Magazine

Monsters on the High Seas


In the spring of 2000, 30 managers from Samsung Heavy Industries Ltd. gathered at the company's 3.3-sq.-km shipyard on Geoje Island, off Korea's south coast, to chart their business strategy. They had enough work for that year, but the outlook for 2001 was hazy. After a nine-hour brainstorming session, planners and engineers settled on a big idea: The huge container ships that had been in use for several years were feeling a bit cramped. Why couldn't Samsung offer even huger vessels that would help shippers cut costs? "So we decided to push for them," recalls James Yeon, Samsung's chief marketing planner. "We launched a 'jumbo container' project."

Their hunch was right. At the end of 2000, Hong Kong's Orient Overseas Container Line Ltd. (OOCL) ordered two vessels each capable of carrying 7,700 20-foot (six-meter)-long containers -- replacing ships that held 5,000-6,000 containers. Then, OOCL asked that the design be tweaked to fit 8,063 of the steel boxes. Finally, OOCL upped its order to eight vessels, at $80 million apiece. The first, the Shenzhen, was delivered in April. Since OOCL signed up, four more companies have placed orders for Samsung's megaships.

SWAMPING THE HARBORS. This fall marks the first time these super container craft will hit the seas in force, and the result could change the face of shipping. The vessels are so big -- 340 meters long and 43 meters wide -- that many ports will have to upgrade their facilities to ensure that their harbors are deep enough, docks long enough, and cranes tall enough to handle the monsters. Even so, shipping companies have ordered nearly 100 for delivery from Samsung and other Korean and Japanese shipyards between now and 2007. "There has been a rush of orders for giant container ships this year," says Trevor Crowe, a shipping analyst at London's Clarkson Research Studies Ltd.

That's because the megafreighters cut costs drastically. Shipping goods on a vessel that can carry 8,000 20-foot containers is 25%-30% cheaper than on a ship that carries just 4,000, the norm today, according to Drewry Shipping Consultants Ltd, also based in London. "You've got to have big ships to keep up with the market," says Kwon Suk Hoon, a general manager at Seoul-based Hanjin Shipping Co., which is due to deploy five megaships in 2005.

Until the early 1990s, there was little market for freighters that were too big to fit in the Panama Canal. That changed as U.S.-Asia trade grew. Shippers saw that economies of scale from bigger vessels would make up for the inconvenience of not being able to cross the Isthmus of Panama. That led shipyards to build nearly 200 vessels, each able to hold 5,000-7,000 containers, that were too wide to squeeze into the canal's locks. The new ships take that gigantism one step further.

The shift is changing the way goods get to market, especially in America. Today, 80% of China's U.S.-bound exports in containers are unloaded on the West Coast, then hauled by train or truck to their destination -- a route that can cut a week off shipping time through Panama. "China's role as a global factory is reshaping transportation logistics," says Yune Yong Ho, senior vice-president at Hyundai Heavy Industries Co., the world's largest shipyard, which has orders for two dozen of the new ships. "Containerized shipping traffic from China is simply enormous."

The race to ever-bigger ships has a downside: The party can't last forever in the notoriously cyclical shipping industry. And a slowdown in demand for Chinese goods could be disastrous for the companies that build, own, and operate the giant ships. That means the push for bigger ships could be sowing the seeds of the industry's next downturn. Consultancy Drewry, though, predicts growing exports from China will absorb the new capacity. "Barring a collapse in the world economy, we are optimistic on container-trade growth prospects for the foreseeable future," says Drewry analyst John Fossey. So for now, ship owners seem to be happy to keep on cruising full steam ahead, stacking ever-more cargo into ever-wider hulls. By Moon Ihlwan in Seoul


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