, Investors Business Daily, May 24, 1993, p. 38.

Lague, Louise, All Aboard, Sports!, People, June 28, 1982, p. 37.

Lueck, Thomas J., Big Ferry Operator to Enter New York Market, New York Times, January 30, 1999, p. B5.

Orient Express Hotels: Nostalgia Can Cost You Dear, Economist (U.S. Edition), December 6, 1986, p. 86.

Porter, Janet, Sea Containers Quick to Rebuild Box Fleet, Journal of Commerce, September 30, 1991, p. 1 A.

Ranard, Andrew, Train as Museum: Orient Express Reaches the Orient at Last, International Herald Tribune, May 21, 1993.

Sea Containers Completes Sale of Container and Ferry Assets for $1.14 Billion, PR Newswire, April 9, 1990.

Sea Containers Ltd., Sea Containers Ltd. Expects Substantial Increase, press release, June 9, 1999.

Sea Containers Proposes To Offer Dual Capitalization, Journal of Commerce, March 27, 1992, p. 5B.

Sea Containers Reaches Approximately 96% in its Exchange Offer for the Common Stock of Orient-Express Hotels, Business Wire, July 1, 1994.

SeaCo Launches Two SuperSeaCats, Travel Trade Gazette UK & Ireland, June 25, 1997, p. 43.

SeaCo Inc. and Sea Containers Ltd. To De-Pair, PR Newswire, January 12, 1984.

Siamese Shares, Forbes, September 1, 1980, p. 59. Stetkiewica, Christian, Sea Ups Convertible Offer To Satisfy Strong Demand, Investment Dealers Digest, July 29, 1991, p. 18.

The Terrible Worry..., Forbes, July 15, 1976, p. 33.

Tirschwell, Peter, Box Lessor Floats New Financing Tool, Journal of Commerce, January 23, 1997, p. 1B.

21 Club Sold to London-Based Corporation, Associated Press, September 14, 1995.

Westland, Shipbuilders Plan Convertible Helicopter Carrier, Aviation Week and Space Technology, January 14, 1985, p. 104.

Ellen D. Wernick