(FORTUNE Magazine) – Approach the Carsten Maersk from dockside in the Long Beach, Calif., harbor and it's hard to grasp that you are walking up to an oceangoing container ship, not a high blue metal wall. If you're anywhere close, bow and stern are outside your peripheral vision. The Danish-flagged Maersk Sealand vessel is 1,138 feet from end to end and 140 feet wide at midship. That's longer and only a bit narrower than three football fields laid out end zone to end zone, and longer than all but the ultra-large supertankers.

Go up to the bridge and you look out over rows of boxes that are 17 containers wide and piled 14 deep over the keel--nine below deck, five above the hatch covers. Set the ship's load of containers end to end and they would stretch 27 miles. Go below and you'll eventually reach the Samsung-built engine, whose 12 cylinders are each so cavernous that two men climb inside to inspect them. Directly connected to a single 30-foot propeller, the diesel can thrust the immense, 115,000-dead-weight-ton ship through the oceans at 25 knots. Cut the power and she'll coast for five miles.

The two sister ships seen on these pages are among a few dozen container ships of unprecedented size now carrying merchandise across the Pacific to and from the U.S. and from Asia to Northern Europe and back through the Suez Canal. Dubbed postPanamax because they're too big for the Panama Canal, the giants don't call on the U.S. East Coast because no port is ready yet to receive them. And nobody's ready for the added highway congestion that will come when all those boxes are trucked out of harbors.

In a time of overcapacity that sent shipping rates plummeting even before the Sept. 11 terrorist attacks in the U.S., it could well be asked whether ever-larger vessels, along with huge expenditures by ports like Long Beach that are vying to accommodate them, make sense. Shipping lines, which have thin margins like other transportation companies moving goods along the supply chain, contend that the economies of scale are compelling, and that bigger is better.

Other than the airlines, no carriers of freight have been more affected by the antiterrorist war than the shipping lines. One of the big Maersk ships--always painted blue--arrives every Friday at Long Beach, 11 days out of Hong Kong. In early September, you could have driven out to Pier J, the Maersk Pacific terminal, to watch one show up around 5 P.M. No more. To get on the terminal, you'll now need good identification and a better explanation. Moreover, the Maersk ship might well arrive after sundown, held offshore for hours by stringent Coast Guard inspections of cargo and careful checking of the crew. To offset a possible loss of time entering the harbor, the Maersk vessels now cross the Pacific a bit more quickly than in the past, which is an added expense. The huge vessels burn five tons of fuel an hour at 19 knots, double that at 25 knots.

A year or so ago, the extra expense would likely have been passed on to shippers by Maersk and its competitors. That's not likely now. Traffic's not down as much as capacity is up. At least through August, the U.S. economic malaise had yet to have a serious impact on the number of containers moving through most American ports. On the West Coast, Long Beach and Los Angeles share the San Pedro Harbor and, combined, constitute the third-largest container port in the world after Hong Kong and Singapore. The port's Christmas season seemed to be in trouble in July, when incoming container traffic fell below the prior year's. But the following month, imports recovered to nearly 120% of the August 2000 level.

What will happen when orders begin to reflect buyer confidence after Sept. 11 is a guess, and the guess is not optimistic. If volumes drop, what has already been tough price competition could get worse. Andrew Scott, an executive with NACA Logistics, an ocean-freight consolidator in Long Beach, says the price for moving a 40-foot container from Hong Kong to Long Beach, now around $1,700 to $1,800, would have been about 50% higher a few years ago.

Even in the good years of the late '90s there were more container vessels than there was freight to carry. That didn't stop the big lines from launching bigger ships to transport more boxes per trip. Until a few years ago, the largest container ships, designed to just barely squeeze through the Panama Canal and thus labeled Panamax, carried a container load of about 4,400 TEUs. A TEU, or twenty-foot equivalent unit, is the standard measure of container ship operations, even though most boxes in international commerce exceed 20 feet in length. They're now 40 or 45 feet long and count as two TEUs.

Maersk says its biggest postPanamax giants, its "S" class, have a capacity of 6,600 TEUs, including slots for 700 refrigerated units. But the company is known for understating the capacity of its ships and its container fleet. American Shipper, a leading trade magazine, rates the Carsten Maersk and its sisters at 7,100 TEUs.

Several major container lines, including Taiwan's Evergreen, Korea's Hyundai, Japan's "K" Line, and the British-Dutch P&O Nedlloyd lines, now operate postPanamax liners and have more on order. However, Maersk built the first one and, with 21 of the big vessels, dominates the postPanamax group as, indeed, it dominates the world's container-ship business. Now known properly as Maersk Sealand, the company locked in its No. 1 position in 1999, when it acquired Sealand's international operations and container ships from CSX Inc., the U.S. railroader, for $800 million. Today Maersk has 108 owned or leased container vessels and admits to a total oceangoing carrying capacity of over 600,000 TEUs. That's about twice the capacity of either of the two next-largest competitors, P&O Nedlloyd and Evergreen.

Maersk Sealand is part of Denmark's expansive A.P. Moller group, formed in the early 1900s by Arnold Peter Moller. Today the group is a diverse collection of partnerships, two companies listed on the Copenhagen exchange, and a clutch of other corporate entities. It has extensive oil and gas interests in the Middle East and the North Sea, owns several manufacturing companies, has an interest in a supermarket chain, operates an intra-European airline, and builds its own containers in Denmark and China. Besides container ships, Moller operates a fleet of 188 tankers, bulk cargo carriers, drilling barges, and other vessels. There's a 22-vessel U.S. flag fleet, but most ships sail under Denmark's flag with Danish crews.

The Moller group also has shipyards in Estonia, Egypt, Lithuania, and Germany, as well as Denmark, where its Odense Steel yard builds all its postPanamax vessels. Maersk was able to surprise competitors in 1996 when Odense launched the first postPanamax, Regina Maersk, with a rated capacity of 6,000 TEUs. In 1997, after building five more of that size, the yard created the stretched "S" class with two more 40-foot bays.

Although the big container ships probably cost upward of $100 million, their economic advantage is simple: Fuel consumption and other operating costs don't rise as fast as capacity. With computers and 8,000 electronic sensors of one type or another, the Carsten Maersk operates with a crew of about the same size as those of smaller ships. "S" class vessels can be safely manned by 13 people--fewer than were on A.P. Moller's first ship, a 2,200-tonner that hauled coal on the Baltic.

A Maersk competitor estimates that a postPanamax ship cuts the cost of moving a container across the Pacific by nearly one-fifth. But that's only if the ship is nearly full of cargo. Competition for loads is tough. As Robert Tasiaux, an A.T. Kearney vice president based in London, explains, "Putting bigger and bigger ships on routes, you get your unit costs down, but you are creating excess capacity because the smaller ships are not being retired."

Just how well container-shipping lines have been doing financially is hard to tell since all are foreign owned, with financial reports that are hardly transparent. Even American President Lines is part of Neptune Orient, in which the Singapore government has a stake. Maersk's returns appear exceptional. Last year the Moller group's shipping activities generated $6.3 billion in revenues and $495 million in after-tax profits. But generally, says Tasiaux, "container shipping is a chronically unprofitable industry. You don't see decent returns on capital for sustained periods of time."

To make sure the big vessels sail full, Maersk and others are adopting a hub strategy: a few big ports served by smaller vessels from other ports. Hubs aren't new in ocean trade. Most of the cargo through Singapore is transshipped. Some other ports are natural hubs because, like Hong Kong, they have a lot of outbound cargo or, like Long Beach, they're a major entry point to a big market.

All the postPanamax ships are "liners" that operate on a rigid schedule. Maersk vessels like the "S" class Carsten are on a 98-day, so-called pendulum route that connects 21 ports on the U.S. West Coast, Asia, and Europe. After they leave Long Beach they stop in Tacoma, Wash. Then it's on to Japan, down through Southeast Asia, across the Indian Ocean to Oman, up the Suez Canal, west over the Mediterranean, around Gibraltar, north through the English Channel, and, finally, to Goteborg, Sweden. Here the pendulum swings back. The ship heads south and east, reversing its path.

To qualify as a stop along the pendulum route, it helps to have deep water. The big ships draw nearly 48 feet fully loaded and need a few more feet below the keel for comfort. Many ports don't have that depth in the channel or at dockside. Accordingly, ports eager to handle postPanamax vessels are spending billions. Even deep-water ports or those that can dredge out deeper channels need to invest in larger cranes and longer docks. All ports in the running have to add more room to sort, store, and stack the many boxes that will come off or go onto a single ship. Finally there's the need for good connections to highways, railroads, and, at least in Europe, inland waterways.

Three years ago, the Regina Maersk sallied up and down the U.S. East Coast to give port authorities a look at the future and to let them know it would have to include a big new Maersk terminal. Ports from Savannah to Halifax, Nova Scotia, salivated, but in mid-2000, New York's port authority, which has container terminals in Brooklyn, Staten Island, and New Jersey, got the deal. It didn't hurt that there's a huge market within a day's truck drive of New York City, or that the authority is already the landlord of a Maersk terminal in Port Elizabeth, N.J., not far from the company's U.S. headquarters in Madison, N.J. As part of a $2.3 billion harbor upgrade, New York is now dredging to get its channel down to 45 feet by 2003 so that postPanamax vessels arriving from Asia via the Suez Canal will be able to call by timing the tides or coming in partly loaded. The channel will be down a full 50 feet by 2009.

The New York-New Jersey facilities already handle some three million containers a year, which would not surprise local motorists. Port officials forecast that the number of boxes moving through the area could triple in the next 15 years. The port will greatly expand its intermodal facilities, and is thinking about barging containers up the Hudson River to the Albany, N.Y., area. Even so, a few years from now you might want to reconsider any trips around Newark on I-95 and I-78.

In the west, Los Angeles is building Maersk a completely new facility, Pier 400, at a cost that could top $800 million. The terminal is rising in the middle of the harbor on dredged material and ten million tons of rock that will form a 685-acre island connected to the rest of California by rail lines and highway. The first 1,400 feet of concrete wharf will be finished by year-end. When the initial phase opens next year, Maersk, which has an exclusive 25-year lease, will have room to dock three postPanamax ships in what port officials brag will be the largest container terminal in the world.

At the other end of San Pedro harbor, Long Beach is spending $576 million on a container facility big enough for the new superships on a former Navy base and shipyard. Its first phase, which covers 290 acres, will open next July as an exclusive terminal for Korea's Hanjin Lines, which has its own 25-year lease and minimum annual payments of $40 million.

Both Maersk and Hanjin have incentive clauses that reward them for pushing more containers into and out of the terminal. Drivers on nearby freeways have no reason to consider that a good idea. Container traffic through the San Pedro harbor doubled in the '90s, and local rush-hour traffic is already jammed with trucks hauling the boxes.

Not all Los Angeles-Long Beach container traffic feeds directly onto nearby freeways. Both ports have branch rail lines that join just outside the harbor areas and continue north to rail yards on the east side of Los Angeles, where Union Pacific and Burlington Northern Santa Fe make up transcontinental trains. For years, rail traffic to and from the San Pedro ports has been the bane of the nearby, mostly blue-collar, industry-heavy communities of southern Los Angeles County. From Carson north to Vernon, there are more than 200 grade-level crossings, with a constant snarling of traffic as trains cautiously creep through as slowly as four or five miles an hour.

Early next year, a $2.4 billion project financed by a combination of federal, state, and local government entities will relieve some of the congestion. Named the Alameda Corridor after the street it follows, it's a 20-mile railroad expressway from ports to rail yards. Running on the surface on each end where streets and other rail lines go under or over it, the corridor dips down 33 feet at midpoint into a ten-mile-long trench. That will help. But it's not going to turn the I-710, the Long Beach Freeway, into a pleasant parkway.

Richard Steinke, the executive director of the Port of Long Beach, points out that 50% of the container traffic coming into the combined ports get trucked out to customers in surrounding areas and that two out of five of the remaining boxes are not loaded on trains at the docks but are drayed up to the rail yards. "Our forecasts," Steinke says, "are showing that in the next 20 years port traffic is going to double or triple. Congestion on the 710 is only going to get exacerbated if we don't take some real positive steps." One of his ideas is for the terminals to stay open all night so trucks can come and go, moving on the freeways when fewer cars are around.

In Europe, a $600 million expansion is under way at Le Havre, already France's largest container port. Several years of bureaucratic fussing and environmental-impact debates have delayed the start of the Port 2000 project until this year and the completion until 2004. Le Havre has natural advantages that France could have been quicker to exploit: deep water, a long period of high tide, and good connections by rail, highway, and the Seine back into the continent. Among the improvements at the port will be a long finger pier for postPanamax ships.

While ports try to get ready for the superships, Maersk and its competitors are about to raise the bar. The Danish company says it has four "S" class ships being built at Odense for delivery next year. But the industry expects that they'll be a new class with a capacity of something like 9,000 TEUs, almost a third more than the Carsten Maersk. One clue: New cranes on order by Maersk for Pier 400 in Los Angeles will be able to reach across a ship 22 containers wide, five more than the "S" class.

Even while the new Maersk class is still on the Odense ways, new words likely to disturb port authorities are floating about the shipping business: Suezmax and Malaccamax. A container ship that would just squeeze through the Suez Canal would be about 1,300 feet long, with a container capacity of some 12,000 TEUs. The maximum-sized vessel that could be safely sailed through the Malacca Straits, where traffic moves past Singapore and Indonesia going to and from Europe, would probably be able to carry 18,000 TEUs. Put all those boxes end to end and they'd line up for 68 miles.

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