Risk Ahoy: Maersk, Daewoo Build the World’s Biggest Boat

By   September 05, 2013


Behind this week’s coverPhotograph by John Francis Peters for Bloomberg BusinessweekBehind this week’s cover

Every weekday morning in Okpo, a former fishing village near the heel of the Korean Peninsula, the streets fill with men and women—on bicycles, motorcycles, scooters, and on foot—in the matching gray jackets of Daewoo Shipbuilding & Marine Engineering. The commuters stream down the hill from the residential neighborhoods toward the harbor. They pass the small marina strewn with bits of netting and plastic patio furniture, where a few trawlers are tied up, and the pier where a replica of a famed 15th century armored Korean warship floats. Just beyond the harbor, some workers split off into a complex of DSME office towers. The rest continue on to the gates of the shipyard. There, after forming up with their teams for calisthenics, they get to work.

Geoje Island, where Okpo is situated, is the global capital of shipbuilding. On the other side of the island is the Samsung Heavy Industries yard. Up the coast is Ulsan, home of Hyundai Heavy Industries, the world’s largest shipmaker. DSME, formerly part of the Daewoo conglomerate, is No. 2. These facilities produce supertankers that carry millions of barrels of crude, and natural gas carriers with insulated tanks that hold hundreds of thousands of cubic meters of liquefied methane. They make $600 million drill ships, whose rotating azimuth thrusters can keep them hovering in place, hummingbird-like, in rough seas while boring exploratory wells in the ocean floor 6 miles below. To transport autos, the yards produce roll-on/roll-off ships; to transport ore, grain, or coal, they produce bulk carriers with 400,000-metric-ton capacities. For just about everything else, they make container ships.

The biggest of all the behemoths—the biggest ships in the world—are being built at the DSME yard for the Danish shipping line A.P. Møller-Maersk(MAERSKB:DC). They’re container vessels that will ply the route between Northern Europe and China. The new class of ship is called the Triple-E, and Maersk has ordered 20, at a cost of $185 million each. They’re 1,312 feet long, 194 feet wide, and weigh 55,000 tons empty. Stand one on its stern next to the Empire State Building, and its bow would loom over the heads of those on the observation deck; a single link from its anchor chain weighs 500 pounds. In early May the first Triple-E, the M/V Maersk Mc-Kinney Møller, named after the shipper’s former chief executive officer (and the son of its founder), was moored at one of DSME’s quays, nearing completion.

A cargo vessel of this size was unimaginable a half century ago, when the first container ship sailed from Newark, N.J., to Houston carrying 58 containers. Twelve years later the biggest container ship carried 1,200, and by 1996 the Regina Maersk class had a capacity of more than 6,000 20-foot equivalent units, or TEU. The size of the vessels and the economies of scale they bring have made transportation a vanishingly small part of the prices consumers pay and made possible a world in which Americans eat bananas grown in Ecuador while wearing designer knitwear from China.

A single link of the anchor chain weighs 500 poundsPhotograph by John Francis PetersA single link of the anchor chain weighs 500 pounds

The Triple-E’s capacity is 18,000 TEU. (Most containers today are 40 feet long, so the number carried will be closer to 9,000.) Laid end to end, a single Triple-E’s shipping containers would stretch for 68 miles. “In the late 1990s we were like, ‘Oh my God, a 6,000-TEU ship,’ ” says Peter Shaerf, a managing director at AMA Capital Partners, an investment bank specializing in the maritime industry. “Then you go to 13,000 and now 18,000. I don’t know where it stops.” Practically speaking, a Triple-E, in one trip, could take more than 182 million iPads or 111 million pairs of shoes from Shanghai to Rotterdam. Such a trip would take 25 days and burn 530,000 gallons of fuel. That comes to 0.003 gallons per iPad.

Maersk is the world’s biggest shipper, and its size affords it some protection from the vicissitudes of the shipping industry—it has interests in everything from oil-drilling platforms to supermarkets and banks. Nonetheless, the Triple-E is a giant financial risk. “For Maersk and every other ship line, these are big, big decisions, because if you get it wrong, you can end up dead,” says Marc Levinson, an economist and author of The Box, a history of the container-ship industry. “When a company like Maersk orders these vessels, it’s betting the company.”

Freighters used to carry loose cargo in sacks and crates of various sizes, crammed into holds and piled on deck by stevedores. That began to change in 1956, when a Texas trucking magnate named Malcom McLean refitted an oil tanker with steel frames on its decks to stack shipping containers. Standardized containers—modular units of a uniform size that would be filled at the factory, loaded onto truck trailers or trains, then stacked by cranes on the ship—made shipping orders of magnitude more efficient. At the time, according to Levinson’s book, the cost of loading cargo onto a break-bulk freighter was $5.83 per ton; for McLean’s jerry-rigged container ship, the cost was 15.8¢. It was only a matter of time before container ships took over.

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One Response to Risk Ahoy: Maersk, Daewoo Build the World’s Biggest Boat

  1. The Economies of Scale that this vessel will achieve are unprecedented, however what must also be taken into account are the other underlying costs or benefits to the ecosystem if any. What are the overall opportunity costs. Judgement must be reserved until the outcome is evident.

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