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Royal Mail Steam Packet Company Kylsant Empire Part 2
From SN Guides
World War One, during which RMSP fatally takes control of Harland & Wolff
Nicholas Mihanovich - Argentine Navigation
Upon acquisition by Philipps, ship’s names associated with the Central Powers were changed. At the end of the war, a number of ships owned by local subsidiaries of German shipping companies were taken over by Argentine Navigation Co.
During WW1 the firm lost 7 ships, but it took over Liverpool based Hall’s Line. In 1917 the MacAndrews family decided to sell the business and accepted an offer from Philipps. A new company MacAndrews & Co Ltd was formed as a subsidiary of Philipps’ Royal Mail Group. All of the ships were transferred to the British flag.
Lamport & Holt’s shipyard purchases
The Government Ship Management Department
Between 1890 and 1902, 15 newly built ships were added to the fleet, including six fast passenger ships, five of which were built by Hawthorn Leslie at Hebburn-on-Tyne. The RVF went through difficult times during the Russian-Japanese War and World War I and after the October Revolution in 1917 and the signing of the treaty of Brest Litovsk by the Bolshevik Government and the Central Powers many of the RVF ships were seized by the Allies. Britain took over 11 ships and placed them under the management of RMSP. The ships were painted in RMSP colours and operated by a separate organisation called The Government Ship Management Department. In 1923 the USSR petitioned the British Courts for the return of the vessels and won their claim, but writs for unpaid bills were served on all of the ships and they were arrested. Most of the vessels never returned to Russia.
Harland & Wolff and its acquisition of Caird & Co, A & J Inglis and D & W Henderson
From its inception H&W had faced financial difficulties. The majority of the construction material and equipment for its ships came from mainland Britain at additional cost. It frequently faced shortages of skilled labour and with only one other major shipyard in Belfast (Workman, Clark) the Ulster shipyards did not have the same ability to balance individual fluctuations in their labour requirements that was enjoyed by the large number of yards in the major shipbuilding centres like the Clyde, Tyne and Wear. The formation of H&W was assisted by the Liverpool financier Gustav Christian Schwabe and his subsequent involvement in Ismay’s White Star Line and other new shipping companies was usually on the basis of work being placed with H&W on cost plus contracts, through secret arrangements known as the “Commission Club”.
Pirrie succeeded in bringing other shipping lines to H&W on the same basis. Unfortunately cost-plus contracts do not provide any incentive for the shipyard management to save cost. Profitability is however, dependent upon uninterrupted production and H&W were usually successful in avoiding demarcation disputes between the members of the 20 trade unions representing the work force. The cost of this harmony was over manning and high labour costs in addition to the higher material costs facing H&W. As a result, by the early years of the 20th Century the company almost invariably lost money on fixed price contracts obtained in open competition with other yards.
A further consequence of the Commission Club was that H&W was inevitably effected by the problems and requirements of the members. Part 1 of this history explains the difficulties experienced in financing the creation of IMMC, which resulted in H&W being saddled with a £1,000,000 investment in IMMC. This seriously reduced H&W’s ability to self-finance work in progress for its clients and made it dangerously dependent upon debt finance.
G W Wolff retired as principal in 1906 and sold his shareholding to Pirrie, who proceeded to make H&W his personal fiefdom, surrounded by managers who would unquestioningly obey his orders. In 1907 the H&W administrative headquarters was transferred to London and the day-to-day management of the Company was devolved to a committee of managing directors whose technical skill and devotion Pirrie could rely upon. They were only given the barest minimum of financial and contractual information. The central financial records of the business were under Pirrie’s personal control and the only other men allowed access to them were the chief accountant and the company secretary.
Thanks to Commission Club contracts, H&W was profitable, but its cash earnings were swallowed by the cost of major investment in its Belfast facilities and the creation of large shiprepair facilities. In 1906 White star decided to move the UK terminus of its North Atlantic mail service from Liverpool to Southampton and H&W was called upon to establish repair facilities in Southampton and Liverpool to service the White Star and Royal Mail fleets. White Star also informed H&W of its intention to build two gigantic 46,000 ton liners to compete with Cunard and the German liners. This necessitated the construction of two larger building berths at Belfast.
In May 1907 Pirrie decided to pre-empt any attempt to strangle H&W by offering to merge with John Brown, the Sheffield steelmakers and forgemasters, who had recently taken over the J&G Thomson shipyard at Clydebank. The offer was accepted and John Brown bought 52% of H&W’s share capital from Pirrie, paying him in John Brown shares and cash. Pirrie remained in charge of the business. John Brown agreed to share its turbine technology with H&W and to supply “steel shaftings, flues, castings and forgings” on a cost plus basis.
The construction of the White Star giants, Olympic and Titanic created considerable production difficulties for H&W, the concentration of the yards steelworkers on the two ships resulted in a reduction in total output during 1909 and the finishing trades were left without work so that the total numbers employed at Belfast fell by a third. The company was so hard pressed that it was obliged to sub-contract the Hamburg America liner Preussen to John Brown.
John Brown provided assistance and technical know-how to enable H&W to begin turbine manufacture. As part of the training process the turbine machinery for the Royal Navy battleship Neptune was sub-contracted to H&W by John Brown.
In the midst of these production activities, John Brown was attempting to exert some control over its new investment. It nominated two principals for election at the 1909 annual meeting, but Pirrie did not allow them access to his private accounting books. Nevertheless they were the only men who could apply some check on Pirrie’s actions. The successful delivery of Olympic in 1909 enabled H&W to temporarily pay off its overdrafts and reduce its other borrowings. White Star were delighted with their new ship and placed an order with H&W for a third sister, Britannic, with work to commence after the delivery of Titanic.
In a further development that was to have a profound impact on the future of H&W, Pirrie outmanoeuvred Barclay Curle and Swan Hunter to obtain control of the UK licence for the production of Burmeister & Wain diesel engines. This was organised through a new company, Burmeister & Wain (Diesel System) Oil Engine Co Ltd. This company bought the recently acquired Lancefield Works in Finnieston from H&W.
Early in 1912, just as all these corporate transactions were reaching completion, and with the political uproar in Ulster at its height, the 65 year old Pirrie became dangerously ill with an enlarged prostate gland. He underwent surgery in February. At the time this was a most hazardous procedure, with a high mortality rate, but the operation was a success, although his doctors demanded that he rest until the autumn and they refused to allow him to sail on the maiden voyage of Titanic. The combination of his illness, the loss of Titanic and the death in the tragedy of his nephew, Thomas Andrews who was chief designer at H&W, all prolonged Pirrie’s recovery.
H&W’s main bankers, London City & Midland Bank became seriously concerned by Pirrie’s reliance on heavy borrowing to finance the expansion of his shipbuilding empire and to finance work-in-progress in the H&W facilities. Sir Edward Holden, the bank’s managing director, summoned Pirrie to a meeting to discuss H&W’s ever-increasing liabilities, particularly the volume of discounted bills of exchange. This system of finance involved H&W issuing bills of exchange calling upon the owners of ships under construction to make a specified payment at a fixed future date. The owners signed the bills to accept them, before returning them to H&W, who then cashed them at a discount in the London market. When a bill reached maturity, a further bill was frequently issued and discounted to provide the cash needed to settle the early bill. In the event of the owner failing to honour a bill, the liability fell upon H&W. In June 1912 the face value of H&W’s share capital was £600,000, it had an overdraft of £21,000 from London City & Midland Bank, long-term borrowings of £600,000, but its contingent liabilities for bills were £1,535,000. To make matters worse almost all of the bills were drawn on Royal Mail and IMMC, both of whom had heavy borrowings of their own. Pirrie agreed to issue £600,000 new preference shares, but even so Holden imposed more expensive rates to discount future bills. In fact Pirrie only succeeded in raising £177,000 from his initial preference share issue.
The preference share money was quickly swallowed by the cost of re-equipping Govan and financing the massive volume of business being undertaken by H&W and by June 1914 the total volume of discounted bills had reached £2,227,500 with overdrafts up to £221,724. The relationship between Pirrie and his bankers was almost at breaking point. The situation was greatly worsened by serious financial problems at IMMC, following the death of its founder J P Morgan in 1913. IMMC was having difficulty settling £585,000 in bills drawn by H&W. Fortunately the outbreak of war dislocated the entire international bill market and disguised H&W's financial problems.
When war was declared it was generally assumed that hostilities would be short-lived. There were no national plans for the production of merchant ships needed to support the war effort. Materials were in fact diverted to accelerate warship construction and production in merchant shipbuilding yards like H&W slowed down or even came to a halt. This created difficulties in retaining the company’s workforce as many enlisted in the armed forces in the belief that there would be no civilian requirement for their skills. At the end of July 1914, H&W employed 24,425 people, by the end of October this figure had declined to 18,412. By this time the British Government realised that it was facing a long and bitter war that would tax the capacity of the shipyards and orders naval work began to flow.
H&W was called upon to convert merchant ships to resemble battleships, to confuse the enemy as to the whereabouts of the Grand Fleet. These were followed by a series of orders for Monitors to use a variety of spare heavy gun mountings to support the seaward end of the Western Front and later the Dardanelles campaign. Govan also received a series of orders for destroyers. The largest individual warship ordered from H&W was the preposterous white elephant HMS Glorious. She was one of three totally impractical light battlecruisers ordered in 1915 and completed in 1917. No operational purpose could be found for these very expensive ships and after the war they were converted into aircraft carriers. All of the naval contracts were awarded on a cost plus basis, with payment by cash progress payments during construction, which brought much needed relief to H&W’s strained finances.
By June 1916 H&W had paid off its overdrafts and had £177,000 in the bank. Although its loan debt was still £510,000 its outstanding bills of exchange were down to £25,000. This happy financial state did not last as Pirrie authorised major capital projects in Belfast, Govan, Southampton and Liverpool during 1916. In October he purchased the Greenock shipbuilder Caird & Co for £432,493. Like the Govan shipyard, the Greenock facility was operated as a division of H&W. He also persuaded Burmeister & Wain to sell H&W their shareholding in the joint UK diesel engine building company for £100,000.
Caird & Co began in 1890, as a family firm in Greenock, operating initially as an iron foundry, developing into general and marine engineering. James Tennant Caird joined the family business in 1833, which later moved into shipbuilding following the acquisition of the Cartsdyke yard in 1842. Together with shipbuilding, the yard was also involved in the construction of a number of locomotives for Scottish railway companies. The company became Caird & Co Ltd in 1888. It built its first passenger ship for P&O in 1846 and developed an important long standing relationship having built over 60 ships for P&O by the time of the H&W takeover.
For almost two years after the outbreak of war the national policy was to only authorise work on merchant ship construction to clear the slipways. Pirrie, as a shipowner as well as shipbuilder realised that wartime sinkings and the requisition of merchant ships for military duties would generate a severe shortage of tonnage by the end of 1917. He agreed contracts with Philipps for 15 diesel-engined cargo ships as well as entering into contracts with Bibby, P&O, British India and IMMC. Pirrie then convinced the Board of Trade that these vessels should be classified as munitions. Armed with this massive programme of merchant ships in addition to the contracts for the Admiralty, Pirrie was able to convince his board of directors of the need for further expansion of H&W capacity.
A & J Inglis Ltd was founded by Anthony and John Inglis in 1862. Its shipyard was located at Pointhouse on the River Kelvin near to its confluence with the River Clyde, directly opposite the H&W Govan shipyard and across the Kelvin from the Meadowside yard of D & W Henderson. Inglis specialised in the construction of smaller vessels including, Clyde steamers, paddle steamers and coasters. A significant proportion of the ships built at Pointhouse were paddle steamers, many of which were for export.
D & W Henderson & Co Ltd owned a much larger shipyard at Meadowside, along the north bank of the Clyde with a dry dock and fitting-out Quay on the Kelvin. The firm was founded by the famous Henderson brothers from Pittenweem in Fife. The four brothers were the sons of a sea captain and all became captains before entering business. The eldest brother Thomas became a partner in the shipbrokers and managers Handyside and Henderson in 1855 and started Anchor Line. As the Handyside family retired Thomas was joined by his brother John, then David and William and the firm was renamed Henderson Brothers. Thomas and John ran Anchor Line, while David and William started Finnieston Steamship Works Co in 1857, mainly to build steam engines to convert existing sailing ships. In 1872 the Meadowside shipyard of Tod & MacGregor was bought and renamed D & W Henderson.
The Meadowside shipyard built a large number of passenger liners and cargo ships for Anchor Line and through a partnership between Thomas Henderson and the Duke of Devonshire provided designs, drawings and shipbuilding expertise to enable the Duke to establish Barrow Ship Building Co. John Henderson died in 1892, David in 1893, while both Thomas and William died in 1895. The firm drifted and lost ground without the leadership of the brothers, but in 1899 it was revitalised by the formation of Anchor Line (Henderson Brothers) Ltd and the sale of both the shipyard and engine works. The shipyard remained an independent entity until it was bought by H&W.
At the end of 1916 and during the early months of 1917 the merchant shipping situation became increasingly critical and the Government decided to construct a large number of standard ships for its account. Work on all existing merchant contracts was suspended and new contracts from private owners prohibited for the duration of hostilities. H&W were permitted to continue work on 11 merchant ships on order, to clear the building berths. H&W and Henderson quickly produced the designs for the A and B type standard vessels and the keels for the first two were laid down in February 1917.
During 1917 Pirrie agreed to build aircraft at Queens Island in Belfast, thus providing work for the joiners’ shop that was underutilised following the cessation of passenger liner construction. Pirrie felt that building numbers of aircraft to the same design would encourage standardisation of joinery work for ships. New workshops were later constructed to meet a Government order for the production of Handley Page heavy bombers and an airfield created at Aldergrove. H&W was awarded orders for 100 De Havilland, 300 Avro and 20 Handley Page aircraft.
This surge of capital expenditure consumed all of H&W’s cash resources. At the June 1917 end of the company’s financial year loans stood at £593,000 and overdrafts at £693,000 and Holden was again becoming concerned. Nevertheless the company was obliged to continue investing to increase output. Pirrie responded to a Government demanded that H&W build an additional shipyard in Belfast by leasing land on the east side of the Musgrave channel and commencing the construction of a six berth yard at a cost of £600,000. Additional facilities were also commissioned for the Clyde, Liverpool and Southampton works.
To placate the banks, Pirrie again sought to raise additional equity capital and persuaded Philipps to invest £500,000, plus a £425,000 share premium, in H&W from the Royal Mail group, thereby “cementing the building agreement”. This investment had the advantage of wresting voting control from John Brown and passing it to Pirrie and Philipps. John Brown did not object, on the understanding that this “would not interfere with their working relationship.”
Unlike many UK shipbuilders, Pirrie was an enthusiastic backer of the standard ship programme and H&W quickly established itself as the most prolific producer of these vessels. Unfortunately the national programme was well below target and to counter this situation Premier Lloyd George persuaded Pirrie to accept the newly created post of Controller General of Merchant Shipbuilding, whilst retaining his appointments with H&W and Royal Mail. Pirrie proved to be an ideal man for the job and ruthlessly imposed the standard ship programme on the reluctant shipyards. He forced through technical change and better relations with the trade unions. In the process he succeeded in raising national output by almost 50% in the last 8 months of the war. By the end of December 1918, 181 standard ships were delivered.
During the war, British shipyards achieved a phenomenal output of vessels, but the industry continued to be plagued by work demarcation disputes between the various trade unions. The long run of cost plus H&W Commission Club contracts placed an emphasis on management avoiding dislocation of work, regardless of cost. As a result Belfast had a sophisticated system of settling turf wars between the 20 different trade unions in the shipyards, but uninterrupted production was obtained at the cost of over-manning and poor productivity. The Clyde facilities, which were more recent additions to the group experienced greater problems but lower costs.
In February 1915, serious strikes and demonstrations broke out on the Clyde. This incensed the Government and all of H&Ws works were declared “controlled establishments” giving the Ministry of Munitions wide powers over their labour practices, including the ability to order men who misbehaved to the front. Nevertheless H&W management resisted the Ministry’s efforts to enforce greater flexibility of employment of the existing workforce and the introduction of non-union workers, preferring to work in harmony with the unions throughout the war.
When the Armistice was declared on 11 November 1918, the entire H&W workforce downed tools and took a week’s holiday to celebrate. The Admiralty immediately took action to halt naval work. Pirrie issued instructions for the resumption of work on the 21 merchant ship contracts that had been suspended by the Ministry of Shipping’s embargo. He also ordered preparations to be made to reconstruct the large number of Commission Club passenger ships that had been adapted to the requirements of the war effort. Finally in January 1919 he announced that shipowners were again free to place orders for new ships.
Thanks to the Royal Mail investment, the company’s ordinary share capital increased to £1,000,000 in 1918 and through other sales the preference share capital was up to £281,074 but these amounts were totally overshadowed by H&W’s borrowings. Loans to the company were £961,607 and overdrafts £885,106, despite the fact that all H&W’s construction contracts were on a self-funding, cash basis from the government. Clearly when H&W resumed civilian contracts, with the need for it to finance work in progress, the company was destined to face severe cash shortages. Pirrie’s coup in persuading Philipps to bring his Royal Mail group companies as shareholders provided H&W with a post-war lifeline.
The growing H&W threat to the financial stability of the Royal Mail Group