The Dumbest Business Ever... Shipping Melting Ice to Calcutta.

25:47But it's not obvious to me that a lesson to take from this is always believe in your dreams. Sometimes your dreams are bad ideas. Yeah, we're not doing a show about the guy who decided he was going to put fresh air in boxes from the mountains and take them to polluted cities so that people would enjoy fresh air. I'm interested. Okay. I would have given my email. So whatever the lesson is or is not, Frederick Tudor doesn't pivot. And I should say, and this maybe is a little bit more of a lesson, he is a meticulous businessman. His account books are stored at the, I think, the business school library at Harvard.

26:24And there was actually this article in 1984 in the Accounting Historians Journal. What a great journal. Why did you not tell me about this journal? You've been keeping it from me. The Historian's Journal. So in this article, they studied his books, his ledgers, and they said he employed sophisticated accounting techniques to analyze and control transportation costs and the costs of product shrinkage. Which is usually a euphemism for people stealing your product. Yeah, shrinkage is like if it gets stolen, if it breaks, if it rots, that's all shrinkage. This is actual shrinkage. Yeah, the ice is getting smaller.

26:58It's literal shrinkage. And in fact, all through this time, when he's in debt and he's in and out of jail and shut down by wars, Frederick Tudor is trying to reduce shrinkage. He's trying to figure out how to get the ice to melt more slowly. And crucially, he's trying to figure out how to quickly build an ice house in some tropical foreign port so that he can store his merchandise without too much shrinkage. He gets his chance to really test all this out when the War of 1812 ends. In 1815, by the way, didn't know that. Should have called it the War of 1812 to 1815. Three Years' War. The Three Years' War.

27:36War of 1812 is actually a good name. You know when it was, for one thing. Sort of. So he's still in debt, 1815, running from the law, step ahead of the sheriff. He gets on a ship bound for Havana, sailing with 159 cedar posts and a crew of carpenters who are going to help him build an ice house in Havana. The ice is coming on a later ship. They get there. They build the ice house. It's like a cube of 25 feet on a side. And then on the inside, they build like a little inner shell, right? They're going to make it sort of like a giant thermos in a way. And they put like sawdust and peat for insulation between the inner and outer wall.

28:18And then up on the top on the inside, there's like the floor where you can hang out and whatever or do business. And they put a trap door on the floor. So you lower the ice down beneath the floor and raise it up out of it. It's a nice image. And now the ice gets there and he's like frantically caring for it, measuring the runoff to, you know, assess how fast it's melting, adjusting the insulation, pitching the ice, you know, going to all the bartenders in town and giving it like first one's free kind of thing, you know, free subscription. Because even in Havana, they wanted refrigerated drinks.

28:52You bet. You've been to Havana. I've been there. It's hot. I picture they had a Cuba Libre, which is all sticky and warm and terrible. They have a glass of warm rum and they're like, oh, if only I had some ice and somebody would invent Coca-Cola, this would be amazing. They had a lime, probably. So it kind of works. It kind of works at this point. It's like a proof of principle works. He's able to store the ice for months. They do like it in Havana. But he's at this point now where he's, it's, you know, not entirely profitable. It's sort of working. But he's got the model. And so he's building ice houses now in other places, in Martinique's original spot, in St.

29:39Thomas, and also in the American South, in Savannah and Charleston. And at the end of 1820, he sends another brother, his younger brother, to set up an ice business in New Orleans. Seems promising. If anyone loves a great cold cocktail, it's New Orleans. It's New Orleans. They're about to love a great cold cocktail. So he figures if they can sell$10 a day worth of ice in New Orleans, that'll be a good business. And at this point, even our guy, even our, you know, fight on, persistent grindtrepreneur is getting nervous about this. One day, his entire diary entry is in all caps, and it's one word, anxiety.

30:26Oh. Next day, what does he write? Anxiety. Anxiety. Next day, anxiety. This is the most relatable part of the diary for me, I'll be honest. This is often Jacob's Google Docs when he writes the shows. Anxiety. Anxiety. And then, I don't despair, though. I don't despair. I keep making shows. And then, in July of 1821, after a decade of failures, the breakthrough finally comes. Frederick gets a letter from his brother in New Orleans. And remember, they'd hoped for$10 a day in sales. The brother says they are now selling$40 every day in ice. New Orleans is going bananas for ice. Just the parade is going down.

31:16Jazz hasn't been invented yet, but they're playing it. They have the second line. They're all drinking hurricanes in one of those weird, long, tall glasses. And it's cold. Yes, it's a pure anachronism. Time is running forward and backwards. The bachelorette parties are so happy at this point. Frederick Tudor is 37 years old. He has spent his entire adult life trying to sell ice. And now, finally, he's doing it. It's happening. It's a real business. He pays off his debts. He buys some land on this little island next to Boston. And now, interestingly, he has a new problem. It's a good problem. Much better than, you know, getting thrown in jail for debts.

31:58But it is still a problem. Demand is outstripping supply. He doesn't have enough ice. And this one, you know. You're trying to be the ice king and you're like, I mean, he wasn't prepared for it after all these years. It is. So, you know, I've interviewed lots of startup founders, basically, and they talk about this moment. I remember the American giant guy in particular, you know, the sweatshirt, American made sweatshirts. He talked about having this moment where there was this article that just made his business take off. And it's not great. Right. Like he hated it. It meant he couldn't give people this thing that he wanted to give them.

32:34Because he's not trying to sell ice as a luxury product. Yeah. He wants to sell commodity ice around the world. And he's a logistics man. And logistics is really hard to pull off. Yeah. And so you can't just turn one ice lever and double your supply. And, I mean, when you're saying he doesn't want it to be a luxury product, you mean he can't just jack up the price, right? Because the kind of mechanical econ 101 thing is like, oh, people are buying more than you have. Just jack up the price. But, you know, in general, people don't want to do that because business is a many time game, right? You want loyal customers.

33:11You want them to love you. You don't want them to remember you as the guy who tried to gouge them when you could. So often entrepreneurs don't want to just jack up the price. What they want to do is increase supply by increasing efficiency. And, you know, getting the ice out of the frozen lakes is actually quite inefficient at this point. It's all guys out there with saws, basically, sawing blocks out of a frozen lake. And it's hard to get it up out of the lake. It's hard to saw it. It's all hard. The guy who was going to solve this problem is actually a guy who works for Tudor, a guy named Nathaniel Wyeth, who had grown up on this little lake outside of Boston called Fresh Pond.

33:55His family had a hotel there. They cut their own ice. And Wyeth becomes a supplier to Tudor. And around 1825, he has this idea where he builds this thing with metal blades that you can attach to a horse. So, like, think of a plow, right? It's like a plow, but for the ice. And you push the horse out on the ice? I love it. Actually, you put spikes on the horse's shoes. Yeah, yeah. And so when the ice is thick enough, important, the horse pulls the plow across the ice and it cuts it. So logical. He actually figures out you have it go at like 90 degree angles. You have it go one way and then you have it go at a 90 degree angle.

34:38And you do this all across the pond and you're essentially turning the pond into a giant ice cube tray. If you're old enough to remember ice cube trays, welcome to business history. He has this other innovation that I love, which is after you've cut it, it's still hard to get the ice up out of the lake. And he figures out some kind of a system with like pulleys and horses pulling on ropes where the pulleys are actually lifting these ice blocks out of the frozen pond so they can be put into the ice house. Like industrial ice. It's industrial ice. That is exactly what it is. Frozen by nature. So now.

35:15Put that on the label, yes. Our hero has what he needs. He has demand. He has supply. Ice is going to the moon. Or at least it's going to India. Long way away. After the break.

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38:02We're back. It's 1833, and a Boston merchant comes to Frederick Tudor with an idea. Boston has this booming trade with India. All this stuff is coming from India to Boston. But not that much stuff is going from Boston to India. There is a trade deficit, basically. And so what that means, and I mentioned this earlier in the show, is, you know, you have ships coming in from India with whatever, cotton, spices, and then going back largely empty. Ship owners, remember, putting rocks in as ballast in those outgoing ships. So this merchant is like, Frederick Tudor, what if instead of rocks, we had frozen ice?

38:47The only kind, the best kind of ice. What if we put ice in there and sent it to India? And Frederick Tudor was like, Where have you been all my life? Yes, yes, a thousand times yes. And so they make the deal. Tudor is going to send 180 tons of ice on a single ship. This is farther than he's ever sent a ship full of ice. It's going to be very hot. It's going down across the equator around the tip of Africa. And so, you know, he starts going down to the ship multiple times a day, builds this, what he calls a sheathing of boards. So sort of, again, like kind of trying to turn the hold of the ship into a thermos, builds this sheathing of boards around the ice, insulates it with hay and tan, which apparently is ground up bark on all sides.

39:37It's like styrofoam, right? Because it would be light and it would have lots of little holes of air in it. I guess so, yeah. He calls the insulation an unbroken stratum on top ends, sides and bottom. And he hopes that something like two thirds of the ice will make it. He knows a lot's going to melt. The ship sails out of Boston Harbor on May 12, 1833, bound for Calcutta, which today we call Kolkata. And Tudor, at this point, is too old and, frankly, too rich to go by himself, sends somebody in his place. And his ice sails off out of Boston Harbor. I like to picture him standing there, eating an ice cream cone, watching it until it sails over the horizon.

40:16and, you know, goes across the Atlantic, down around the tip of Africa, up through the Indian Ocean, 16 ,000 miles or so, four months at sea. It still amazes me that in the 1800s you could do this. It shouldn't work. It shouldn't work. It's 90 degrees when the ship gets to India, and the ice, of course, is melting fast. And Calcutta is like 70 miles up this river from the sea. And as the ship with the ice is coming upriver, people in Calcutta start hearing this rumor, basically, that a ship from Boston full of ice is coming up the river. And there's an article about it in this newspaper called the Calcutta Courier, which is the paper sort of of the British colonialists in Calcutta.

41:03The Yankees are so inventive and so fond of a joke at the expense of the old country that we had some misgivings about the reality of Brother Jonathan's frozen manifest and suspected him to be coolly indicting a hoax. So easy to laugh at. Slippery, slippery. They can't resist. They can't resist it. I feel like I would have covered this back at the time. It's ice on a boat. It's so crazy. It's a perfect story for you. They think it's a joke. But they find out it's real. You know, it's still coming up the river. They find out, yes, it's real. And once they find out it's real, they're like, get that ice here right now.

41:42The newspapers actually start a campaign to send a steamship to tow this sailing ship up the river so it gets there faster, to waive the customs duties when it arrives so they can unload it before it melts. The clock is ticking. The clock is ticking. The ice is melting minute by minute. And in fact, it all happens. They do tow the ship up. They do waive the customs duties. and the ship arrives and there is ice left. We don't know how much left, but there is ice. The newspaper Calcutta Courier writes, the names of those who planned and have successfully carried through the adventure at their own cost deserve to be handed down to posterity with the names of other benefactors of mankind, the importer of the potato into Europe, the disseminator of useful plants in regions where they were unknown and the authors of every species of discovery.

42:28They're saying this is one of the great human achievements. Ice to India. Yes, yes. In fact, the colonial governor in Calcutta gives Tudor's guy some kind of like specially engraved silver cup, like a trophy kind of for this incredible breakthrough. And they become in Calcutta dependent on ice. When a shipment is late or doesn't arrive, it gets rationed. People will get a note from their doctor, like if they have a fever, which, you know, people got a lot, they would use ice for the fever. So it becomes this necessary part of life there. And Tudor gets a monopoly on the Calcutta ice trade. He's still got that same move, and it works for him.

43:11Over the next few decades, you know, he keeps selling ice to Calcutta, and he makes hundreds of thousands of dollars in profit, which, of course, would be, you know, millions in today's money. And so Tudor has done it. He has turned this thing that sounds like a joke into a great business and seems to have a nice life. He gets married at 50, has kids, and is like a happy rich guy in Boston, as far as we can tell. And so there is still kind of this question, which is, how does it make sense? How does this work that you can send ice from Boston to India and it takes four months and it's still a profitable business?

43:54Yeah. And in other words, what did he see that no one else saw? Yeah. Yeah. And and, you know, at the beginning of the show, I said that the story of the ice trade is at some level a story about the most underrated idea in economics. So here it is. The idea is opportunity cost. Love opportunity cost. Give us give us the definition. If you are doing something, its opportunity cost is basically the highest value option that you do not choose. It's the second best thing. You mentioned when I brought this up the other day, you mentioned business school. You said they always tell you this on the first day of business school.

44:28Yeah, because if you think about it, there is the cost to go to business school, which is high in tuition. But really, the opportunity cost is even more significant, which is if you are sitting in business school, you are not working at Goldman Sachs or at JPMorgan Chase, where you might be making$200 ,000,$300 ,000 a year. That is your opportunity cost for the education that you're getting. And so think about opportunity cost in this story. There's the most obvious one, those ships sailing out empty, right? Like the opportunity cost for that space is zero, essentially, right? A merchant is going to, you know, sell space to the highest bidder, right?

45:08If nobody's bidding, you can get that space real cheap. But it's not just the ship itself, right? There's the ice, the ice that is just sitting there on a pond in Massachusetts in January. Yeah, there is no value to that ice other than ice skating. Yeah, which nobody's going to pay for. They weren't paying to skate on ponds in 1830. There's a third kind of opportunity cosplay here as well. And this one is a little more subtle, which is labor. The workers cutting the ice. Tudor mostly hired farm workers. They're doing this work in January and February. What's the opportunity cost of the time of a farm worker in January?

45:46There's nothing for them to do while there's snow on the ground and ice on the lakes. Huddling by the fire to keep warm until spring is not a job. They're not giving up a lot of money to go out and get paid to cut ice. And, you know, adding all these things together, I thought of this business cliche that I generally don't care for, which is adding value. Everybody's always talking about how they're adding value. What's the value add? But Tudor really is, like, he is taking underemployed people to harvest an unused resource. Free resource, really. And put it in an empty ship and send it to somewhere where people really, really want it.

46:24It's the combination and the logistics that makes it valuable. It makes it immensely valuable. Immensely valuable, which is why once he figured out how to keep the ice from melting, He built an industry and got rich. Now, despite his best efforts to get monopolies in all those places, he didn't have a monopoly everywhere. And lots of other people got into the ice business because they were like, oh, there's just ice sitting there. Let's go cut that ice. And eventually that pond where Wyeth, his innovator, was cutting filled up with ice cutters. And so they moved on. It's an ice rush. Yes, there was an ice rush.

47:02So they moved on in 1846 to a pond a little farther from town, a pond called Walden Pond. One of the most famous ponds in American history because this is where Henry David Thoreau, or how do you say it? I guess Thoreau, somebody told me, but I kind of like Thoreau. Yeah, he's like he's living by himself and contemplating nature and the nature of humanity. This is the year when he lived on Walden and wrote the famous book Walden Pond. And in fact, amazingly, delightfully, in the book, in Walden, there is this scene where one day a hundred guys show up out of nowhere and start cutting blocks out of the pond.

47:41And they called blocks at the time cakes, by the way. He's going to call them cakes. Cakes of ice. Okay. This is from Henry David. And these, cakes of ice, being sledded to the shore, were rapidly hauled off to an ice platform and raised by grappling irons and block and tackle, worked by horses onto a stack as surely as so many barrels of flour. And they're placed evenly side by side and row upon row as if they form the solid base of an obelisk designed to pierce the clouds. They told me that in a good day they could get out a thousand tons. They stacked up the cakes thus in the open air in a pile 35 feet high on one side and six or seven rods square, putting hay between the outside layers to exclude the air.

48:24At first it looked like a vast blue fort or Valhalla, but when they began to tuck the coarse meadow hay into the crevices, and this became covered with rime and icicles, it looked like a venerable moss-grown and hoary ruin built of azure-tinted marble, the abode of winter. so that's a guy who did go to harvard just saying i'm just saying he did not drop out of harvard to become an entrepreneur did he drop out he might have dropped out to become a writer i don't actually know i think i think henry david graduated from harvard well done i don't know if tudor ever uh read the book i don't know about the timing i don't know if he encountered it i don't know what he would have thought of it um but he seems to be doing fine he's a rich old man mostly living with his family on that little island off boston he does actually make some kind of little amusement park there and sell ice cream.

49:13Again, still eating ice cream to the end. And he dies in 1864. And by this time, ice, just naturally frozen ice, is this major American industry. Because like any technological innovation, it makes other innovations possible. Yeah, yeah. I mean, you know, I knew a little bit the story of like Swift and Armor and the sort of growth of the meatpacking business when they figured out that you could transport meat if you put it on refrigerated rail cars. Yeah. But I assumed that was, you know, whatever, artificial refrigeration. No, it was ice. It was pond ice. It was the ice industry. And in fact, along the railroad tracks, the big meatpacking companies would have these ice houses where they would store the ice so they could replenish the ice in their refrigerated ice cars.

50:03Similarly, you have the beer business taking off in the later part of the 1800s with this wave of German immigration to the Midwest. And so Milwaukee, German immigrants are making, I guess it's a lager, right? German style beer and German style beer needs to be refrigerated. So, again, ice industry. You get a residential ice industry in cities like New York and Philadelphia. People get little ice boxes in their house and they get daily ice deliveries. And in fact, they come to rely on it to keep food fresh. And so now in the winter, everybody in New York and Philly is paying attention to like, how thick is the ice in Boston?

50:40How thick is the ice in Maine? Are we going to have an ice famine come summer? They need it now. The only place ice didn't go was the cafes of Paris, where they still look down on you if you ask for ice in your water. It is water. You want ice? Ice, I don't know. It is de l 'eau. People are developing artificial refrigeration, you know, around this time. They're working on it. They're actually figuring it out. But there is this interesting business idea really here. And I've encountered it interviewing people who are doing like energy transition stuff, you know, coming up with kind of clean energy alternatives to existing things.

51:16And that is a lot of the time they've figured out the new technology. They can do the thing, but it's more expensive because the thing they're going up against is this optimized, hyper-efficient giant industry. And that is what natural ice is by the end of the 1800s. It's big and it's efficient and it's cheap. And so, in fact, you don't really see artificial refrigeration displace natural ice until, like, into the 1900s. Because you're like, I invented this machine that makes things cold. And they're like, yeah, that's called ice. It's free. It's literally free. And so, yeah, it has to be cheaper and better before it gets widely adopted.

51:54To finish the show, I want to go back to that idea of opportunity cost, to Tudor's real insight of stringing together these essentially unused things, you know, ice on a pond in February and idle farm workers and empty space and ships and building an industry around it. And, you know, I want to think about what is that today? If you go back, what, I guess 10, 15 years at this point, it was actually the original inspiration for, I know, for Lyft and for Airbnb, right? Originally, Lyft was like, well, you're going there anyways. You're just a normal person. Give somebody a ride. Airbnb was, you know, it's your house.

52:30You got a spare bedroom. Rent it out now and then. Latent capital. So here's a question. What is that now? What is the thing that is just sitting there waiting to be turned into a business? If you're listening, go out and start the business. Or if you don't want to do that, tell us. Write to us. We're at businesshistorypushkin.fm. If you want to listen to the show ad-free, you can do so by subscribing to Pushkin+. You can go to pushkin.fm slash plus to do that. Our showrunner and editor is Ryan Dilley. Our video editor, yes, we're on YouTube, is Matt Nielsen. Our producer is Gabriel Hunter-Chang.

53:11Our engineer is Sarah Bruggear. I'm Jacob Goldstein. And I'm Robert Smith. Thanks for listening.

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