The Invisible Billionaire, Daniel Ludwig

“All of this, and luck, adds up to a man who is going to be successful and innovative. It does not, however, give us the person who for years held the title “richest man on earth.” For that, we need one more ingredient, which we can call “the corporate exponent.” What this means is that Ludwig, along with a number of other nineteenth- and twentieth-century entrepreneurs, has been able to multiply his individual abilities exponentially by adroit use of the corporation as a legal, political, and financial device. In jurisprudence, a corporation is considered a person. It is not. It is a machine, and, like other machines, it is constructed to do a job. The job of a corporate machine is to make money, and its success is measured in terms of how efficiently it does so. Being a machine, a corporation has no value system, no conscience. It neither knows nor cares whether — or what — it creates or destroys. Decisions about how it is to be used are left to its human owners.”

“One thing the Rockefellers had already learned (and that Ludwig would learn later) is that simply making money is not enough. It is necessary to hang on to it — and keep recycling it — if one is to remain rich. In fact, it is not even essential to own a lot of money to have economic power. What’s important is to control wealth — to determine where it goes and how it’s used.”

“During the war years, as one of America’s key defense contractors, he had built up considerable influence at the Pentagon. Now it was time to turn some of this to advantage. He approached the Navy with a proposal. Let me build you five new supertankers at Norfolk, he told naval procurement officials, larger, at 30,000 tons, than anything afloat, and the Navy can charter them at a rate several percentage points below what it is paying the Voluntary Tanker Pool (which had been set up collectively by private shippers at war’s end to meet the continuing fuel needs of the military). In return, the Navy will supply much of the steel and mechanical equipment to build the ships and contribute to the cost of construction. On paper it looked balanced enough to pass the scrutiny of most budget-conscious administrators. Over the length of the charters the Navy stood to recoup through lower rates what it laid out initially in construction expenditures. But there was a catch — a factor not apparent in the cost-accounting sheets or the contracts Ludwig would sign with the Navy. It did not exist, in fact, except as an understanding between D.K. and a few top-echelon naval officers that when the new supertankers were completed and ready for ser-”

“The idea was to use other people’s credit. First he would go to an oil company and persuade it to grant him a long-term charter to haul its petroleum. This done, he would go to a bank, where, using the charter as collateral, he’d take out a loan to obtain a ship to haul the petroleum. Instead of paying D.K., each oil company would make the charter payments directly to the bank, which would deduct the loan payment and put whatever was left into Ludwig’s account.”

“But his shipyard at Norfolk was becoming too cramped for the large ships Ludwig planned to build. In 1951 he was able to make a deal with the occupation government in Japan to lease the former Imperial Navy Shipyard at Kure, where many of the largest war vessels had been built, and move most of his shipbuilding operation there. There were plenty of workers eager for jobs at any wage. While he built tankers, he was also experimenting with other kinds of vessels, mainly self-unloading vessels for hauling dry cargo — iron ore, coal, and other minerals — or versatile bulk carriers able to haul either ore or petroleum. To help provide cargo for his ships, he diversified into other activities — mining, ranching, timber grow¬ ing, oil refining, salt production — and became a major supplier of many commodities to Japan, producing as well as hauling raw materials from South America, Australia, and other areas where he had established projects.”

“Ludwig had not taken over a public corporation before, preferring to create private companies entirely owned and controlled by himself and unregulated by the government. But, by investing a few million dollars to buy control of AHSS, he could recoup his outlay almost immediately by selling off the company’s ships, acquiring the port¬ folio of stocks, and pressing the government for settlement of the war claims.”

“factor. Most of National Bulk’s liabilities were owed to Welding Shipyard. Thus, the figures on the debit side of National Bulk’s ledger were really assets for Daniel Ludwig, who paid himself to build the tankers he operated. And since American Petroleum Transport brought in a good steady income by operating a fleet of government-owned tankers, he got additional revenue from U.S. taxpayers. Exactly how much money he made from Welding Ship¬ yard will probably never be known; with no government inspectors at Sewalls Point to oversee construction, D.K. may have indulged in one of his chief moneymaking talents — scrounging up cheap”

“Float capital is money you can use temporarily before you have to pay it out. A marketer would sell trading stamps directly to a merchant for a price. The merchant would then hand out the stamps over a period of time to his customers, who would paste them in books. Eventually many of the stamps would get turned in — redeemed — at a local stamp store for merchandise. But the average span between the time a merchant bought the stamps and the time they were redeemed at a stamp store was about eighteen months. The stamp marketer, in other words, had roughly a year and a half to play with the money before he gave anything back for it. A sharp investor with millions of dollars in available cash can turn a lot of profit over eighteen months.”

“Over the years, Ludwig earned the reputation of being the Scrooge of the shipping industry. One of his employees, a story goes, on being asked to suggest a design for a fleet flag symbolizing the Ludwig enterprises, submitted a drawing of two hands stretching a rubber dollar bill. Some years later, the captain of a Ludwig ship made the extrava¬ gant mistake of mailing in a report of several pages held together by a paper clip. He received a sharp rebuke for his prodigality: “We do not pay to send ironmongery by air mail!””

“Ludwig would never have the bonhomie of Onassis or the polish of Niarchos. He lacked the ability to be witty or make clever small talk. He wasn’t a member of the horsey set, and he had no taste for art. But he was going to have to compete with the Greeks on their turf. He would have to attend white-tie parties, and he would need a yacht as opulent as the Greeks’ on which to entertain Arab sheiks and European oil barons. Maybe he couldn’t make them chuckle the way Onassis and Niarchos could, but at least he wouldn’t look like some hick tankerman from western Michigan. And as long as he got the chance to talk with them face to face, he felt, he could convince them it was worth their while to charter his tankers instead of his rivals’. Over the next decade, D.K. would use the Danginn frequently in this way, cruising the Mediterranean or the Atlantic with a boatload of wealthy guests, usually ones from whom he needed a business favor. For him, the yacht was as much a business craft as any of his tankers, and probably earned him more money than any of them. For example, he hosted Saudi Arabia’s King Ibn Saud in the Persian Gulf as a way of procuring a charter to haul Saudi oil.”

“frontiers where most men dare not venture, and it is often the case that the farther the frontier, the greater the opportunity. The major¬ ity of men, even businessmen, are tied to cities, where the ingredients of development already exist — labor, energy supplies, building materials, transportation, and so on. Competition also exists there, and the way to escape it is either to do something no one else is doing or do it where no one else is doing it.”

“With Ludwig, work is almost an obsession. A non-smoker, only a moderate drinker, Spartan in personal habits, business gets almost 100% of his attention. If he’s retiring in outside life, in company operations he is stage front most of the time, a one-man director who relies on assistants and in-betweens to clean up the details. On a project, his greatest gift is seeing the big picture. Once a project begins, Ludwig doesn’t rest easy until completion date. There’s no lack of projects — an associate speaks of his unlimited ingenuity in dreaming up new ways of doing things. He willingly gambles on an idea that looks good — but his formula is to add a large dose of hard work to the gamble.”

“The beauty of the scheme was that it allowed D.K. to build or renovate tankers without having to put up collateral or use his own credit. The oil companies were satisfied, because they were getting their petroleum hauled at bargain rates. The banks were satisfied, because oil companies were a much better credit risk than a small shipper like Ludwig. And D.K. was more than satisfied. As long as he took care to fulfill his charter contracts, he had a small but steady income, and, more important, by the time the contract expired he was the owner of a paid-up ship without having invested any of his own money. This mutually beneficial financing arrangement, Ludwig confided to Saunders, was the foundation of his shipping empire. Once he got things rolling in the late 1930s, it was simply a matter of hard work and efficiency — plus a genius for innovative ship design — to be¬ come one of the world’s largest ship owners. In his rise to the top, D.K. had been responsible for several major changes in shipbuilding. Some were design and structural modifications to eliminate nones¬ sentials while increasing a ship’s cargo-carrying capacity. His main contribution, though, was the supertanker.”

“It was at this time that D.K. came up with the “two-name paper” arrangement he later told Dero Saunders was the chief reason for his wealth. It all sounded so simple: go to an oil company; get it to sign a long-term charter to ship so much oil on a regular basis; take the charter to a bank and, using it as collateral, obtain a loan to build or renovate a ship to haul the oil to fulfill the charter. This may sound like “the house that Jack built,” but it was advan¬ tageous to all parties involved. And Ludwig would have a steady income as long as he fulfilled his charter obligations. He would also be free of most of the bookkeeping. The oil company, instead of paying him directly, would send the charter fees to the bank, which would take out the loan payment due and deposit the rest in Lud¬ wig’s account. The plan was legal, logical, and ingenious. But there was much more to the two-name paper than D.K. explained to Saunders. One fact he did not mention in the Fortune interview was that in 1936 he was able to start his climb toward being the world’s biggest shipper mainly because he had finally managed to hook into the big time. He was now hauling oil for the Rockefeller empire.”

“The second of his government-owned ships was one D.K. did plan to use. The Hampton Roads, last and largest of the tankers the WSA had contracted with Ludwig to build at Sewalls Point, was sitting in the yard’s only building way when the war ended, a few months from being completed. Legally, she was still the property of Welding Shipyard, but Ludwig, utilizing a provision of his contract dealing with unfinished vessels, was able to sell her to the government in September 1946 for $3 million and buy her back a few months later under the Ship Sales Act for $1.3 million, turning a quick $1.7 million profit at the expense of U.S. taxpayers.”

“vice, the Navy would quietly decline to exercise its option to charter them. Having formally made the offer, and having been formally turned down, Ludwig could then put on a glum face and transfer the new vessels to Panama. The maneuver was so clever, and executed so smoothly, that no¬ body — not Maritime, not congressional investigators, not seafarers’ union officials bemoaning the loss of American jobs — ever seems to have twigged on to what was happening. As each ship was finished — Bulkpetrol in 1948, Bulkoceanic, Bulkoil, and Bulkstar in 1949, and Bulktrader in 1950 — D.K. would tender its services for charter to the Navy. Each time, the answer would be a polite “No, thank you.” If anyone asked why the Navy, after furnishing all that money and material to build the ships, now decided it did not want them, all Pentagon officials had to do was say that they had changed their minds or found there was no present need for the tankers. But no one asked, and D.K. was able to go against clearly stated U.S. rules and policies, and transfer 150,000 tons of new tanker tonnage to a flag of convenience without causing anyone to raise an eyebrow.”

“As one GAO investigator remarked in the course of a hearing on Maritime Commission corruption, “At no time in the history of American business have so few men made so much money with so little risk — and all at the expense of the taxpayers, not only of this generation, but of generations to come.’’”

“Opportunities exist on the”

“Much of Ludwig’s success was due to his willingness to venture where more timid entrepreneurs dared not go. If he needed to bring along men and equipment to carry out a project in a remote area, he had the ships to get them there. He could, if there was enough money in it, move the mountain to Mohammed, and he would.”

“A few years ago, some friends sent him a sack of oranges grown in Panama. Ludwig decided they were the most succulent he ever had tasted. Three weeks later two U.S. soil experts arrived in Panama unannounced to make a study of soil conditions. On the basis of their report, Ludwig decided Panama’s climate was ideal for orange grow-”

“ing: there are no hurricanes to spoil the crops, and it takes only 3 Vi years, against the usual seven, for the trees to bear fruit. Citricos de Chiriqui, S.A., a $25 million Ludwig project, was soon under way. In 1960, Ludwig bought 10,000 acres of land at Dolega, in the interior of Panama. The land was cleared, roads and bridges were built into the region, and the planting of 800,000 Valencia orange trees began. When full production is reached in 1967, the plantation probably will be the largest privately owned venture of its kind in the world.”