capitalism — VOICES for REASONVOICES for REASON

This is a post about a contract. The parties are two companies: Maersk, the world’s largest container-shipping line, and Daewoo, a South Korean shipbuilder. According to an article in the Wall Street Journal, excerpted below, Maersk has ordered ten new container ships from Daewoo—ships that will be the biggest ever built.

As you read, think about how important this contract is to all the people involved: stockholders, managers, employees, suppliers, and related companies. Then imagine the contract’s complexity—the number of different clauses required to spell out all parties’ obligations, expectations, remedies upon failure to perform, and so forth—and the depth of legal expertise needed to draft and negotiate it. Then contemplate how many thousands or millions of new shipping contracts will be made possible by the construction of these ten ships—as the article says, “to transport cargo ranging from iPhones to powdered milk between Asia and the ports of Rotterdam, the Netherlands, Felixstowe, England and Bremerhaven, Germany.”

Now think about how the world’s economy functions through millions of such contracts—most not nearly as large as this $1.9 billion deal, but all of them important to the parties. Finally, think about what a remarkable political achievement it is for companies to have the freedom of contract necessary to conceive and carry out a transaction on this scale.

It’s staggering to think about how much of modern life depends on contracts like this one.

The order “changes the whole landscape in the container-ship market,” said Nam Sang-tae, chief executive of Daewoo Shipbuilding & Marine Engineering Co., the South Korean company that agreed to deliver the 10 ships by 2014.

The deal, which the two companies said was the biggest in shipbuilding history, includes options for 20 more of the $190 million vessels.

The new ships will be 1,312 feet long, 193.5 feet wide and 239.5 feet high, longer than a modern aircraft carrier and bulkier than an oil tanker. They will be able to carry 18,000 20-foot containers, 2,500 [more] than the largest class of container ships now in service, which are also in Maersk’s fleet.

Maersk will use the ships to transport cargo ranging from iPhones to powdered milk between Asia and the ports of Rotterdam, the Netherlands, Felixstowe, England and Bremerhaven, Germany, among the few Western ports big and deep enough to accommodate them. U.S. ports are too small to handle such large ships. . . .

The economies of scale afforded by the current generation of large container ships already has led shippers to start moving new categories of goods—commodities like wheat and corn, and bulky objects like trucks—inside containers, instead of aboard other kinds of ships

Maersk’s new order, which was signed in London, could reshape competition in the highly fragmented industry. . . .

Industry experts said the new ships are approaching maximum size. Already, if all the containers on the new Triple-E ships were laid end to end, they would stretch for 68.8 miles. In theory, bigger ships could be built, but there would have to be ports big and deep enough to handle them.

Image: WikiMedia Commons