24 January 1983, we received a telex from Showa Leasing asking for a quote on a 560 hammer, as they were wanting to propose leasing this hammer to their client, the China National Offshore Oil Corporation (CNOOC.) Realising immediately that the end user was our customer, we forwarded this to Amtech with an outline of the kind of lease that we would be prepared to enter into. Further discussions with Mike Pearce revealed the end users’ concern that the 560 would not drive the piles they intended to install, but we would not consider the possibility of leasing the larger 5100 hammer.
For us, it looked to be battle stations again. But the situation had changed considerably since 1981.
For us, the market situation was a real concern. The market for oilfield equipment of any kind was in the process of collapsing due to the fall of crude prices, and the platform construction business was simply lagging the general trend, as it was the last stage of oilfield development. The original hammer was manufactured completely after the order, but in early 1983 we had a 560 (our most popular size offshore) in production. The possibility of getting stuck with one in inventory (which we were soon to experience) wasn’t appetising.
Compounding the problem was our aversion to lease hammers offshore. For land applications leasing had become very popular with pile driving equipment during the 1970’s. Offshore, however, the large size of the equipment (expense, transport) and the small size of the market (which made used resale value very unpredictable) made leasing offshore pile hammers very dicey. (Vulcan’s experience later in the decade bore this out.) Vulcan addressed this problem by setting up all leases as lease-purchase agreements with a very high interest rate used to compute the end purchase prices (it would be a declining amount each month, but with a high interest rate the rate of decline was not so steep.) As I mentioned to Angelica, “…leasing equipment from here to China is not generally practical, but if the Chinese want to pursue such an arrangement we will pursue the matter with customary diligence.”
In that spirit, about a month later we sent another long telex, this time to Paul Speltz, with more detailed information about our terms and conditions for a lease. I followed this up with a more detailed letter.
On 1 March, Angelica responded that same end users “have decided to lease the brand new hammer with a great possibility of purchasing after the leasing period of six months. There are two different opinion among the end users on purchasing right away. Mainly they are concerned about their lack of experience of the first 560 hammer. They want to try out the purchased hammer first and make decision on another purchasing later.” She had arranged a meeting with Dong Xinli, Vice Manager of the Energy Co., to discuss the leasing terms.
After the meeting with Mr. Dong, Paul sent me the following telex:
- APPEARS THAT THIS DEAL IS FOR REAL.
- THEY CAN’T ARRANGE VESSEL AND REQUEST YOU MAKE IMMEDIATE ARRANGEMENTS ASAP…
- THEY ARE GOING TO RUN A TEST ON 1ST HAMMER AND THEY WANT THIS SECOND ONE HERE ASAP TO BE ON STANDBY ON BARGE.
- THEY WILL LEASE/THEN PURCHASE OR PURCHASE OUTRIGHT THE UNIT AND WILL HOPEFULLY FINALIZE BY MARCH 5 OUR TIME.
- WE KNOW THEY WANT TO BUY THE UNIT BUT TO IMPORT COMMISSION RED TAPE TIME, WE GUESS THEY WILL JUST IMMEDIATELY GO AHEAD AND LEASE FOR SIX (6) MONTHS THEY BUY IT.
- IF THEY GIVE US A FIRM COMMITMENT ON SATURDAY, WE SINCERELY SUGGEST DON OR PEM GET OVER HERE ASAP TO CLOSE MULTIPLICITY OF QUESTIONS ON LIABILITIES UNDER LEASE PROGRAM (DAMAGE, WARRANTY, ETC.)
- IF THEY BUY IT WE CAN HANDLE NEGOTIATION HERE (POSSIBLY THE LEASE ALSO, BUT LETS SEE HOW CONFUSING IT BECOMES)
- THEY WILL WANT JESSIE HERE AS PROMISED FOR 10 DAYS FREE SERVICE FOR START UP.
With this, the usual round of invitations, visa applications and travel arrangements ensued. I opted to go alone this time. At this point, I will pick up with my trip report and comments:
Monday, 21 March 1983
Arrived in Beijing after two day voyage via Atlanta and San Francisco. Discovered that Pan Am had lost my luggage. After filing a claim with CAAC lost and found office, I was met by Mike Pearce of Amtech and he took me to the Jianguo Hotel where, after forceful dealings with the night manager, I got a room for the night.
It was during the Tokyo layover that I found out how rowdy my fellow Americans could be.
Tuesday, 22 March 1983
Went to Amtech’s office, which is now in the Beizhan Hotel, next to the Exhibition Centre where the SPE/CPS show had been held last year. The move was partially on eviction and partially out of need for more space. Paul Speltz was in the office with Mike but neither was working on our contract. This was being handled as before by Angelica Ferguson who came into the office only that afternoon after being an interpreter for another negotiation in the morning. We reviewed the situation, which was pretty much as the telexes had described it. Amtech had sent our full form American lease agreement, which the Chinese had found long and confusing. A meeting had been set up for the next day in Beijing to begin negotiations. Amtech had insisted on negotiating in Beijing since a)our communications with home base were better and b) living and office facilities were far superior than in Tanggu.
Amtech had been in the Beizhan Hotel since the previous August. Maintaining a proper office in Beijing was still something of a job.
Wednesday, 23 March 1983
Early in the morning, I called Chattanooga with instructions to book the ship for the hammer/cap/leads. We met with Messrs. Lu Xiaozhuan, Li Binlian and Xu Shubai from the CPC Engineering Company, Tanggu and Mr. Yang Zhanwen from the Bank of China, Tianjin in Beijing Hotel room 4036 (Amtech’s old office, now living quarters suite) at 1000. The BOC was involved in the negotiations since they were to lend the money to the Engineering Corp. for the lease/purchase of the hammer. They first said that they had reviewed the lease agreement and found it complicated and more suited to an American legal environment. We told them we agreed and said we simply wished to show a model to give them an idea what our thinking was.
Then Mr. Yang went into a long interrogation session about how our lease rate was arrived at, how our final payment was computed and what kind of depreciation formula we used. We replied that the lease rate was a standard computation, our interest rate was 18% for the final payment, and that the lease rate was high since the depreciation on pile driving equipment was very unpredictable owing to the vagaries of usage and loading. Not surprisingly, both Mr. Yang and Mr. Lu found this too high in price and Angelica translated a long speech about the need for cooperation and the depressed oilfield equipment market and how we should give a good discount the first time, unlike the Japanese who do it incrementally. We then set a return meeting at 1500 when we would submit an alternate proposal.
The interest rate may seem very high, but keep in mind that interest rates were higher then than now, along with the general problems of leasing offshore pile driving equipment.
With our recent competitive experience in mind, we prepared an alternate short proposal. It eliminated the interest and made the freight a discount. When we reconvened in the afternoon, we presented them the proposal. They asked us to leave the room while they looked at it. Upon our return, they asked for some small further discount which we refused.
After this we got into a short technical discussion which Mr. Yang suppressed in the interest of time. They also mentioned to Angelica and I directly something that they had told here before and would come to repeat over and over to the both of us throughout the entire negotiation, namely that it was imperative that the freight not miss the ship and that the equipment get to Tanggu on time.
We also got into a discussion concerning spare parts. Even though we had submitted recommended spare list with hammer quotation last year (and separately earlier in the month) and had responded to their own list from Mr. Dong Xinli, they asked for our recommendation on what to buy. We told them that we would check with our office and prepare a list for their consideration.
Finally, they told us that the negotiations would have to resume in Tanggu. Our response was that my luggage (with technical information) was lost and that we could not come to Tanggu without it. We then set the negotiation resumption for next Monday in Tanggu. Angelica and I returned to the Beizhan Hotel office where I telexed Chattanooga for Jesse Perry’s recommendations for spares. No sign of luggage although Amtech had been bombarding Pan Am’s office with requests.
Thursday, 24 March 1983
No word from Chattanooga on parts, but the ship confirmation was received. Owing to the arrival of a large tour group and the uncertainty of reservations at the Jianguo Hotel, I checked out and went to Amtech’s office. Across the ramp from Amtech was Computervision’s office in Beijing, manned by Mike Ferguson, Angelica’s husband. He had graciously consented to allow me to stay in the bedroom he had in the office since none of their servicemen were going to be there during that week.
It was somewhere in this process where I had one of the strangest experiences I ever had during my time in China.
It’s always a pain to lose your luggage, and the fear is always there that it was misrouted. In this case, however, the luggage simply missed a connection. The problem was that PanAm only went to Beijing three or four times a week, and they would not forward it on another airline to expedite delivery. (I found Delta had the same reticence on a trip to Finland thirteen years later.)
For someone as tall as I am, though, finding substitute clothes in China was nearly impossible. I went to the Friendship Store to attempt this, but with little success. However, while there, a busload of Chinese people came in, men and women, laughing and having a good time. But many of them were taller than any other Chinese I had met. Some of the men exceeded 180 cm in height and some of the women were pushing that. It looked to me that the Party was rewarding these cadres with a trip to the Friendship Store.
I mentioned this to Amtech’s people and they told me that these people were probably from the North of China, where people tended to be taller.
At the Amtech office I tackled the lease agreement, assembling a simplified lease/purchase with mandatory purchase (a concession the Chinese had made after our revised proposal yesterday. The simplified agreement was based on the standard Machimpex contract with additions and emendations necessary for a lease situation. I went over this with Angelica who found it okay from her standpoint and so we typed it up.
Friday, 25 March 1983
The parts telex came in from Chattanooga and the luggage from Pan Am. I went to the airport early in the morning to pick up the latter and returned to the office to attend to the former. After examining the situation, I decided to prepare a supplement to our quotation…so that, when the two were put together, they would represent our complete recommendation to the Chinese for spare parts…
Saturday, 26 March 1983
Received word from Tanggu that they didn’t recognize the ship name we had supplied them(“Xiang Gou”) and wanted us to check it out. I telexed the freight forwarder in Houston to get this checked out.
Sunday, 27 March 1983
No activity. Went to Temple of Heaven.
Monday, 28 March 1983
The list of people for the meetings in Tanggu was as follows:
- Cao Dean, Offshore Branch/Vice General Manager
- Dong Xinli, Engr. Company of Offshore Branch/Vice Manager
- Li Binlian, Engr. Co./Sec. Head of Business Div.
- Yang Zhanwen, Bank of China Tianjin Branch
- Lu Xiaozhuang, Engr. Co./Engr. Of Equipment Import Div.
- Xu Shubai, Engr. Co./Engr. Of Business Div.
- Tan Junfeng, Offshore Branch/Interpreter of Liaison Dept.
- Zhang Jinwei, Engr. Co./Interpreter
Met Angelica Ferguson at Beizhan Hotel at 0800 to go to Beijing railway station for trip to Tanggu. Arrived in Tanggu around noon and had first discussion with Chinese in Tanggu at 1430. They announced first that they had met with their leader, Mr. Cao Dean, and had decided to buy the equipment outright. This was the springboard for further requests for additional discount, which we were loath to give. After long speeches and pointing out that now we would collect the money up front and earn interest, they asked for 2-4% additional discount. I pointed out to them that, since with the freight allowance they already had 13.01% effective discount, that perhaps an equitable way to settle this was to have the same discount as last time, 13.5%. They didn’t like that either. So, keeping in mind the interest collection, I offered them 14% discount w/freight (0.99% additional after freight), which came to approximately US$619,600. Mr. Lu asked whether this could be made an even US$619,000 and I said it could and so we had the order for the hammer.
We then presented them with our spares list which they asked to study. At that point Mr. Cao came with Mr. Dong Xinli and others (Mr. Dong had been in and out earlier), and he gave another speech about good discount, but it was too late by then.
We were also informed that there would be a technical discussion Wednesday morning. We replied that we would need a technically oriented interpreter, and asked for Mr. Tang Junfeng whom we had had two years ago. They agreed and Mr. Tang came in for part of the session. They gave us a banquet that night at the Tanggu/Xingang Seamen’s Club.
Tuesday, 29 March 1983
Went over to CPC Engineering office around 0800 and, after some initial discussion they set us up in an office (of sorts and freezing) to prepare the sale contract. Caroline Chen called from Beijing with the freight forwarder’s confirmation of the ship name. This matched the Chinese information and so that was settled. We composed the contract with the new spares list.
Angelica and I had lunch with Mr. He Ping. He is now working in the Japanese/Chinese joint oil venture, a position he doesn’t particularly like since he is in the middle of many arguments.
Our meetings reconvened after lunch and we presented them with the contract draft. There were two main problem areas from Mr. Yang, which were as follows:
- Time of shipment: They wanted us to give them a shipment time (of arrival in Xingang), which we didn’t want to do since we had no control over the arrival of the ship, CIF notwithstanding. Then Mr. Yang mentioned that the BOC wouldn’t know when to open the letter of credit without a shipment time and so we agreed to say that it would arrive aboard the “Xi Feng Kou” around the end of May.
- They wanted the phrase “Transfer of funds within seven days by T/T” deleted, pointing out that the Machimpex contract called for transfer on sight. We couldn’t see why this deletion was necessary and got into a heated argument over this. Finally, Angelica realized that this was a pride issue with the Chinese (they accused us of not trusting them with this clause) and so we deleted this clause.
This last point was probably the worst mistake I made in dealing with the Chinese.
The addition to the Machimpex agreement was Ian Stones’ idea, and doubtless he had good reason to add it to the contracts he was negotiating. But I don’t like to make customers angry over issues of uncertain substance. At the banquet that evening, I attempted to mollify them by attributing my temporary stubbornness about this to a lack of experience, and that statement had more truth in it than I knew.
In the following years, I had the chance to deal with many letters of credit, both on the receiving and the sending side. My conclusion from all is that, if there’s a way to induce delay in an L/C, language such as we deleted won’t help one way or another.
The most ingenious delay was by another East Asian customer, who opened an L/C from a bank in the United Arab Emirates during Ramadan. Needless to say, the processing was very slow, and our customer knew that.
Given that the paying organisation has to put up funds or credit to open the L/C, if you’re dealing with reputable financial institutions, language such as this is unnecessary. We had no trouble with this or any other L/C from the Chinese.
Mr. Lu asked for a discount on the parts. After some negotiation we settled on 4%. He also asked us for some prices on hose and piping parts like the ones we had in the last contract.
Angelica called the Beijing office for the parts prices for the hoses and to relay general news. We gave them a return banquet that night at the Seamen’s Club.
Wednesday, 30 March 1983
Went over to CPC Engineering, where we received the hosing/piping prices and added these to the contract. We then passed the contract along to Mr. Lu and others for consideration. After this we had a technical discussion with the engineers, amongst whom was Mr. Wan Naikwan, the only other member of the original team left in the negotiations from our original discussions in 1981. There were several points covered which were as follows:
- ABS Certification: They told us that ABS had told them that the pile hammers required ABS certification. We told them that that was news to us but that we would check it out (which we will do at OTC).
- Pipe Cap Step Sizes: We explained to them that, due to the fact that this was a stock Pipe Cap,. we had to machine the 48″ O.D. step down for their 1100 mm pile that they had specially ordered for the first cap (the only step so called out). The room exploded into a discussion, from which we found out that the pile sizes had changed from then to now but that they hadn’t informed us of this, and because of this they weren’t angry about our decision. They asked us to supply the welding procedure for the pipe cap which we said we would.
- Light Weight Pipe Cap/Leaders: We explained these innovations in detail and they were satisfied at their basic soundness and interchangeability; however, they asked us to supply them with some backup data on these changes which we said we would.
Our discussions with the ABS people at the Offshore Technology Conference confirmed our suspicions: there was no ABS certification available or necessary for the hammers.
After the technical discussions we signed the contract around 1100, after which we went with Mr. Yang to the railway station, where we got a train back to Beijing, he getting off at Tianjin. I went to the Jianguo Hotel and checked in for the night.
Thursday, 31 March 1983
Went to Amtech office to let them copy the contract and to inform Chattanooga of our success.
Friday, 1 April 1983
Left for Hong Kong for return to Chattanooga 4 April 1983.
The Hong Kong side trip was the only “R&R” I availed myself of in any of my visits to East Asia. While there, while reading the South China Morning Post, I noticed that an Anglican church was doing a street service near the Star Ferry Terminal. Having been raised in the Episcopal Church, the whole concept of such a church doing anything of the kind was incredible, and I went to see it for myself. Sure enough, they were doing it, and, as we know all too well, much of the Anglican Communion is full of surprises.
Once back in the U.S., there were more telexes to answer and more small items (again mostly regarding the boiler) from the 1982 trips to attend to. On 11 May 1983 the vessel “Xi Feng Kou” sailed with the 560 on board, but by then Jesse Perry had returned from his own trip to China.