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Another chance, at a price


THE STOCK market thinks Yahoo! Inc. is worth $10 billion more than Sears, Roebuck & Co. even though Sears sells more in two days than Yahoo! does in a year. Internet site Yahoo! is supposed to be a "portal," a profitable funnel through which tomorrow's 100-proof commerce will be forced, and its ascent to $286 a share last week coincides with a bull market in funnels everywhere.

Case in point: The port of Baltimore is apparently a genuine candidate to win its biggest shipping deal ever, a pact with Maersk Inc. and Sea-Land Services Inc. that would triple its volume of freight containers. How Baltimore went from maritime sad sack to at least a credible straw-man for Maersk/Sea-Land to wave at other bidders says as much about economic megatrends as about corporate welfare.

Business has always involved sluicing as much sales volume over the smallest cost structure possible, but technology keeps altering the proportions. Yesterday's respectable market shares and cost-to-sales ratios now seem quaintly inadequate.

Not happy with a 30 percent profit margin and control over 90 percent of personal computers, Microsoft Corp. executives promised to "cut off Netscape's air supply" and disable Intel Corp.'s micro- chips when those companies tried to encroach, according to recent testimony in Microsoft's antitrust trial.

Microsoft is an extreme case, but it symbolizes a general economic curdling, a clumping together of bigger and bigger business globs.

Consider recent fusions such as Exxon and Mobil, Citicorp and Travelers, Daimler and Chrysler, Bankers Trust and Deutsche Bank, America Online and Netscape, Kroger and Fred Meyer, Conrail and Norfolk Southern, Conrail and CSX. But also count behemoths such as Microsoft, Home Depot and Wal-Mart that got big by killing off rivals, not by buying them.

In each of these cases, success depends on the funnel, the toll gate on torrents of business that, for whatever reason, become difficult to divert from well-worn channels.

Baltimore was founded on a funnel.

The closest port to the bread basket of a growing nation, the city also had a mighty fishery nearby and swift streams to power mills. Goods moving over the upper Chesapeake threw off enormous wealth for more than a century, but they gradually slipped away as new technology trumped Baltimore's advantages. Railroads, airplanes and electricity undermined a city based on maritime shipping and hydro-mechanical power.

But even newer technology and the trend to hugeness may be raising Baltimore's transportation stock again.

Its big liability -- the all-day steamship trip up the Chesapeake -- may now be smaller, dwarfed by new economies.

Instead of calling on three or four East Coast ports, Maersk/Sea-Land is talking about sending all its business through one, very large, very efficient doorway, using very large, very efficient ships.

If Baltimore becomes that doorway, the relative cost of geography shrinks.

Baltimore's problem, though, is that funnels have gotten extremely pricey. Philadelphia's CoreStates Financial Corp. cost First Union Corp. an amazing 5.4 times book value, and it wasn't even called And they're expensive to work for. Wal-Mart and Ford have become gold mines in part by pushing vendors to the mat, forcing price cuts and concessions even while advancing the curdling process by dealing with fewer and fewer suppliers.

As Baltimore bids to become Maersk/Sea-Land's vendor, it must consider whether the hundreds of millions in taxpayer subsidies demanded by the companies are worth it. Shippers don't leak the same kind of wealth along their routes as they used to. Maersk/Sea-Land's newest vessels can move as many as 3,300 truck-size freight containers with a crew as small as 13. Nobody has said how many jobs this deal would create for Maryland.

The economics of bigness is giving the port of Baltimore another chance. But at a big price.

Pub Date: 1/03/99

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