An Old Idea Comes Back: China-US Arbitration in a Neutral Country

In his assessment of the prospects of US-China relations, former Australian Prime Minister Kevin Rudd makes the following suggestion to resolve intellectual property (IP) issues:

Intellectual-property protection, however, is deeply problematic. Previous agreements reached under US president Barack Obama’s administration could be reconstituted. But the jurisdictional enforcement of breaches is still hopeless.

One possible mechanism is to subject relevant contracts between Chinese and foreign firms to international commercial arbitration bodies in Singapore or Switzerland, designed to deal specifically with the enforcement of IP protection.

In both contracts Vulcan signed with the Chinese for the sale of the 560 hammers and boiler (1981 and 1983,) our agent Amtech wisely included the following provision:

18. SPECIAL PROVISIONS: Arbitration in Sweden or Canada

Not all of these special provisions were wise (or at least to the Chinese’ taste) but this one was, although thankfully for both parties we never had recourse to this process.

One thing that has always struck this observer as unwise is the typical American attitude that everything should be everywhere just like it is in the US.  Old exporters (and Vulcan certainly had a good track record in that regard) knew better, but our voices have been ignored, especially in the years of US unilateralism following the end of the Cold War.  The rise of China, whose view of life is very different from ours, should occasion the revival of a more “multilateral” approach, but such an approach will require a different style of mind than has been exhibited up until now.

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A Fistful of Yuan: Vulcan in China, 1981-3

Readers of the series Vulcan: The Offshore Experience may recall that Vulcan Iron Works’ years offshore were described as “the experience of a lifetime.” If there is one experience that stands out as making it that way, it was without a doubt Vulcan’s sale of two large offshore pile hammers to the entity that is now the China National Offshore Oil Company (CNOOC,) the first in 1981 and the second two years later.

Vulcan is frequently remembered as an old company with an old technology. But Vulcan was an innovator in some ways, as its patent list will attest. An exporting company from the earliest years of making pile drivers, Vulcan was the first American company in its industry to establish commercial relations of any kind with either the People’s Republic of China and the Soviet Union, and both of them when these countries were “opening up” after years of being closed.

This series can be accessed as follows:

  1. Introduction
  2. The Road to Beijing
  3. Beijing, Week 1 (1981)
  4. On Tour in China
  5. Beijing, Week 2 (1981)
  6. An Oil Show, an Inspection Trip and an Engineering Contact (1982)
  7. Starting Up, At Last
  8. For a Few Yuan More… (1983)
  9. The Last Field Service Trip
  10. Epilogue

Also included in this portion of the site is the following:

We trust that this series is informative and welcome your comments.

Forbidden-City-Beijing-Hote
The Forbidden City, Beijing, taken from the Beijing Hotel during our first visit in 1981.

Originally posted October 2007. Revised September 2010. Revised and moved to WordPress June 2017.

A Fistful of Yuan: Anatomy of a Letter of Credit

The letter of credit was one of the key factors why Vulcan, a small company, could conduct international business with the reasonable expectation of getting paid. Vulcan required virtually all of its customers outside of the US (even ones with a long-term relationship) to pay via the letter of credit. This was insurance of performance both for Vulcan and its customer.

This page is a step-by-step case history of how the letter of credit works.

On 12 April 1988, Vulcan received a telex from Lu Xiaozhuan of the Equipment Import Division, Bohai Oil Company, as follows:

IT HAS PASSED 5 YEARS SINCE WE MET YOU IN TANGGU. UP TO THIS TIME I GET THE OPPORTUNITY TO SEND YOU MY GREETING. AT PRESENT WE WANT TO BUY SOME SPARE PARTS OF 560 HAMMER AS FOLLOWS:…

YR PROMPT CONFIRMATION TO THE ABOVE WILL BE MUCH APPRECIATED.

The body of the telex contained an extensive list of spare parts.

Things then proceeded as follows:

  • We furnished them with the quotation they requested on 12 April via telex.
  • After the usual back and forth re the composition of the parts list, request for discount and confirmation of the terms and conditions, they agree to our revised proposal on 16 April. (Unlike the 1981 and 1983 negotiations, this was done long distance.)
  • The same day, they prepared and signed the contract for us and mailed it to us. We recieved it, signed it and returned it on 25 April.

As we prepared the parts for shipment, the next step was for Bohai Oil to have a letter of credit opened in Vulcan’s favour. This involved then contacting the Bank of China and committing funds to the bank, either in cash or via a credit facility. The Bank of China issued this letter of credit (shown below) on 6 May 1988:

Bohai-1988-Parts-Order-33
Note the detailed documentary requirements. The key with a letter of credit (L/C) is that, upon presentation of the proper documents, payment can be effected. Note also the deadline for shipment: in cases where the deadline could not be met, the L/C would have to be amended. Amendment was also necessary if the shipment went past the expiration of the L/C.

The Bank of China’s New York branch sent us an advice of the letter of credit on 17 May 1988.

Bohai-1988-Parts-Order-34

While preparing the parts, Vulcan also booked the ocean freight. On 20 May 1988 the shipping company (Transoceanic in New Orleans) advised that the ship was booked. Vulcan then had the parts transported via truck to New Orleans to beat the container terminal’s deadline of 26 May 1988. The parts were then loaded on the ship, the ship sailed, and Vulcan could collect the necessary documents to request payment under the L/C.

Those documents were as follows:

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It’s interesting to note that the contract–a very important document, especially with the Chinese–was not necessary for the L/C.

Having assembled all of this, on 9 June Vulcan submitted its sight draft (with required documents) to receive payment under the L/C:

Bohai-1988-Parts-Order-58

Sometimes some inspiration for the bank to expedite payment is necessary, as evidenced by this:

Bohai-1988-Parts-Order-61

Although not always the quickest or simplest method of receiving payment, the letter of credit spared Vulcan many of the pitfalls of non-payment that others had experienced in international business.

This page is dedicated to the memory of Barbara Jane Barker, who prepared most of the Vulcan generated documents shown on this page. A delightful person to work with, she handled most of the commercial paperwork (especially for international transactions) without which Vulcan would have never been the successful exporter that it was.

A Fistful of Yuan 10: Epilogue

Vulcan’s entry into the China market, achievement though it was, did not receive the follow up that one might expect. Towards the end of 1983, there was a flurry of parts sales. In early 1984, Angelica Ferguson, who had ably facilitated both of Vulcan’s hammer contracts, left Amtech, as her husband had a new posting in Hong Kong. Beijing was something of a hardship posting in the early 1980’s, and with a second child on the way, Hong Kong’s Western amenities beckoned.

In 1988 Vulcan sold a substantial order of spare parts for the 560’s. Beyond all this, however, Vulcan had little further interaction with Chinese organisations, offshore or otherwise. There are several reasons for this.

To start with, the collapse of crude oil prices—and the subsequent collapse of the oilfield service, supply and construction business—affected the Chinese is a similar way as it did everyone else. The 1980’s were a very lean decade for Vulcan, a decade many other oilfield suppliers did not survive. The break in relations with the Chinese was replicated with other Vulcan customers of longer standing, and it wasn’t until the end of the decade when things began to really come back to life.

Second, the Chinese recognised that it was impractical to develop their offshore oil production entirely on their own. Just as they formed joint ventures with foreign oil companies for exploration and production, they also contracted with foreign companies to do the platform construction, especially in the South China Sea. In that respect they were following the lead of other countries such as Brazil and the United Arab Emirates, who, while having a state owned company as the lead organisation in the oil patch, included foreign entities when it was in their best interests to do so.

Third, a long term Vulcan presence in China would require major inroads into the onshore pile driving market. But Vulcan’s air/steam product line was hard to export with the diesel hammers being dominant. In the 1990’s China began to export pile driving equipment to the US, mostly through American companies. Taken in that context, Vulcan’s sale of any equipment to China is singular.

Business Lessons

One of the lessons we at Vulcan took from China is that “experts” seem to gravitate towards the country. We found these experts in the U.S., too. They’d appear at international trade events, going on at length about how to deal with this exotic Chinese culture and how different it was from ours, and how with their advice we would do business.

The problem with many of these people is that they’ve never “done the deal.” Many of them have never sold or leased anything to the Chinese or anyone else for that matter. We found that such advice not to be as helpful as it looked. However, the one thing that those of us who have done the deal must avoid is to represent our specific experience as the only way to do business in China, then or now. But there are some useful lessons that can be learned.

I’d be the first to admit that Vulcan’s experience in China was atypical. In a country where developing relationships is so important (it used to be here,) coming “out of the blue” (and the red and white too) and selling the Chinese nearly US$1,000,000 (1981 dollars) in equipment in two weeks is highly unusual. To get there, Vulcan had things going for it that benefit any company: excellent and well-positioned representation (experts who really had done the deal!) a good product with a long reputation for reliability and efficacy, and an overconfident competitor (the Japanese) with whom the Chinese did business more out of necessity than desire.

Once we got there, however, we had to complete the transaction. If any part of our method made this possible, it was our willingness to meet with the customer in a way that was meaningful to them. The Chinese wanted a great deal of technical information, we provided it to them. We brought over technical experts and spent much time discussing these kinds of issues. They wanted attention to detail, and we took the time to do that. They wanted us to see their country and be impressed by it, and we saw it and were duly impressed. We were prepared to bargain with them. And our sense of humour didn’t hurt either.

Underpinning all of that was patience. Many years later, I was talking with one of Vulcan’s Hawaiian customers of Chinese ancestry. He explained that the Chinese concept of time is entirely different than ours. A civilisation thousands of years old tends not to be in a hurry. Americans may find this hard to accept, but that partly explains our trade balance.

Beijing-Church
Church in Beijing

Spiritual and Ministry Lessons

The interest that surfaces about spiritual matters in a business account may strike some as odd, but in the nineteenth century it was commonplace for the businessman and the missionary to arrive at the same time. The unfortunate connection between the two and colonialism bore hard on the missionary, few places harder than China.

1981, however, was also the year for “Project Pearl,” when one million Bibles were imported through boats sailed to the South China Sea coast. I always mused that the 560, with its nearly metre diameter bore, would be the perfect place to stash a large quantity of Bibles. Given the difficulties that we had getting our equipment to Tanggu, perhaps we would have been better off letting “Project Pearl” be our freight forwarder to China!

The triumph of the Communists in 1949 led to cutting off the Christian church (official and unofficial) from the outside world, organisationally and otherwise. But in the long term that led to the Chinese church doing the work Jesus sent it to do on its own. Today we are seeing the greatest Christian revival in human history in China, and the effort is almost entirely indigenous.

The government has generally reacted by attempted to suppress this movement. Part of the reason, of course, is that China is still in theory a Marxist-Leninist state, with the atheism to go with it. But there are historical reasons as well. The fall of virtually every dynasty was preceded by the formation of secret religious societies which would coalesce into a rebel force. In the nineteenth century, the most spectacular example of this was the Taiping Rebellion, where Hong Xiuquan claimed to be Jesus Christ’s younger brother and started a revolt that claimed 20,000,000 lives. Chinese regimes are routinely skittish about underground religious movements such as Christianity and Falun Gong, and the followers of Jesus’ greatest challenge in the long run is to show that secular revolt is not the objective of the religion.

But there are some tantalising benefits for China as well. Today Christianity is shifting from a Western religion to a Third World one. The US has taken the lead for many years but, as the Anglican Communion will attest, that is changing. Could the church in China become the vanguard (a good Communist term) for Christianity everywhere? Instead of sending missionaries to China, could they send some to us, as they are planning to do in the “Back to Jerusalem” movement? Could Beijing become a centre of Christian activity, drawing people from all over the world, as the oilfield did with us? It’s something that the Chinese government needs to think about.

In the meanwhile, for those who do minister to Chinese people both inside and out of the People’s Republic, some of our business lessons apply. To be successful in this requires patience, a willingness to connect with the people where they are and to build relationships, and a real love for the Chinese people, which isn’t difficult, even in a business environment. Jesus Christ came to have a loving relationship with us; we need that as an objective in our dealings with others, even in rejection, to reflect the priceless work he did for us.

Personal Impact

For me personally, it’s hard to overestimate the impact that the three trips to China, along with what I saw and experienced, have made. From our subsequent dealings with foreign customers to the way I look at the world in general to my fiction, the “afterglow” of these voyages has stayed lit for a very long time.

As my generation has taken command of the country, it is increasingly hard to stomach the pseudosophistication that permeates Boomer business and politics. Studies have shown that Chinese are better than Americans at looking a problems from a perspective other than their own. The result of this from a foreign policy standpoint has been the deadly “cave or conquer” mentality that has plagued our relationships with other countries and cultures, and although most of the cost of that thinking has taken place in the Middle East, it also applies to our situation in East Asia.

More than a quarter century has come and gone since those days when the tea came out of nowhere and Ian Stones suggested that I ask the Chinese what they would like to discuss. The company that we represented has gone too. But the side effects of business can be longer lasting than the revenue, and if one is prepared to open one’s eyes and ears to what is going on around you, one can go to China and come home with more than simply a fistful of yuan.

DCW-He-Ping-1981

A Fistful of Yuan 9: The Last Field Service Trip

There was still one more trip to be made for the first hammer, and Jesse Perry’s trip report is where we pick up, after he arrives in Tokyo: (Again our Offshore Tips will be very helpful in visualising some of the mechanical aspects of the system.)

FRIDAY, APRIL 22, 1983

Took 9:00 a.m. flight from Tokyo to Peking. I was met and taken to the hotel at 2:30 p.m. I called Amtech and was told that I would be taken to Tanggu tomorrow. Two offshore China Petroleum men were at their office. These two men came to my room at 4:00 p.m. for a meeting. They will pick me up at 7:30 a.m. and left at 5:30 p.m. Mike Pearce called at 6:30 p.m. and asked me to come downstairs for a talk and drink. Mike left at 8:00 p.m. and I had dinner and went to bed.

SATURDAY, APRIL 23, 1983

I was picked up at 8:00 a.m. and driven to Tanggu. Arrived at 1:30 p.m. and met for a couple of hours with O.S.C.P. people at their office. I will be taken offshore tomorrow. The jacket will leave in the morning. I was taken to the Seamen’s Hotel at 3:00 p.m…

SUNDAY, APRIL 24, 1983

They called and told me to be ready at 1:00 p.m. I was picked up and taken to the yard for a meeting. At 2:00 p.m. I was taken by helicopter to the derrick barge. The jacket is still in the yard. There is one A.B.S. man and eleven Japanese consultants. I had a meeting but nothing else today.

MONDAY, APRIL 25, 1983
I spent a couple of hours on deck with the crew. Most of the men are new to me. It started to rain at 11:00 a.m. No more work today. The winds picked up to 30 knots and the seas about 15 feet.

TUESDAY, APRIL 26, 1983

40 to 50 knot winds, rain and 20 foot seas.

An example of the Bo Hai’s frequently rough weather.

WEDNESDAY, APRIL 27, 1983

Weather clear. We pulled the Manzel Lubricator apart as it would not pump. The set screw was loose in the coupling from the drive to the cam shaft and the key had fallen out. I also found three cam set screws loose. We remedied this and assembled the pump. The storm picked up again and we pulled anchors and headed for Tanggu harbour. I got the Manzel literature and studied it as I did not like a filter arrangement that they had on the oil feed supply line.

THURSDAY, APRIL 28, 1983

Dropped anchor at 1:00 a.m. off Tanggu. I had a meeting from 9:00 a.m. to 11:00 a.m. explaining what I had learned from the literature last night. The filter arrangement was for the air supply to the pressure supply pump for a 55 gallon drum. I did not know that they had this pump but they did. They said that the filter was where it was when they took the lubricator out of the box. Manzel’s drawings and instructions are lousy and some are missing or do not apply to this arrangement.

This illustrates an important point: you may have the best product out there, but if your documentation is poor, your customer may never figure that out. Manzel lubricators were fine, but they assumed that the end user “knows” how to put them to use, which isn’t always the case, especially when the end user is halfway around the world.

FRIDAY, APRIL 29, 1983

Anchored off the sea buoy off Tanggu. 12 knot winds, cold but clear. Crew will not work again today. 1:00 p.m. 20 knot winds, 8′ seas, weather clear and mild. Still no work.

SATURDAY, APRIL 30, 1983

Up anchor and set sail at 8:00 a.m. On location at 1:00 p.m. The tug to run anchors never showed up. I tried to get help to grease the hammer and work on the lubricator. Men do not work when barge is moving. I tried later but men would not work. I got the interpreter to set up a meeting for me with the Project Manager. The jacket is supposed to be out tomorrow. We had the meeting at 7:00 p.m. He did not know about the work that I had to do. He told the mechanic that he did not want talk from him he wanted work tomorrow morning. He apologized to me and said that if I had any problems that I was to come to him right away. Weather started to pick up at 9:00 p.m.

SUNDAY, MAY 1, 1983

I got the lubricator running good. The oil level control not used. They had gone from the tank directly to the pump. The oil pressure supply pump is in Tanggu. We are using gravity feed. The shaft rotation alarm not used. I did not have all of the instructions for it. A man is to watch the pump…Some of the walking cam grease has come off of the columns. They had pumped the bores full of steam cylinder oil. I pumped some heavy grease into the bottom four grease fittings to try to seal them. This was the only grease that they had on board. The jacket left Tanggu this afternoon, is supposed to be here at 2:00 a.m. and will be set sometime tomorrow.

The “walking cam grease” is a very thick (about the consistency of peanut butter) open gear lubricant which we recommended for use on the columns, where the ram rode up and down.

MONDAY, MAY 2, 1983

I had them hook up hoses to the Vari-Cycle. They used bailing wire for clamps. I told them this was no good. They said that this is all that they had. I saw hoses hooked up all over the barge with it. I put air to the hoses and blew the hoses off for them as I had done in Tanggu in November. They said that they would make clamps. We found another can of grease, this was black and better but still not good. I used it on the top portion of the columns. The DALI Hao, 1200 Ton rig, set the jacket at 1:00 p.m. I was trying all day to get the hammer in shape with no interpreter. He was with the ABS man on the DALI Hao. The pile barge came along side at 6:00 p.m. Started to stab four corner piles at 8:30 p.m. A small crane barge helped. This is their first pile job and they used the two cranes to pick the piles from the pile barge. The lubricator pressure pump got here today from Tanggu. Three mechanics played with it for two hours before I got it to work for them so that I could get them to work on the hammer. I have the lubricator hooked up to gravity feed and the pump is not necessary. At 11 :00 p.m. we used the weight of the hammer to breakout the diaphragms. This crane is so slow that it would not lower the pile fast enough to break the diaphragms out. No driving tonight, I went to bed at 1:00 a.m.

To get some idea of what is going on, click here for information on the installation of conventional platforms. The diaphragms are situated at the base of the platforms, and prevent the ingress of mud into the jacket legs. When the piles are stabbed (threaded down the jacket legs, the pile toes are supposed to break the diaphragms so the piles can sink by their own weight some distance into the soil, after which pile driving can begin.

The slowness of the crane is a major fault, and not just for productivity. It impedes the crane operator’s ability to react to unusual situations, which can be a safety hazard, in addition to causing property damage.

The use of bailing wire for clamps is also a safety hazard. Generally speaking, with air and steam hoses, the connections (especially if they’re quick disconnects) are tied off with some kind of cable more substantial than baling wire. Four years before this, I had been involved in litigation where an inadequately tied air connection came apart, and a coupling hit a man on the side of the head, seriously injuring him.

TUESDAY, MAY 3, 1983

They picked the hammer at about 8:30 a.m…(t)he hammer came upright and off the deck about a foot. It swung around all over the place before the operator finally set it down. It tore up one supply shack and two oxygen bottle racks, that was when I took off for cover. We were lucky that none of the bottles blew. The pad eyes were torn off the bell. I had them weld pad eyes onto the hammer guide beams, while they were doing this I tested the Vari-Cycle now that the hoses clamped. They made another clamp and fixed the hose in the boom. I finally got the exhaust trip to move out by adjusting the nut on the end of the piston. I had to drill another cotter key hole in the shaft to get the nut in the right place. We drove the first pile 15 feet to the lifting pad eye, about 50 blows. It took them about 3 hours to burn the pad eyes off and grind the burn area. We then drove this pile down, 5 to 10 B.P.F. We then drove the other three piles to the pad eyes and while they burned them off I had them lay the hammer down and checked it. We then drove the other three piles down, 5 to 15 B.P.F. After I had the hammer set on the pile right, I would go up with the men on the controls and lubricator. During driving, when the boom angle had to be changed or the crane had to be swung, I would stop the hammer and go down onto the jacket to instruct the foreman and then go back up to the controls. That up and down gets old after awhile. I got up at 6:00 a.m. and went to bed at 5:00 a.m. Wednesday. I had them lay the hammer on deck and told them to leave it alone until I got up.

“B.P.F.” means blows of the hammer per foot of pile penetration into the ground. 5-15 BPF is usually considered easy driving.

When we picked up the hammer for the first pile, I told the manager that I wanted the tugger lines crossed on the bell. This would give me a better arrangement to rotate the hammer as I wanted it on the pile. The manager explained this to the men. The men decided that it was not necessary and would not do it.

The Chinese were not unique in this decision making process; I experienced this with my own unionised, Scotch-Irish workforce.

WEDNESDAY, MAY 4, 1983

I went on deck at 10:00 a.m. I wanted to change the piston rod packing that blew on the last pile. I was told that the hammer would not be used until tomorrow night and that they would do it tomorrow. They were removing the jacket lifting arrangement and cables and will stab and weld add-ons today and tonight. I told them that I would need two wrenches to fit the packing gland nuts, that I could not use adjustable wrenches. They said that if they did not have them that they would make them…They stabbed three plum piles at night before the wind came up at 3:00 a.m.

The ability to use improvised tools to effect maintenance is an advantage with Vulcan equipment, one that proved an advantage in the Gulf of Mexico as well as the Bo Hai.

THURSDAY, MAY 5, 1983

At 8:00 a.m. they told me that the rain would stop at noon and wanted me to get the hammer ready. We changed the packing in the rain and cold, 15 knot winds, 8:00 a.m. to 12:00 a.m. We knocked the diaphragms out of two piles, on the second one the pipe cap cables broke and damaged the top insert of the stabbing bell, 1:30 to 3:00 p.m. We laid the hammer down and replaced the pipe cap cables and repaired the bell, 3:00 to 5:30 p.m. The wind came up at 5:30 and they shut down for the night.

FRIDAY, MAY 6, 1983

I was up at 5:30 a.m. for 6:00 a.m. breakfast. Started to pick the hammer at 7:00 a.m. Lost one hour, compressor for the Vari-Cycle would not start. Two portable compressors on board. I think that the Japanese left them here from their occupation, World War II. We knocked the diaphragms out of the third plum pile and drove the three of them, 8:00 to 10:00 a.m. Stabbed #4 plum pile and made cut offs on driven piles. Stabbed seven (7) intermediate batter piles, 1:00 p.m. to 6:00 p.m. I told the interpreter that I was worried about the shock load on the cables and lead lifting bale when they broke out the diaphragms. He told the captain who he said was the man in charge. The captain wanted me to inspect it after each break out. I told him that I would not as I would not take responsibility for doing this. The bale is designed to pick the leads and hammer and not to do this type of work. 7:00 to 9:00 p.m., knocked out two batter pile diaphragms. Stopped work at 9:00 p.m. and moved away from jacket. A bad storm is due in about an hour.

SATURDAY, MAY 7,1983

The storm blew over by 5:00 a.m. We moved back to the jacket, 7:00 to 8:00 a.m. Changing lifting cable and pipe cap cable, 8:00 to 10:30 a.m. I met with the manager and explained that my 21 days would be up Tuesday the 10th. I told him that it would be $350 per day after that. I also told him that I was supposed to be home then but I would stay longer if I thought it necessary. They tore a hole in the roll bar when they stood the hammer up, 10:30 a.m. I told them that it was okay but they repaired it, 11:00 a.m. to 12:00 noon. Knocked out diaphragms on the rest of the piles. They could not get a couple of them last night and I told them why. I had them get lined up properly, which they had not done last night, and then shook the pile with the tugger lines. Drove these pile to the lifting pad eyes and burned them off. We then drove four of them down. The packing gland started to leak, so I had them lay the hammer down, 4:30 p.m. We greased and checked the hammer and tightened the packing gland, 4:30 to 8:00 p.m. They stabbed three final sections on the plum piles and started to weld at 9:00 p.m.

One of Jesse’s consummate skills was his knowledge in how to get off a derrick barge. Back in 1981, the evening before Ian Stones left for the south and we had dinner together, Jesse had Ian (and me) in stitches telling him all the methods he had used to get off of derrick barges, and this was yet another example of this.

The “lifting pad eyes” referenced immediately above were those on the pile, which are used to pick the pile up with. Towards the head of the pile, they are burnt off before they get to the platform as the pile is driven downward.

SUNDAY, MAY 8,1983

We finished driving the rest of the lead pile sections and then drove the final sections on two of the plum piles to grade. This made the total footage driven about 1800 feet. The hammer was in good shape and running well…They started to stab and weld add-ons. There would be no driving for a day or so. A helicopter was going in this afternoon. I made arrangements to be on it. We had a couple of hours meeting and I left for Tanggu. I had to show some of the other passengers how to fasten their seat belts and strap on their life jackets…I checked into the Seamen’s Hotel for the night at 5:30 p.m.

MONDAY, MAY 9, 1983

I waited from 8:00 to 10:00 a.m. for transportation to the office. When none showed I finally got through by phone to someone who spoke English. They in turn, got the Engineering Department and said that a car would be over in 20 minutes. About a half hour later, a bus pulled up and seven of the Engineering Department came out.

These were all fellows that I had met before and they were happy to see me. We met for a couple of hours and had lunch. I gave them a rundown of the whole operation and told them that they needed piston rod packing and some good grease. I gave them a sample of the walking cam grease that I had brought in with me. They left at 3:00 p.m. and I was taken to the train station at 4:30 p.m. I got to Peking at 9:30 p.m. Caroline met me and took me to the hotel. The restaurant was closed at my hotel. I took a cab to the Jianguo Hotel for something to eat, as I had nothing to eat since noon…

TUESDAY, MAY 10, 1983

I took a cab to the airport at 6:00 a.m. Flew Peking, Shanghai, Tokyo, San Francisco, Houston, West Palm Beach. I took a cab home at 11:30 p.m…

When Jesse returned home, he had worked for Vulcan for eighteen years and was nearing retirement age. He had so much “comp time” from traveling that he proposed to start working half time to use up the comp time and make retirement more of a process than an event.

But this process was cut short. On 5 July 1983, after work Jesse went to his favourite hangout, the Wonder Bar in West Palm Beach. While there he had a massive heart attack and went on, as Chairman Mao would have put it, to meet God.

A Fistful of Yuan 8: For a Few Yuan More…

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:

  1. APPEARS THAT THIS DEAL IS FOR REAL.
  2. THEY CAN’T ARRANGE VESSEL AND REQUEST YOU MAKE IMMEDIATE ARRANGEMENTS ASAP…
  3. THEY ARE GOING TO RUN A TEST ON 1ST HAMMER AND THEY WANT THIS SECOND ONE HERE ASAP TO BE ON STANDBY ON BARGE.
  4. THEY WILL LEASE/THEN PURCHASE OR PURCHASE OUTRIGHT THE UNIT AND WILL HOPEFULLY FINALIZE BY MARCH 5 OUR TIME.
  5. 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.
  6. 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.)
  7. IF THEY BUY IT WE CAN HANDLE NEGOTIATION HERE (POSSIBLY THE LEASE ALSO, BUT LETS SEE HOW CONFUSING IT BECOMES)
  8. 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:

  1. Cao Dean, Offshore Branch/Vice General Manager
  2. Dong Xinli, Engr. Company of Offshore Branch/Vice Manager
  3. Li Binlian, Engr. Co./Sec. Head of Business Div.
  4. Yang Zhanwen, Bank of China Tianjin Branch
  5. Lu Xiaozhuang, Engr. Co./Engr. Of Equipment Import Div.
  6. Xu Shubai, Engr. Co./Engr. Of Business Div.
  7. Tan Junfeng, Offshore Branch/Interpreter of Liaison Dept.
  8. 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:

  1. 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.
  2. 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:

  1. 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).
  2. 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.
  3. 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.

A Fistful of Yuan 7: Starting Up, At Last

We had a steady amount of back and forth with Amtech and the Chinese in the months after the SPE show. Most of our interaction with the Offshore Branch in Tanggu concerned the boiler. The Chinese had some difficulty with sorting out things on the boiler set-up.

But all was not just about spare parts and technical specifications. On 11 August 1982 we sent Ian Stones a hammer quotation for CNOOC South Sea Branch. We quoted them basically the same package as we had sold their northern counterparts the year before.

On 7 October 1982, we received the following telex from Amtech:

VULCAN – ENDUSERS ARE NOW INSTALLING BOILERS AND PIPELINE FOR BOILER AND EXPECT TO BE READY ABOUT NOV. 8TH. WE NEED TECHNICIANS FROM VULCAN HERE ABOUT 6-7 NOVEMBER. FIRST STEP IS STARTUP OF BOILER/HAMMER/ON BARGE AND CHECK PIPELINE. IF ALL WORKS DO SOME TRAINING ON SIGHT. EXPECT 7 – 10 DAYS IN TANGGU. PLATFORM ONE NOT READY – PROBABLY WILL DO ACTUAL WORK APRIL – MAY 1983. THEY CAN DISCUSS WITH YOU ABOUT RETURNING NEXT SPRING WHEN YOU ARRIVE HERE. PLS SEND NAMES/BIO DATA OF VULCAN/JOHNSON PERSONNEL. THEY HAVE COME UP WITH A COUPLE OF PROBLEMS WHICH THEY HAVE WRITTEN TO DON ABOUT YESTERDAY – INCLUDES SKETCH OF QUESTIONS ABOUT PIPE HOOKUPS FOR INLETS/OUTLETS. SO HE PING ASKS VULCAN TO SHOW WHEN THEY ARRIVE (HEATER HOOKUP) OR SEND DRAWINGS ASAP.
—- STEAM HOSE —- SOME LEAKAGE ON CONNECTIONS.
—- REPLACEMENT PARTS —- AS DISCOVERED WHEN PEM WAS HERE – THESE ITEMS HAVE NOT BEEN REPLACED/RECEIVED YET. VULCAN CAN SEND TO TANGGU OR BY AIR FREIGHT TO BEIJING C/O AMTECH.

Part of my response was as follows:

CONCERNING NEW PROPOSALS FOR TIANJTN BRANCH, WF PLAN TO SEND WITH JESSE QUOTATIONS FOR 560 AND 5100 PILE HAMMERS, ACCESSORIES AND PARTS. WE ALSO PLAN TO SEND A QUOTATION FOR AN ADDITIONAL 750 HP B0ILER SINCE THIS WILL BE REQUIRED IF THE CHINESE WISH TO USE A 5100 HAMMER. MR. PERRY WRLL BRING THESE WTTH HIM WHEN HE COMES TO CHINA.
CONCERNING EXPENSES ONLY TRIP TO TANGGU IN APRIL 1983 – WE HAVE NO OBJECTIONS TO THIS FOR OUR PEOPLE. I WILL COME ALSO IF CNOOC PEOPLE WISH TO NEGOTIATE CONTRACT. I DOUBT IF JOHNSTON WILL WISH TO DO LIKEWISE. PERHAPS AFTER THTS TRIP BOILER TECHNICIAN WILL BE UNNECESSARY — THUS WE SHOULD LIKE TO DEFFR DECISION ON BOILER TECHNICIAN TRIP UNTIL AFTER THIS ONE IS COMPLETE.

By the early 1980’s, it had become standard procedure for oil companies to require a backup hammer on the construction barge. This was not only to provide a substitute in case of breakdown, but to enable the barge to continue pile driving with one hammer while required maintenance could be done with the other. With the high hourly rate for barges and narrow weather windows in places such as the North Sea and the Bo Hai, this was an entirely sensible approach, but it also gave us an incentive for good follow up, since the sale of one hammer was almost guaranteed to invite the sale of another.

Quotation in hand, Jesse Perry proceeded to China, and we pick up his trip report as follows: (Note: many of the hammer details he refers to can be better understood by going here.)

MONDAY, NOVEMBER…8, 1982

…Flew Hong Kong to Peking from 1:00 p.m. To 4:00 p.m. Monday. Checked into the hotel at 6:00 p.m. I had dinner with Lloyd Berwald. We have to stay here a couple of days waiting to get some parts through customs. Lloyd had hand carried these parts. Customs requires a C.N.O.O.C. (representative) present before they will release them.

TUESDAY, NOVEMBER 9, 1982

Lloyd and I spent the day back and forth between the hotel and Amtech’s office.

WEDNESDAY, NOVEMBER 10, 1982

Four offshore people from Tanggu arrived this afternoon. By the time we got back from the airport it was too late to drive to Tanggu.

THURSDAY, NOVEMBER 11, 1982

Lloyd and I were driven to Tanggu in an old van with the parts and four (4) offshore people. A 4-1/2 hour ride that seemed like 8-1/2 hours. We spent the rest of the day in meetings and checking over what had been done with the hammer and boiler. Nothing had been done to the hammer. They had done a nice job of building a steel house for the boiler, installing it and had it pretty well piped and wired up. We were checked into the Seaman’s hotel at about 5:30 p.m.

FRIDAY, NOVEMBER 12, 1982

We spent the morning meeting with the department leaders. We had to lay out a schedule of work for them. All of this was so that they could make up a chart that we were supposed to adhere to. After lunch I got them to open the spare parts and to start cleaning the columns. Lloyd laid out a few things to be done on the boiler before we were called into another meeting on the barge. This one called by the barge people to let them know what was to be done.

SATURDAY, NOVEMBER 13, 1982

We got one column greased before I had to hold a technical meeting to explain the operation of the hammer. I did not want to disassemble the valve, HydraNut or Vari-cycle because of the time involved and the fact that the only tools available was a small crescent wrench and a large bolt that was used as a hammer.

I had them install the manual jack and showed them how to bleed off and pump up the Hydra-Nut. I used the drawings in the book to show them the inside of the Hydra-Nut and Vari-cycle cylinder. I used the spare parts, valve liner, valve, valve stem and trip to show them how the valve worked. I assembled them as they would be in the hammer. None of this was easy because there was only one interpreter and Lloyd was using him. Two of my men knew a few words of English. With them and a lot of…sign language, I made it. He Ping showed up near the end of my show. I talked with him about not having an interpreter. I told him that I was not sure that the men really understood. He talked with the men and then told me that I had done a good job.

SUNDAY, NOVEMBER 14, 1982

No work.

MONDAY, NOVEMBER 15, 1982

Greased the columns and leads, oiled the Vari-cycle and worked it with a bar to make sure it was free. I had them take some kinks out of the hoses from the boom. No operators for the crane or winches. No tools, no water, oil or power for the boiler. I ran my own technical meetings and assisted Lloyd with his.

TUESDAY, NOVEMBER 16, 1982

Put the hammer into the leads. Put the lifting bale in place and hooked up the suspension cables. I spent some time helping Lloyd hold technical meetings. Still no water, oil or power.

WEDNESDAY, NOVEMBER 17, 1982

We set the pipe cap upright and I showed them how to put the cushion material into the pot. They had not cut the steel plates, so I did not fill it. The captain would not move the ram up for me. I got Mr. Woo, Pile Engineer in Charge. Captain told him that he would do it with the winch. I told him that he would score the columns. Mr. Woo finally had to go to the office and bring back his leader before the captain would boom up the crane and move the ram. At 2:00 p.m. they started to fill the boiler, water & oil. We spent the rest of the day in meetings checking out the schedule chart as to what was done. I spent some time explaining that they were not to slide the ram on the columns in the horizontal position without first lifting it with the crane to lighten up on the columns. I told them that I had explained this to their leaders when they said that I would have to test the hammer on deck in the horizontal position and they had agreed with me. While we were meeting the men cleaned and greased the lower end of the columns.

THURSDAY, NOVEMBER 18, 1982

I helped Lloyd testing the boiler. A 4″ check valve in the feed waterline was making a funny noise when it closed and was leaking a little. We shut down and while Lloyd checked out some other things, I took the valve apart and checked it. I found a small burr on the valve seat. I dressed the seat and reassembled the valve. We fired up the boiler and everything worked fine.

The line lubricator for the hammer is mounted on a catwalk outside the crane. I found Mr. Woo and a couple of men trying to pump steam lub oil from a 50 gallon drum on deck up to the lubricator. The drums had been on deck for a week in this weather (during the day 5-15 mile winds, 25º-33º). The oil was so thick that it was difficult to pour it from the drum. I told them to put a couple of 5 gallon buckets of the oil inside by the boiler overnight.

FRIDAY, NOVEMBER 19, 1982

The Government Marine Inspector arrived to check the boiler. He seemed satisfied except that he would like a greater variance between high and low water cut in. Lloyd said that this was no problem and would make the adjustment. The hoses were plugged and the steam line was tested for leaks. I found that they had filled the line lubricator with 30′ oil by carrying it up in buckets. They were concerned that it would not pump good, another meeting where I explained, as I had when I first got here, that the oil should be heated. I showed them in the Manzel literature the immersion heater that is recommended. I told them that they would need something like this or put the pump inside over the steam line the way most people do. I poured some oil into the valve and top cylinder ports. I had warmed this oil myself in the boiler room. We hooked up the hoses and moved the ram back down with the crane. I had the crane just lighten up on the ram, opened the quick shut-off valve and cracked the gate valve enough for the ram to move up and exhaust the valve. Moved the ram back down with the crane and repeated this operation a couple of times on long and short stroke. Everyone was happy. I told them to drain the oil from the lubricator and to heat some by the boiler tonight. Lloyd and I took Mr. Woo and four others to dinner. We split the tab.

Evidently Jesse was working on loosening up the Chinese protocol on entertainment!

SATURDAY, NOVEMBER 20, 1982

We put the warm oil in the lubricator and it worked better. Before we could get it to flow oil into the main line, the power was shut off. While we were doing this, Lloyd was testing the safety valves. There would be no more power today so we went into another meeting till 3:00 p.m.

They want an A.B.S. certificate on the boiler. The gold seal on our letter head saying that the boiler was built to Coast Guard and ABS specs means nothing to them, as we are not the manufacturer. They asked me if the Lub oil had to be 100º. 1 told them 100º would be about right until I found that they were talking centigrade. When I said the 100ºC was not necessary, they showed me our lubrication chart where it said 212ºF/100ºC. I told them that this high temperature was not necessary but I would check it out with our Engineering Department.

The certification of the boiler was a running issue from this point forward.

The original contract called for “a certification to prove the boiler was builded [sic] under the inspection of a U.S.C.G. inspector and guarantee the boiler to be suitable for marine usage.” Unfortunately the Coast Guard declined to inspect this particular boiler, as it was not to be used in U.S. waters. I had informed the Chinese of this the previous year. This is the origin of the gold seal. Johnston produced many boilers to both of these specifications, so the issue wasn’t the quality of the boiler but the paperwork that went with it. But we promised to try to make things better.

The lubrication issue was based on the fact that lubricant specifications such as viscosity are stated at a certain temperature. As temperature rises, oil thins, and thickens as the temperature drops. I wasn’t related to the temperature at which the oil is expected to operate (that relates to the flash point) and I explained this to the Chinese after Jesse’s return.

We took the 5:00 p.m. train from Tanggu to Peking and checked into the hotel.

SUNDAY, NOVEMBER 21, 1982

We met with Paul (Speltz) for breakfast. He took our tickets to make our flight reservations. We met Caroline (Chen) at about 4:30 p.m. She asked us to come to the office in the morning.

MONDAY, NOVEMBER 22, 1982

Spent the morning at Amtech’s office. Had to go back at 4:00 p.m. to pick up tickets. When you go to this office you have to have your cab wait for you.

The same situation I found myself in earlier in the year.

TUESDAY, NOVEMBER 23, 1982

Took cab to airport at 8:00 a.m. Lloyd left at 6:00 a.m. I flew from Peking, Shanghai to Tokyo from 11:00 a.m. to 6:00 p.m. Checked into hotel at 7:30 p.m.

The first service trip was over. But there was more to come on both the sales and service end.

A Fistful of Yuan 6: An Oil Show, an Inspection Trip and an Engineering Contact

While the Vulcan 560 hammer plied the seas on its way to Tanggu, other developments were taking place that, although weren’t directly related to the contract and the equipment, were certainly part of Vulcan’s experience in China.

The SPE International Exhibition and Technical Symposium

Vulcan certainly wasn’t the first American company to do business with the Petroleum Corporation; it wasn’t even one of Amtech’s larger clients. Nevertheless China’s demand for foreign goods and services to develop its oil and gas resources was developing to a point where the Society of Petroleum Engineers decided to hold their first exhibition in China 16-24 March 1982, in conjunction with the Chinese Petroleum Society. When this became known, Vulcan made a preliminary decision to exhibit there.

Vulcan’s decision to do so was based on two factors: a desire to further the relationship with the organisation in Tanggu, and an attempt to open up one with the offshore construction organisation in the South China Sea. Vulcan’s relatively narrow market made offshore and oil trade shows problematic; most of its relationships were developed either with the large U.S. Contractors such as McDermott, Brown and Root, Santa Fe, etc., or through reputation for foreign organisations. For Vulcan, a trade show was good to reinforce relationships and to disseminate information amongst geotechnical engineers who designed the platforms.

The Society of Petroleum Engineers was no novice at organising shows such as this. They are one of the lead organisations for the Offshore Technology Conference, the premier event in the offshore oil business and Vulcan’s favourite trade show during the 1970’s and early 1980’s. My brother and I had visited one of their shows in London the fall before the first call to Beijing. But the SPE recognised that China was a place apart, and so on 7 October 1981 they held a preliminary meeting in San Antonio to present the show’s concept and outline what they thought would happen. I was at that meeting, which cemented our decision to go there. (Many involved still think it was a singular event, as the recollections of the SPE Presidents at the time will attest.)

SPE’s preparation of both the show itself and the travel arrangements was its usual thorough job. It opted to use a travel agent (actually two, one in Texas and the other in the UK) to book group rates and hotel rooms. You can view SPE’s travel information brochure (along with some additional comments,) which is as good a summary of business travel in China during this time as one could want.

Vulcan’s intention was for Jesse Perry, my brother and I to all go to the show, but the start-up of the Vulcan 6300 hammer (the largest it ever made) in the North Sea diverted Jess, so it was just Pem and I. The schedule for the show is shown below.

SPE-Beijing-Schedule

Pem and I both arrived in Beijing on Saturday, 13 March. We met in Tokyo, stayed overnight, then went separately (for safety reasons) to Beijing. Pem drew the short straw and flew CAAC, which made an emergency landing in Shanghai when they nearly ran out of fuel. We opted to stay in the Friendship Guest House, which was considerably cheaper, and also not far from the Beijing Exhibition Centre where the show took place. The Guest House was in many ways like the old section of the Beijing Hotel, but we had a suite with a refrigerator and a view of the courtyard, where we could watch the People’s Liberation Army (which presumably guarded the place) go through their drills and inspections. We were very content with our quarters, which was good since we had a great deal of time to kill.

The SPE had allotted a great deal of time to enable exhibitors to set up their booths, make sure that everything they had shipped to the show was there, and train their interpreters and explainers. Because we had a small booth and Amtech had done some advance work, we didn’t need that much time to get up and running. We had one young woman to act as both interpreter and explainer, and since the product was rather simple, it didn’t take long to get her up to speed either.

The show’s beginning finally arrived with the opening ceremony Wednesday morning, in a theatre. We know things were getting going when a man came out applauding, which was our signal to follow suit and welcome the dignitaries. It felt like the opening of the National People’s Congress, with all of the grandiose speeches and protocol. The feeling that this was a great international event was reinforced by the reception that evening at the Great Hall of the People.

Great-Hall-of-the-People
The Great Hall of the People
SPE-Reception-Invitation
The SPE/CCPIT Reception Invitation Card

Like so many things in China, the Great Hall was just that: huge. I have never been to a reception that large before or since, with long tables full of excellent food. Most of us oilfield people were bug-eyed at the grandiosity of the whole thing. The Chinese, always eager to impress, had outdone themselves.

The show itself was unique. As we had been warned, the Chinese curiosity for foreign technology was broad and uncritical. When it was time to pass out literature, we just got a handful, went to the front of the booth, just about everyone who passed took one, the handful disappeared, we waited a while, and the cycle started again. We did get to interact with some of our clients, but just enough to arrange a trip to Tanggu to inspect the equipment, which had arrived.

At night the SPE arranged trips to various cultural events, and I got to take in actual Beijing Opera, which was back on stage after the Cultural Revolution. On the downside Amtech, which had been concentrating on their larger clients that needed more attention, finally figured out that we were staying in the Friendship Guest House. Mike Pearce insisted that we relocate to the new Jianguo Hotel, which was supposedly nicer, but a very sterile (and not nearly as roomy) environment.

But I didn’t have to spend too much time there. Late in the week I received a frantic call from Chattanooga that the 6300 wasn’t doing well and Jesse needed my assistance. Now for the challenge: getting out of China in a hurry. Amtech sent me in a cab to CAAC’s office to enable me to purchase a ticket for Hong Kong, where I could have a better selection of flights to get to Aberdeen. CAAC, however, could not accept my American Express travelers cheques, so I had to attempt to communicate to my cab driver (who spoke no English) to get me to an exchange bureau. I spent several tense moments in the parking lot getting nowhere until someone came up and explained to the cab driver what I was looking for. Then things got easy: right across the street was the Overseas Chinese Hotel, where I exchanged my money, took my new fistful of yuan (Foreign Exchange Certificates, really) back to CAAC, and purchased my ticket. On Sunday, 21 March, I was on my way to Hong Kong, and from there via Bombay and London to Aberdeen, leaving Pem to finish the show and make the inspection trip to Tanggu.

Inspection Trip to Tanggu

Pem made the trip after the close of the show. His account was as follows:

25 March 1982 traveled from Peking to Tanggu in the company of Mr. He Ping from the Offshore Branch, Petroleum Corporation of China. While en route to Tanggu, we had the opportunity to discuss many topics. The high points of our conversation were as follows.

The Offshore Branch is now planning to start-up the equipment in August or as late as October. After the initial use of this equipment, negotiations for a second contract will begin. Mr. He Ping expects negotiations to start in December of 1982. The real reason for not ordering two the first time, was a simple matter of not enough Renminbi in last years budget.

The question of price for a second contract arose, (this question had been discussed previously by Don and myself previous to the trip). My reply to Mr. He Ping was, ‘barring any unforeseen events we felt confident that a second contract could be negotiated for the same price as the original’. The new contract will be another 560 package, spares, minus a Johnston Boiler.

After being met in Tanggu by Mr. Zhu Li Cai and arriving at the offshore base the inspection began.

The hammer, leads, pipe cap all arrived in excellent condition with no apparent damage to any. Again, my congratulations to all plant personnel and especially to the Florida division for an excellent effort. Both Mr. He Ping and myself were very impressed by the welding job done on the leads.

The inspection of Vulcan spare parts went very well with only one part missing (22FO126). Parts arrived all in good order free from rust or corrosion. I assured Mr. He Ping that part would be replaced.

The Johnston Boiler arrived in good condition with only one piece broken, (low water alarm located on control panel). Mr. He Ping and I opted not to uncrate the boiler because it was to remain on supply barge out in the weather. I recommended that a tarp be placed over the crate to eliminate any water seepage. Lloyd Berwald should thoroughly inspect boiler prior to commissioning.

The condition of the Johnston boiler parts did not arrive nearly as well as had been expected. Many parts had considerable rust or were found unusable. Attached is a list of the parts that should be replaced prior to commissioning. Further, many of the parts were not marked as to what they were, which made identification difficult.

During the noon break, I discussed with Mr. He Ping, Zhu Li Cai and Yu Pu You the placement and installation of the boiler, feed water pump, service tank and pre-heater, (which they are to supply).

Attached is rough diagram of what Mr. He Ping has in mind. This should be passed on to Johnston so that they may make their own recommendations. As far as piping and positioning of the boiler and equipment.

I had the opportunity to view the barge while in Tanggu and concur with Don’s and Jesse’s opinion that after being loaded out it will be a “wet” barge in anything but a moderate sea.

Over-all, the inspection tour went well, with the exception of the boiler parts. Mr. He Ping and company seemed pleased with the inspection, particularly with our part of the operation.

Left Tanggu for Peking late afternoon, was met by Mr. Paul Speltz.

Attached is the list of faults found and memo from Mr. He Ping confirming our findings.

Pem’s long marine experience held him in good stead on this inspection. In addition to our family’s long heritage on the water (with the occasional mishaps like this and this,) he was a veteran of the United States Coast Guard.

An Engineering Contact with a Surprise

About three months after I returned from my ‘round the world adventure, I received a letter from Dr. Tang Nianci, Professor of Geotechnical Engineering at the Nanjing Institute of Technology. This opened up yet another avenue of contact with the Chinese, albeit of a different nature.

Without going to the many details surrounding the science, part of the use of pile driving equipment is the estimation of how quickly and effectively the hammer selected can drive the pile. The specialty is referred to as pile dynamics, and it involves the application of the wave equation to piling, along with many other aspects. Although there were and are consulting firms that specialise in this kind of activity, true to form the Chinese wanted to develop this kind of capability on their own (entirely sensible if you consider the large number of Chinese engineers and scientists inside and outside of China.) So Dr. Tang was gathering information, and disseminating this kind of information was part of Vulcan’s marketing effort.

This correspondence went into the fall; however, the contact didn’t end there. In 1988, at the third stress-wave conference (the premier event in this scientific discipline,) my wife and I had the pleasure to meet Dr. Tang and a delegation from China who were attending this conference. In that encounter we found out that he was a delegate to the Seventh National People’s Congress, China’s highest legislative body.

A Fistful of Yuan 5: Beijing, Week 2

SUNDAY, MARCH 29, 1981

Angelica and I worked on the contract some (on) Sunday afternoon in preparation for the Monday meeting.

This is where, as the old expression goes, we “got down to brass tacks.” The Chinese are very keen on detail, so it was necessary to have every item, every quantity, every price and every addition to be absolutely correct. At that time, it was necessary to use of of those “new” portable paper tape spitting Canon calculators from Japan to do the math, then type the quotation up on paper. What we would have given for spreadsheet and word processing!

MONDAY, MARCH 30, 1981

Commercial discussions resumed at 0900. We went over the contract itself and made some changes to the basic Chinese contract. Once again they asked for a price reconsideration and once again we told them that we would rather wait for the finalized equipment list since every meeting they added or deleted some item. Hammer spare parts list was finally settled on with this meeting, except for the Ascon.

One of the first things that the Chinese informed us of was the attempted assassination of Ronald Reagan in Washington. They informed us that their leadership had sent messages of sympathy to our government, wishing President Reagan a complete recovery. We were taken by surprise. The only television we had available to watch was CCTV, which didn’t have an English channel at the time, so we didn’t find television very entertaining or informative. CNN was in its infancy in the U.S., and wasn’t in China. We thanked the Chinese for their sentiments.

It is ironic that, six years later, we began our commercial relationships with the Russians at the Soviet trade mission, just around the corner from the Hilton where the assassination attempt took place.

Meeting adjourned at 1130. That afternoon Angelica met with He Ping and found out some interesting information concerning our competition. The Japanese package started out at around $1,070,000 total but after our arrival the Chinese had met with the Japanese again and the latter were seeking authorization for a 10% discount from Japan. Nevertheless, the Chinese were very interested in our equipment after the presentation but would like some additional discount to make their purchase of our equipment more justifiable. The Japanese were well entrenched in Tianjin and such a purchase was something of a novelty.

Keep in mind that the Japanese price included freight, which wasn’t much from Japan to China. Evidently the Japanese were trying to make up for whatever they gave away to get the barge contract in the hammer and boiler, but things now weren’t going according to plan.

The practice of “bid swapping,” whereby you were informed (or thought you were informed) where your competition’s price was, was unappealing to Americans but is common practice in other parts of the world. Vulcan had experienced it before, more overtly in some cases. Machimpex used this kind of tactic in the normal course of business and evidently the rest of the bureaucracy followed suit.

TUESDAY, MARCH 31, 1981

We met with the technical team from Tianjin and He Zheng at 0800 and took a very rough four hour bus trip to Tanggu to see the barge. We were not sure that we would be able to do this due to the work that this barge was doing in the Bo Hai but fortunately it had put into port the previous day. After lunch in Tanggu we went over to see the barge. There were few surprises here—the barge was fairly new, with an 800 ton crane. After going around examining the barge we had further discussions in the barge captain’s office. They decided first to standardize all hoses at 4″ X 50′. They then asked us to add the hose swivel connectors to the quote and asked again concerning the price. I told them that the equipment would have to be settled first so He Ping informed me to put it together without the swivel connector and discuss it as soon as possible.

The bus ride to Tanggu was a long affair on the two-lane concrete road from Beijing through Tianjin. Most of our weather in Beijing was cold but dry; when we got to the coast, we experienced some raw, misty weather as we stood on the barge deck.

We rode back to Beijing in a train with He Ping, He Zheng, and Zhu Li Cai. There He Ping asked us to meet with them the next day at 1400 to discuss the price. We arrived at Beijing at 2030.

Once this trip was done the three men who came back with us became “the Chinese” we were negotiating with. The train ride was an improvement. But when we returned to Beijing, Jesse remarked, “That barge is pitiful.”

“Why?” I asked.

rough-seas
The main reason adequate freeboard is needed.

“There’s only eight feet of freeboard,” he replied. This meant that there was only eight feet between the deck and the waterline (and the barge wasn’t loaded with equipment or material, either.) Inadequate freeboard allows high seas to wash over the deck more easily. Sure enough, the barge eventually sank in one of the hard storms that the land-surrounded and shallow Bo Hai is famous for.

WEDNESDAY, 1 APRIL 1981

Angelica and I worked on the quotation in the morning. This was not a very long process since most of the work was complete. After having given the matter considerable thought and looking at past discounts, I decided to start out here with 11% discount on Vulcan items and 5% on the rest.

The differential was due to the fact that we were resellers of the Johnston boiler and other items, not the manufacturer. I did not ask Johnston to take additional discount, figuring that, by the time I got an answer, a) they would say no and b) the deal would be lost due to delay.

The commercial meeting began at 1400 in Amtech’s office. We first discussed delivery. I had originally committed for a 15 August 1981 delivery but upon rechecking had second thoughts so the previous day I had taken up a 15 September delivery with He Ping. He was noncommittal then but now agreed to this. They then examined the price very carefully and told me that they had been looking for a 12% discount on the entire package. I then offered a 12 1/2% discount on the hammers. They discussed the matter again while Angelica passed me a note stating that the Japanese had offered a package price of $937,000. They then asked me for a 14% discount on the Vulcan part of the quote. I came back with a 13 1/2% offer. They informed me that 13 was an unlucky number, at which I told them that that is why we had offered 13 1/2. Then they informed us that it was settled and we had the order.

Once the Chinese had departed, the jubilation began. It was not only our first contract in the People’s Republic of China, but it was also Angelica’s first contract with Amtech.

THURSDAY, 2 APRIL 1981

Angelica worked on the final contract in the morning with no problems. He Zheng came over to the office at 1400 to pick it up so that his superiors could review it. The return banquet was that night at 1800 when the signing took place, I for Vulcan and He Ping for the Petroleum Corporation.

FRIDAY, 3 APRIL 1981

He Zheng and Chen Gui De met us at the hotel at 0945 to take us to the airport for the return to the U. S.

Beijing-Hotel-Perry-Berwald
It’s time to go: Berwald and Perry outside of the Beijing Hotel, waiting for Mr. Chen to arrive.

After the Sale

Vulcan produced a good number of offshore pile hammers this size and larger, but this contract had some special challenges.

The first was of our own making: our bank, American National Bank (now SunTrust,) did not have a corresponding relationship with the People’s Bank. So it was necessary to turn to First City National Bank in Houston (one of many which perished in the oil crash a few years later) to facilitate the letter of credit.

The production of hammer and boiler received an unusual level of oversight from Vulcan management. In June my brother and I visited Johnston Boiler in Ferrysburg, MI, to take a look at the boiler production and to impress upon them the importance of being on time in the delivery of the boiler. This is the first and only time that either one of us visited this facility.

The contract called for delivery on or before 15 September 1981. Both Vulcan and Johnston experienced some production delays; Vulcan, however, completed the hammer on 24 August 1981. The most significant delays occurred with the procurement of the ship. The contract specifically called that the ocean freight be handled by the China Ocean Shipping Agency in Tianjin. Unfortunately PENAVICO (the Chinese acronym for the organisation) had difficulties in booking the ship. It wasn’t until 11 December 1981 that the entire package left Chattanooga. It was shortly placed aboard the ship in New Orleans and the product of nearly a year of hard work was on its way to the People’s Republic.

With the hammer gone and the L/C fulfilled, Vulcan awaited the next step, which was start-up of the hammer. But in the midst of that another event in Beijing took centre stage, and that was the Society of Petroleum Engineers first oilfield show in China.

A Fistful of Yuan 4: On Tour in China

SATURDAY, 28 MARCH 1981

At the invitation of the Chinese we took a historical tour, Chen Gui De being our guide, to see the Great Wall, Ming Tombs, and Summer Palace.

This is a story best told in pictures.

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Other tourist photos

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But the commercial work did not stop while we were tourists.

Upon return I found out that Ian had discussed the 750 hp boiler with He Zheng and found out that this was more than acceptable.