To solve this question, the user needs to understand the meaning and usage of the phrasal verb "make out" and how it relates to the context of the sentence.

Explain each option why its right or wrong

A. look out: This option is incorrect. "Look out" means to be vigilant or watchful for danger or something of interest. It does not fit the context of the sentence, which is about perceiving or discerning something in the distance.

B. make out: This option is correct. "Make out" means to perceive or discern something, especially when it is difficult to see or hear clearly. It fits the context of the sentence, which describes the difficulty of seeing the ship in the distance.

C. make up: This option is incorrect. "Make up" means to invent or create something, typically a story or excuse. It does not fit the context of the sentence, which is about perceiving or discerning something visually.

D. see out: This option is incorrect. "See out" means to accompany someone to the door or another exit as a sign of politeness or farewell. It does not fit the context of the sentence, which is about perceiving or discerning something visually.

The correct answer is: B. make out