Totem Resources Corporation History

Address:

1100 Olive Way
Suite 1100
Seattle, Washington 98124
U.S.A.

Telephone: (206) 628-4343
Fax: (206) 628-9245

Private Company
Incorporated: 1982
Employees: 1,153
Sales: $200 million
SICs: 6719 Holding Companies Nec; 4424 Deep Sea Domestic Transportation of Freight

Company History:

Totem Resources Corporation is the holding company of Totem Ocean Trailer Express, Inc. (TOTE), Foss Maritime Co., and Interocean Management Corp. Operating with almost no infrastructure, Totem Resources was formed in 1982 to enable the purchase of TOTE, a steamship company operating oceangoing containerships between Washington and Alaska. Subsequent acquisitions garnered the corporation a shipyard, tugboat bases along the West Coast, cargo terminals in Seattle and Tacoma, Washington, and entrance into the business of vessel maintenance management. During its short history, Totem Resources has evolved into a dominant force in the Northwest's maritime industry.

During the early 1970s, Sun Oil Company, a Philadelphia-based energy corporation, began looking for an entry into the rapidly growing Alaskan market. The construction of Alaska's oil pipeline had bolstered the state's wealth and its population, and Sun Oil saw an opportunity to capitalize on the region's growth potential by providing high speed ocean carrier service to transport consumer goods and equipment to the area. While rich in oil, Alaska lacked many of the items necessary to support its subsistence. Clothes, food, books, building materials, automobiles, and any of the sundry goods a burgeoning population required had to be imported into the state. To accomplish this, cargo had to be shipped via the 1,500 miles of water separating Alaska from the contiguous United States. Gauged by weight, 99 percent of everything exported to Alaska arrived by water, a lifeline Sun Oil sought to tap. Sun Oil ordered its subsidiary, Sun Shipbuilding & Dry Dock Inc., to design and build a vessel capable of transporting cargo along the route, and by 1975 a 790-foot trailership, the S. S. Great Land, was completed.

Able to haul the equivalent of 386 40-foot trailers and 126 vehicles, the Great Land, weighing 31,762 displacement tons, was a giant even among the massive cargo vessels of its time. Powered by steam and capable of maintaining a cruising speed of 24 knots, the ship could complete the voyage to Alaska in between 62 and 66 hours, a trip that formerly took several times as long. Quick and large, the Great Land also possessed another enviable characteristic and one crucial to the efficiency and profitability of a cargo carrier--the ability to load and unload cargo quickly. Designed as a roll on/roll off carrier, known in the maritime industry as RO/RO, the Great Land did not require special equipment to transfer cargo from truck trailer to ship container and back to truck trailer. Semitrailers could simply be driven up ramps onto the ships, then driven off once the ship arrived at its destination. The RO/RO system afforded several benefits, one being that perishable goods such as produce, meat, and dairy products were less subject to spoilage because they were loaded and removed quickly. By removing a step from the loading process, cargo could be received up to 30 minutes before sailing, and the shorter transition period while at port allowed a greater number of service runs.

With its modern carrier ready to begin service, Sun Oil formed TOTE as a subsidiary to oversee the operation of the Great Land. TOTE, 70 percent of which was owned by Sun Oil and the remaining 30 percent belonging to Sun Shipbuilding, established its terminal at the Port of Seattle and launched the Great Land on its maiden voyage to Anchorage in September 1975.

TOTE's first few years were difficult, as the fledgling company grappled with problems associated with its youth. It upgraded its trailer fleet, provided better training for its maintenance personnel, and established sales offices away from the Seattle-Anchorage shipping route to cultivate additional business. During the peak summer months, however, business was brisk, prompting the company to lease an additional carrier, El Taino, as a temporary response to increased demand in 1976. That year, contract negotiations with the Port of Seattle soured, and TOTE relocated its docking facilities to the Port of Tacoma, approximately 30 miles south of Seattle. By the following year, Sun Shipbuilding had constructed an exact copy of the Great Land, the S. S. Westward Venture, which was added to TOTE's Tacoma-Anchorage shipping run. Now with two sailings per week, TOTE had readied itself for the expected continuation of growth in Alaska. The addition of the Westward Venture also affirmed the esteem TOTE's clients had for the RO/RO concept. The only other oceangoing carrier fleet operating between Washington and Alaska, Sea-Land Services, transported its cargo in containers adapted to trailer chassis, requiring deck personnel to hitch and unhitch containers before loading and unloading. Given a choice, many had opted for the greater flexibility and speed offered by the RO/RO method, earning TOTE additional business during these early years it would have otherwise missed.

TOTE's estimate of Alaska's future growth, however, fell short of expectations. The boom created by the oil pipeline began to wane by 1977, and Alaska's economy consequently began to suffer. TOTE, whose success was so closely tied to the fate of Alaska's economy, felt the effects of the decline, and business for the shipper also dipped. The other two major shippers operating between Washington State and Alaska, Sea-Land Services and Alaska Hydro-Train, also incurred a drop in business, and the ensuing struggle to maintain their diminished market share touched off a rate war between the three shippers in 1978. Prior to 1978, the three companies charged the same rate for their services, but in a bid to increase its business, Sea-Land proposed to lower its rates. The Interstate Commerce Commission (ICC) halted the attempt, however, and Sea-Land withdrew its proposal. Alaska Hydro-Train, which transported its shipments by tugboat-towed barges, responded by offering an "incentive rate" for large shipments, to which the ICC gave approval. Next, Sea-Land, feeling the pressures of a drop in revenues, asked the ICC to allow it to raise its rates. The ICC allowed the company to raise its rates by eight percent, and TOTE followed suit. But Alaska Hydro-Train surprised the other two shippers by not raising its rates in kind. Consequently, Sea-Land and TOTE were forced to roll back their prices, causing their revenues to fall. While each of the companies suffered as a result of this fracas, Sea-Land and TOTE incurred the greater damage. Each controlled 40 percent of the market, by far outdistancing the smaller Alaska Hydro-Train, but meeting the costs of securing that lead demanded the higher revenues thwarted by Alaska Hydro-Train. Sea-Land's aging fleet required extensive maintenance expenditures, and TOTE needed the additional cash to pay for its two new vessels. Alaska Hydro-Train, on the other hand, was less troubled by the curtailment of rate increases and emerged from the dispute with a small, if somewhat costly, victory.

Although revenues dropped, and some of TOTE's shipping runs left the docks only 50 percent full, the rollback of rates helped sustain its share of the market. The question of TOTE's future solvency lay not so much in the outcome of the rate war, but in the recovery of the Alaskan market. As always, the success of TOTE hinged on the growth of consumer and industrial demand for goods in Alaska. Fortunately for TOTE and its anxious competitors, the Alaskan economy rebounded in 1981. An upsurge in housing construction and an increase in the demand for consumer goods invigorated shipping to the region, as oil revenues once again helped lift the state's economy. TOTE's business activity had once again reached the levels that had initially encouraged Sun Oil to enter the market six years earlier. Sailings continued into the winter months, usually a slow period of the year, with both the Great Land and the Westward Venture delivering shipments of automobiles, building materials, oil-field equipment, groceries, and other merchandise. According to TOTE's management, now led by Robert B. McMillen, prospects for the future looked encouraging. The vitality of Alaska's economy was expected to continue into the future, a forecast that, if true, would fill the coffers of not only TOTE's two ships, but TOTE itself.

At this point, in 1982, TOTE's management, perhaps encouraged by what the future held in store, decided to purchase a controlling interest in TOTE from Sun Oil. Led by McMillen, a group of investors from the Pacific Northwest formed Totem Resources Corporation to facilitate the purchase. Sun Oil agreed and, although the energy corporation would continue to exert its influence as a substantial and active stockholder, TOTE now took charge of its own destiny.

Shipping between Alaska and Washington flourished for the next several years, evidenced by TOTE's construction of a new 33-acre, $10.5 million terminal in 1984. But as its shipping route between became more lucrative, it also began to attract the attention of other shipping companies. Marine Power and Equipment, emboldened by the success of TOTE and its competitors, formed Seaway Express in 1984, which began shipping runs with the area's first high capacity, triple-decked barge. Crowley Maritime, the owner of Alaska Hydro-Train, responded by adding an additional deck to one of its barges, sparking a wave of capacity and service increases by other shipping companies. Soon, before the summer of 1984 was over, a crisis had developed.

The shipping market had quickly become saturated, with ships and barges along the route operating at 30 percent below capacity, which ignited another rate war. Freight rates for some items, such as lumber, were halved, as the plethora of shipping companies fought for business. Hardest hit by the renewed battle over prices were Sea-Land and TOTE, whose faster vessels cost more to operate than the slower, cheaper barges. Given the choice between cheaper rates or quicker service, many opted for the former, and TOTE was forced to relegate itself to transporting the more time-sensitive shipments, such as fresh produce. Furthermore, the growth in Alaska's economy began to subside just as the carriers were slashing their rates and jockeying for business. With the conditions exacerbated by yet another demonstration of the cyclicality of Alaska's economy, the competition for freight intensified, and Totem Resources began to look for a solution to the situation through diversification.

While the Pacific Northwest maritime community struggled with the decline in Alaska's economy and the overabundance of carriers, Totem Resources announced its plans to purchase Lykes Brothers Steamship Co., Inc., a steamship company owned by Florida-based Interocean Steamship Company. One of the nation's largest steamship companies, Lykes' recent history paralleled TOTE's. Senior Lykes officials formed Interocean in 1982 to purchase Lykes from LTV Corporation, the same year TOTE's management formed Totem Resources to purchase TOTE. In size, however, Lykes had the advantage. With a fleet of 32 American flagships serving five continents and operating out of U.S. ports on the Gulf Coast, West Coast, and the South Atlantic, Lykes dwarfed TOTE.

The fluctuations in the Alaskan market that TOTE had experienced during its ten years of operation had demonstrated to Totem Resources' management the inherent problems of focusing solely on TOTE's service to Alaska. Totem had other investment besides TOTE, but TOTE was the only operating entity of the corporation. This, however, would change with the acquisition of Lykes. The diversification into other shipping areas than the Alaska routes would lessen the corporation's reliance on the vacillating Alaskan economy; a move that many of TOTE's competitors had already made.

However, the acquisition never occurred. Lykes, as a company operating American flagships involved in international trade, received subsidization from the U.S. government, so competing steamship companies, Sea-Land and Crowley Maritime included, protested the acquisition. They argued that Totem Resources' purchase of Lykes would violate a maritime law prohibiting federally subsidized steamship companies and their affiliates from engaging in domestic shipping activities. Although Totem Resources had planned to operate the two companies as separate entities, protesters maintained that profits earned by Lykes would benefit the operation of TOTE's two carriers. Rather than face litigation that could have taken up to a year to resolve, Totem Resources withdrew its proposal in late 1985 and searched for another way to broaden its maritime interests.

Two years later, Totem Resources found Foss Maritime Co., a Seattle-based company with a fleet of 65 tugboats and barges, that had been operating in the Puget Sound area for nearly a century. In 1889, Thea Foss, a Norwegian immigrant, purchased a rowboat for $5, refurbished it, then sold it at a profit and bought additional rowboats to sell. After several years, Foss had accumulated a fleet of rowboats which she rented from a dock in Tacoma, Washington. In 1912, she and her husband, Andrew, purchased their first tugboat, adding a fleet of tugboats five years later with their purchase of Tacoma Tug Boat Co. Eventually, the company, named Foss Launch Co., became a key maritime operator in the Pacific Northwest. It expanded by purchasing tugboat companies from neighboring ports, and it established a barge service to Alaska, which became an integral segment of its business. By 1987, the company, now named Foss Maritime and owned by San Francisco-based Dillingham Holdings Inc., operated a tugboat and barge fleet, a towing and salvage firm in southern California, a shipyard in Seattle, and an environmental division involved in the clean-up of oil spills and other maritime pollution problems. For Totem Resources, the addition of Foss Maritime met the diversification needs it had attempted to fulfill with Lykes; Foss Maritime would strengthen its service to Alaska, while other ventures the tugboat and barge company was involved with tempered the effects of the cyclical Alaskan economy. The company was purchased in 1987 for an undisclosed sum from Dillingham Holdings, and another operating entity was added to Totem Resources.

The volume of cargo shipped to Alaska continued to decline from the early 1980s levels after the acquisition, but the addition of Foss Maritime's interests outside the shipping route assuaged what would have otherwise been a bleak period for Totem Resources. Although the corporation preferred not to divulge financial figures, it maintained that both of its companies were profitable ventures, with revenues evenly divided between the two. TOTE still held a commanding control of the Alaskan market, and Foss Maritime profited from its diverse capabilities, such as its contribution to the clean-up of the Alaskan shore after the Exxon Valdez oil spill in 1989.

That year, Totem Resources made another move toward diversification by purchasing, for an undisclosed sum, Interocean Management Corp., a Philadelphia-based company that managed the maintenance and operation of ships. Interocean fit well with the other two companies; the Great Land and the Westward Venture were both client vessels of Interocean before the acquisition, and Foss Maritime's ability to move and repair ships provided services to Interocean it had previously hired other companies to supply.

By the early 1990s, shipments to Alaska once again began to rise. Totem Resources purchased another ship, the S. S. Puerto Rico, in 1991 and renamed it the S. S. Northern Lights to spell TOTE's two other carriers while undergoing maintenance. During the winter of 1991, an additional 90 feet was added to the ship, making her identical to the Great Land and the Westward Venture. The S. S. Northern Lights was slated to begin regular sailings to Alaska in the summer of 1993.

Totem Resources' future success rests on the vitality of the maritime market in the Northwest. Although its reliance on the fickle Alaskan market remained considerable, through the diversification of the late 1980s, this dependence was decreased. The question of whether the demand for trade in the area justified the corporation's extensive holdings depended entirely on the future conditions of the market, but, whatever conditions developed, Totem Resources was poised to garner a substantial portion of the maritime business in the area.

Principal Subsidiaries: Totem Ocean Trailer Express, Inc.; Foss Maritime Co.; Interocean Management Co.

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