Yahoo! NEWS: Marcus Samuel’s Oil Excursion
Alan R. Elliott
Tue Apr 22, 6:21 PM ET
It had been three decades since the first oil well was drilled in 1859.
Cars hadn’t been invented, so no gas stations existed.
Oil was yet to be found in Texas.
Oil firms were producing kerosene to light lamps around the world, but John Rockefeller’s Standard Oil was losing ground.
Standard, based in Cleveland, ruled the industry, selling three of every four gallons of kerosene traded worldwide.
But in the late 1880s, Russian outfits run by two families — the Nobels and Rothschilds — were carving into Standard’s turf.
Seeking broader horizons for their fuel, the Rothschilds made their way to London’s East End.
There they found Marcus Samuel boosting Dad’s import-export firm.
The little office of M. Samuel & Co. was an unceremonious launching pad for what would become Shell Oil & Transport Co., the birthplace of the oil tanker industry and one of the greatest ventures in history.
Samuel’s father, Marcus Sr., had built the enterprise through relationships with a string of trading houses across Asia.
Marcus Samuel Jr. was born in 1853. At 16, after attending schools in Belgium and France, he joined his father’s enterprise.
Junior became an off-the-cuff businessman. He operated, even as Shell shot up, amid little more than a table, several chairs, a phone and a world map on the wall. Out back sat the M. Samuels & Co. warehouse — stuffed to the rafters with oriental vases, peacock feathers, fine China and seashell jewelry cases on which his father had made his name.
Senior left the business to his sons, and Marcus gradually took over the trade with one of his brothers. He chartered ships to haul mechanical looms, textiles and tools to the industrializing Asian economies. On the return leg, the ships ferried rice, coal and silk to London consumers.
Samuel was not yet 40 when the Rothschilds’ proposition arrived.
He booked passage across Asia to Batumi, a city by the Black Sea, to meet his prospective partners. The normally spontaneous entrepreneur took advantage of the journey to map out the complex challenges the oil industry posed.
The bear trap was Standard Oil. Samuel knew Rockefeller’s behemoth could crush any competitive effort in one or two markets. The key was to attack simultaneously across numerous markets.
After returning from his meeting with the Rothschilds, Samuel sent two nephews to Asia to quietly locate sites for facilities needed for such an assault. He crafted credit agreements to fund the endeavor.
Among those creditors were shipyards. Samuel commissioned the design and construction of bulk kerosene tankers more advanced than any previous freighters. The new ships would move lamp oil by the ton, not in five-gallon tins.
Quantity, and the savings of up-front packaging costs, would give Samuel’s firm a price advantage.
The Suez Canal held the potential for even deeper cost cuts. Opened in 1869, the waterway pared 4,000 miles — the distance around the Cape of Good Hope — from the trip to India and the Far East. Canal authorities, however, were wary of flammable cargos like kerosene. They had said no to other shippers, including Standard.
Samuel leveraged his relationships. The Rothschilds had funded Britain’s purchase of shares in the canal — and in 1891 the family signed a nine-year supply contract for Samuel to sell kerosene to markets east of the Suez.
Samuel’s new ship design also helped. Insurer Lloyd’s of London gave the tanker, the Murex (named after a type of seashell), its top safety rating. The canal authorities, equal parts convinced and coerced, granted Samuel’s right to passage.
In 1892, the Samuel boys incorporated Shell Transport & Trading Co. In July that year, the Murex threaded through the Suez filled with 4,000 tons of Russian kerosene.
The breadth of the assault, later called Marcus’ coup, jarred Standard. The venture also suffered a near-fatal setback: No customers arrived at Shell’s distribution sites to buy the kerosene.
Samuel had assumed local buyers would line up to fill their containers so long as his prices undercut the competition. His prices hit the mark. But consumers across Asia were used to Standard Oil’s blue tin containers — even for cooking pots.
Once he grasped the problem, Marcus sent a freighter of fresh tin to ports across the East. He instructed trading houses to hire local labor to fashion the new containers. One of his nephews struck on the idea to paint them bright red.
“Within months, Oriental roofs, bird-cages and bedpans alike were changing from rusty blue to shiny red,” wrote Stephen Howarth in “A Century in Oil.”
Marcus Samuel was dedicated to his wife, Fanny, and four children. And the family enjoyed all the trappings of the Victorian lifestyle. But his real desire was for the East End son of a Jewish trader to achieve lasting success in London. “And the oil out of Baku (Azerbaijan) was, in some sense, Samuel’s ticket to making that work,” Howarth wrote.
Samuel seemed on track after his coup against Standard Oil. He was elected an alderman in London in 1891. In 1894 he was elected city sheriff, a post he held through 1901, when he rose to mayor.
In January 1901, wildcatters struck a massive find at Spindletop, an oil field near Beaumont, Texas. Samuel pounced. Within six months, he had sealed a 21-year supply and transport agreement with the field’s top owner, James Guffey.
The Texas oil helped Shell to a strong year in 1901. But overproduction at Spindletop cut the firm’s supplies from the state to almost nil within a year. Royal Dutch had outflanked Shell across Asia. Half of Samuel’s fleet sat idle.
Samuel’s new duties as mayor occupied so much of his time, he didn’t see the inside of the Shell Transport office for the first nine months of 1902. When he finally returned while still running the city, the company was in ruins.
Seeing he had to act, Samuel combined Shell with Royal Dutch in 1907. Before the merger, Shell’s debt was twice as much as the firm’s worth. A year later, Shell was debt-free and posted a 20% dividend.
The War Effort
Samuel remained at the company through World War I, helping the firm become a crucial partner in the Allied war effort by funneling global fuel supplies into critical distribution points in France.
When the 66-year-old Samuel in 1920 announced to shareholders his plans to retire, they credited him with much of the company’s ability to thrive so quickly on the heels of the war. Shell was rapidly developing fields in Venezuela and Mexico to feed its U.S. and international markets. Its fleet had doubled to 545,000 tons by 1919, and its profit was $262 million in today’s money.
Samuel died in 1927, less than 24 hours after the passing of his wife.royaldutchshellplc.com and its sister websites royaldutchshellgroup.com, shellnazihistory.com, royaldutchshell.website, johndonovan.website, shellnews.net, shell2004.com, shellshareholders.org, don-marketing.com and cybergriping.com are all owned by John Donovan. There is also a Wikipedia article: royaldutchshellplc.com