TCH: Cunard, Steamships, and Capital Investment

??????????? Improvements in transportation and communication came quickly over the 19th century. Alongside railways and telegraphy, steamships were responsible for powering much of the change. Steamships themselves saw regular incremental improvement. Indeed, they were entirely different, in scale and design, at the end of the century than at the start. They were bigger, faster, costlier, and there were more of them.

???????????These ships were constructed for a new type of firm, the steamship line. There was no equivalent in the sailing era. Cunard was one of the most successful steamship lines in the world in the 19th century, particularly on transatlantic routes. The capital-intensive nature of the steamship lines meant that to obtain and then maintain this position, Cunard relied on strict mail shipment contracts, capital raised through the efforts of shipping magnates, and by the turn of the century, direct government support.

Samuel Cunard

??????????? Samuel Cunard was a Canadian merchant and ship-owner native to Halifax, Nova Scotia. He was the local agent there for the British East India Company and owned sailing vessels carrying freight and mail between Boston, Newfoundland, and Bermuda. Cunard was also a co-owner of the SS Royal William, an early Canadian steamship. From the combination of his business interests, he came to believe that steamships could be useful in transporting mail across the Atlantic. Mail between Britain and America was then carried on slow British government-owned brigs that took six or seven weeks to cross the ocean. The Admiralty in Britain, which managed this service, was initially skeptical of the use of steamships in cross-ocean trade.

Steamships

??????????? The first commercially useful steamships appeared in the 1810s but steamship company formation took off in the 1820s. This was a novel development. Unlike sailing packet ships, which tended to be owned by individuals, even if firms were organized to coordinate a regular sailing service, steamships were usually under corporate ownership. Part of the reason was their cost. Steamships had to be larger to carry the fuel needed for their voyage. An early ocean-going steamship, Cunard’s RMS Britannia, burned through thirty-eight tons of coal per day. Their cost to build made individual ownership uncommon.

??????????? By the mid-1830s, steamships were navigating around the British Isles and along the coast of the United States and Canada. Then, the late 1830s saw the first ocean-going steamships. By the 1840s, steamships were gradually replacing sailing clippers in Atlantic trade. By this point, initial doubt had evaporated. Ship technology continued to change, most visibly when ships with screw propellers began to replace paddle steamers in ocean-going service in the 1860s. The first Cunard ship with such a propellor was SS China which entered service in 1862. Also in the mid-19th century, wood hulls were replaced with iron ones and then steel hulls displaced iron ones after that.

Cunard Steam Ship Company, Limited

??????????? When the Admiralty overcame its initial reservations, Samuel Cunard secured a seven-year contract to carry mail by steamship from Liverpool to America on behalf of the government. For this, Cunard would be paid ￡60,000 per year, increased to ￡81,000 when Cunard agreed to operate four ships on the line instead of three. The first Cunard vessel fulfilling the mail contract was RMS Britannia, launched in July 1840. It was followed by Arcadia, Caledonia, and Columbia. Each ship had an average speed of 8.5 knots and a tonnage of 1,154 g.r.t.

???????????The contract made Cunard the dominant transatlantic steamship line very quickly. Fulfilling the contract necessitated operating a fleet of four identical ships at a regular schedule and this meant Cunard operated the first regular service across the Atlantic. In fact, Cunard would be penalized by the government for delays in mail delivery. One-off transatlantic voyages by steamships had occurred earlier but these did not adhere to a fixed schedule and so were not as useful for shippers and passengers for whom schedule mattered.

??????????? Cunard’s position was threatened though. In the 1850s, an American competitor appeared, the Collins Line. The significance of Collins Line was that it received a U.S. government subsidy, but it still went out of business before too long. In 1847, the mail service was extended to New York and capacity was doubled to a weekly service from a fortnightly one. For this, the annual payment from the British government increased to ￡173,340. After 1867 though, the contract was renewed again but only at a cost of ￡80,000 per year to the government because of the competition that now existed between steamship lines.

Raising Capital

??????????? Samuel Cunard himself was not wealthy enough to self-fund the line. Throughout its history, Cunard needed to raise money from investors. Especially in the early days, this was not straightforward since the record of early steamship companies was poor. In fact, three of the earliest ocean steamship lines, British & American Steam Navigation Company, Atlantic Steamship Company, and Great Western Steamship Company, all failed. ??

???????????Building state-of-the-art ships was no guarantee of success either; SS Great Britain, a ship designed by Isambard Kingdom Brunel for the Great Western Steamship Company was technically remarkable but the company was ruined by financial trouble. Although it was the early triumphs of Great Western that encouraged the British government to turn to steamships for transporting mail across the Atlantic, the company lost out on the mail contract to Cunard.

???????????Samuel Cunard managed to raise money for his idea in 1839 and the mail contract was crucial to making this happen. This money was secured in Britain after he found little interest in the merchant community of Halifax. A letter of introduction from James Cosmo Melvill, secretary of the East India Company, secured for him a meeting with shipbuilder Robert Napier, who connected him with prospective investors.

???????????Cunard turned to British shipping executives, George Burns of Glasgow and David MacIver of Liverpool, to fund the company. They funded the business with ￡25,000 in exchange for one-half ownership. The mail contract with the Admiralty was signed almost simultaneously. The two investors in turn syndicated their investment to a group of Glasgow merchants who, once their shares were fully paid-in, were committed to investing ￡82,500.

???????????As still more investors were secured, the company was reorganized the following year and after considering all subscriptions, ￡270,000 in investments were committed, split across 2,700 shares of ￡100. The company was not technically known as Cunard yet but as the British and North American Royal Mail Steam-Packet Company. Samuel Cunard remained the largest individual shareholder. When the company expanded into the Mediterranean and Levant in the 1850s, a new partnership was formed, and additional money was raised. Over time, the holdings of the minor shareholders were bought by the families of Cunard, Burns, and Maclver, who came to own the whole company.

??????????? The company was later reorganized as a limited liability company in 1878. In this reorganization, ￡2 million in shares were authorized of which 60% were issued to the families of the three founders. The remaining shares were offered to the public in 1880. The prospectus cited the cost of building larger, more powerful, and more expensive ships to meet growing demand as the reason for the offering. Indeed, the Umbria and Etruria built shortly after the public offering cost about ￡400,000 each. The shares were fully subscribed to by investors.

Turn of the Century

??????????? Excluding its four barges, Cunard’s fleet numbered thirty ships by 1886. The ships also got larger and more technologically advanced with time. Compound engines, those with several stages to make the most of the same fuel, improved efficiency. The introduction of the turbine engine increased speed and comfort by reducing vibration. Single screw propellers were replaced with twin screw and then triple and quadruple screw propellers. Electric lamps made an appearance on ships and in the new century, wireless telegraphy improved safety and reduced isolation; passengers could now stay abreast of the news while travelling.

??????????? Ships were getting larger with each generation because of growing transatlantic commerce and growing passenger demand, partly the result of improved comfort. In the 1880s, Cunard’s Umbria and Etruria had speeds of nineteen knots and gross tonnage of approximately 8,000 g.r.t. In the 1890s, Campania and Lucania were faster, twenty-two knots, and had tonnage closer to 13,000 g.r.t. In the 1900s, Lusitania and Mauritania reached speeds of twenty-five knots and were larger still, 31,000 g.r.t.

??????????? However, at the turn of the century, conditions for Cunard became more challenging because of the emergence of a massive new competitor. The shipping industry was consolidating, to a large extent under J.P. Morgan’s International Mercantile Marine Company.

???????????Whereas a half century earlier, its American rival Collins Line was relying on government subsidies, now it was Cunard. In 1902, in order to keep Cunard independent, the British government gave it a yearly subsidy of ￡150,000 and a ￡2.6 million loan at 2.75% for the construction of two new vessels. For as long as there have been significant trading and fishing fleets, governments have viewed private ships as being of significance to national defense. Cunard did serve a national interest since its ships were at the disposal of the Admiralty in case of war, a right exercised by the government in the past.

Lesson

??????????? Steamships transformed oceanic travel yet, until the 1840s perhaps, they were not a sure thing commercially. Several of the first steamship companies to send ships across the Atlantic had failed rather quickly. Because the ships were so large by necessity, on account of needing to carry their own fuel, they were very expensive to build. This made the old model of ships owned by individuals obsolete. Corporate ownership would become the norm. Still, as the example of earlier firms illustrates, this form of organization was not enough to succeed. A company also needed to secure capital from investors and achieve a certain scale to be reliably used by customers and in the case of Cunard, a single mail contract was crucial to success on both counts.

More from the Tontine Coffee-House

???????????Read?about?how ship finance changed in the second half of the 20th century and American efforts to keep a private shipbuilding industry afloat . Consider subscribing to this blog’s?newsletter ?or checking out?book recommendations , which include many of the sources often referenced in my posts.

Further Reading

1.????? Croil, James. Steam Navigation and Its Relation to the Commerce of Canada and the United States: Navigating Trade Routes: A Historical Analysis of Steam Navigation Impact on North American Commerce. W. Briggs, 1898.

2.????? Ginsburg, Benedict William. “Steamship Lines.” Encyclop?dia Britannica, 1911.

3.????? History of the Cunard Steamship Company. 1886.

4.????? Hyde, Francis E. Cunard and the North Atlantic 1840–1973: A History of Shipping and Financial Management . Springer, 1975.

5.????? Kennedy, John. The History of Steam Navigation. Charles Birchall Limited, 1903.

6.????? The Cunard Steamship Company, Limited. Over Eighty Years of Trans-Atlantic Travel: A Pictorial History Showing the Progress of the Cunard Line’s Service Between Two Hemispheres Since 1840. Gaines Thurman, Inc., N. Y., 1922.

External links to recommended reading are affiliate links. When you click on links to various merchants posted here and make a purchase, this will result in The Tontine Coffee-House earning a commission.