Landmarks in transportation finance

The Greek shipping magnate Aristotle Onassis grew his shipping business in the 1930s and 1940s on the basis of salvaging shipwrecked or mothballed freighters and cargo ships. He first became a client of National City Bank in 1931. The end of World War II was an opportunity for Onassis. In the United States, the Ships Sales Act of 1946 released a large number of vessels onto the market, including many of those known as Liberty ships. Onassis and his brother-in-law and rival, Stavros Niarchos, went shopping. Onassis came to National City Bank and became the first Greek to acquire ships with U.S. bank financing. As the global economy rebounded in the postwar years, there was more oil to be moved than there were tankers to move it. In 1947, the demand for fuel oil skyrocketed, and Onassis was able to charge a premium for transporting it. Onassis' style was to think big. The standard tanker of the day, the T-2, weighed 16,600 deadweight tons. He could see no reason why a tanker could not be nearly twice that size, so he commissioned a 28,500-ton tanker, one of the first "supertankers," which he christened the Olympic Games, and headed to National City Bank for financing. The ship was too expensive, however, to finance with the usual short-term loan. The Depression and World War II were uppermost in the minds of most of the bank's lending officers, and the idea of changing the way they were used to lending was tantamount to heresy. They suggested that he seek financing from insurance companies, who often made long-term loans. For short-term cash, though, Onassis came to the bank. A young man in the shipping department by the name of Walter Wriston was assigned to work with him. Between them, they pioneered a new kind of financing. The ship's charter, not its market value, became the collateral; the money earned by the charter was paid direct to the bank, which deducted interest and principal, and put the rest in the shipowner's account. For the first time, a lender was able to rely on the cash-generating potential of a piece of property. The new method accelerated clearance of the debt; Onassis owned the Olympic Games outright within seven years, rather than the expected 20. It was the work that Wriston did on this deal that first led management to single him out him as having top-management potential. By the mid-1960s, Onassis was able to launch a generation of very large crude-oil carriers, ships so big that his original supertanker, the Olympic Games, could almost have been carried on their decks as a lifeboat. Although this financing concept was revolutionary for its time, it caught on quickly and was soon being used to underwrite other big-ticket items, including railroad cars, skyscrapers, and aircraft.