Container Lessors, Users Discuss Ways to Avoid Contract Surprises

Dec. 1, 1998
From the beginning of a tank container lease to the point of off-hire, all of the involved parties need to work in concert. If they don't, misunderstandings

From the beginning of a tank container lease to the point of off-hire, all of the involved parties need to work in concert. If they don't, misunderstandings are almost certain to arise. The last thing anyone in this business wants is a surprise.

Representatives of the various parties-shippers, container lessors, container operators, and tank depots-discussed tank container management from on-hire to off-hire during the Tank Container Industry Conference September 30 in Houston, Texas. The conference was sponsored by the Tank Container Association.

The on-hire process actually starts when the shipper decides what type of tank container will be needed, according to David M Davison, supply chain manager for methylamines products at DuPont Specialty Chemicals. Questions to be asked include: Will a standard "plain vanilla" tank container meet our needs or do we require something specialized? How much will we use that specific container? Can we keep the container moving?

"At DuPont, it's very important that we know how may turns we're going to get out of a tank container," Davison said. "If traffic is sufficient, we lease a container. However, it's not worth leasing a unit for two to three trips a year. We turn to an NVOCC (non-vessel owning common carrier) for that sort of business.

"As part of the on-hire inquiry, the shipper must consider cost and terms, in addition to the specifications. It's important to look at the reliability and reputation of the supplier, usually a leasing company. Shippers also need to determine the availability of specific tank containers prior to the lease and where they are."

On-Hire Survey Once the initial questions are answered and a container has been selected, it must receive an on-hire survey by an independent third party. If highly hazardous products are to be transported, the inspection must be especially rigorous.

The surveyor is responsible for ensuring that the container has passed a leak test and that all test dates are current. Certification should show that major tests (21/2 and 5 year) are valid for at least six months. The container must be inspected for vessel discoloration and gasket and seal integrity.

Michael Lovis, vice-president of Taby America, echoed Davison's comments, saying all tank approvals and test dates should be current at the time of lease. The tank container operator's basic requirement is for a tank container that is clean, dry, and odor free. The cleaning certification is the responsibility of the tank leasing company and must be no more than a week old.

Taby America requires survey photographs with each newly leased tank container. "We request 35mm in addition to the digital photographs that are increasingly popular in this industry," Lovis said. "Many parts of the world are still not digital. We want a hard copy of the survey within 10 days."

Leasing companies are just as concerned about ensuring that customers receive a tank container that is in good condition and ready for service. The lessor arranges its own survey to verify unit condition, and customers are always encouraged to arrange for an independent inspection, according to Michael Balahutrak, president of Ermewa.

Lessors also want to make sure that customers receive the right type of equipment. To achieve that objective, a lessor will ask a lot of questions. "We want to know what product will be transported," Balahutrak said. "We ask for the chemical name, UN number, packaging group, class, specific gravity, concentration, melting point, flash point, loading temperature, and compatibility."

The lessor wants to know how the container will be used. Will it be just for transportation or will it serve for storage? How many containers does the customer think he will need? How will the container be loaded?

The lessor relies on the depot to make sure the tank container is ready on schedule. It's up to the depot to perform leak tests and such. The depot also ensures that the tank container is clean inside and out. Depot personnel perform quality control checks and fill out the interchange form when the container is transferred to the customer.

In most cases, it is the responsibility of the depot to coordinate third-party inspections of tank containers. The prospective lessee hires the surveyor, who makes an appointment with the depot to conduct the inspection.

Survey Process John Pontecorvo, president of Gateway Terminal Service Corp, described the way his company coordinates surveyor on-hire inspections. "On the day of the inspection, we move the unit to an inspection pad where our quality control personnel check to make sure no changes in the condition of the tank container have occurred while it was in inventory," he said. "Some containers remain in inventory for a long time."

The surveyor reports to the container division where he is assigned a trained depot employee, who is also a certified confined-space-entry supervisor. The depot technician stays with the surveyor throughout the time he is at the terminal.

A key objective of any survey is to verify that the tank container meets all applicable governmental regulations, both international and domestic. The surveyor makes sure that the container fits the customer's requirements for capacity and special equipment.

Markings, frame, cladding, and outside components, such as valves and vents, are checked. Inside, the surveyor looks for signs of pitting and staining to the barrel.

"Every step of the inspection can be photographed by the surveyor or our own depot employees," Pontecorvo said. "We use a digital camera and have the ability to download the photographs into our desktop computer. We are able to send the photos to our customers via e-mail, and we can store them for future reference.

"Our industry has entered a new technological age, and the leasing companies view e-mail and digital images as a way to eliminate mounds of paper. We believe digital photography and data transfer will be the way of the future. The leasing company and the customer can know the condition of the equipment almost immediately upon completion of the on-hire survey."

Wear and Tear That report is a valuable record for all parties once the container is put into service. It provides a means of measuring the extent of wear and tear on a tank container.

Shippers must be prepared for the sort of wear and tear and damage that occurs to tank containers in international service, said Greg Nikiper, manager of international transportation at FMC Corporation. It's important to think ahead about the kind of damage that might occur.

Agreement came from A E (Arnie) Allen, manager of global strategy/contracts supply chain at Solutia Inc. "Companies that use tank containers need written procedures for effective fleet management," he said. "They need internal tracking systems, as well as the ability to develop customized logistics systems for their customers."

Better tracking is needed by many of the chemical companies that lease tank containers, according to Christian Merle-Bijitch, vice-president of Exsif (US) Inc. "They need to be able to keep track of the damage that occurs on-hire in excess of normal wear and tear," he said. "Leasing companies need to know what is happening to their tanks."

Tracking systems help ensure that tests and inspections are kept up to date. Fines for out-of-date inspections can be steep. Several speakers pointed out that the International

Maritime Dangerous Goods requirements grant a 90-day leeway for tests, while the Department of Transportation's 49 CFR won't allow loading of an out-of-date tank.

However, a loaded tank can be moved even if the tests and inspections are past due. David Hiromura, NRS America, pointed out that five-year tank container tests can be performed a year in advance and nothing in the regulations limits hydrostatic tests to any set schedule. "Many leasing companies now are doing hydro tests at 21/2 years instead of five," he said.

Whatever the schedule, leasing companies should have control over tests for the tanks they own, because they pay for those tests, according to Merle-Bijitch.

Flagging Inspections Trans Tank begins flagging tank containers for inspections and tests about four months in advance of the due date, according to Terry Hatton, Trans Tank managing director. "We appreciate the help of our depots in checking inspection and test dates," he said. "It's important to trust a depot, and no tank operator should work with a depot that can't be trusted."

Moving on to general maintenance, he said that Trans Tank policies call for containers to be inspected after every cleaning. "We want to fix things that will make the container safe for the next load," he said. "We replace seals and gaskets, that sort of thing. In-service repairs typically are far more limited than at off-hire."

Depot personnel usually concentrate on repairs that address the pressure-maintaining aspects of the tank container, according to Scott Giroir, Boasso America. Those hardware items take precedence over the container frame and structure.

He suggested that depots can help tank container users by providing analyses of tank repair costs and trends. Often, there is no other source for statistics of this sort.

Off-Hire Surprises Keeping track of repair costs and tank condition throughout the term of the lease can help companies avoid surprises at the time of off-hire. Shippers and carriers at the TCA meeting questioned the way off-hire costs are allocated and who should bear the cost of refurbishment.

"We're in the process of off-hiring tank containers that have been in service eight years," said Regis Zelenz, manager of international operations for Air Prod ucts and Chemicals Inc. "We're getting extremely high off-hire bills for maintenance. Railcar lessors always refurbished equipment at no cost to us.

"We kept the tank containers in decent shape, and the lessors should be as responsible as we are for wear and tear. We expect reasonable costs, but we shouldn't have to pick up the entire refurbishment expense."

Conference participants listed a number of repairs that they believe should be considered normal wear and tear. This includes frame refurbishment and cladding replacement. It was suggested that cladding should be replaced every seven to 10 years.

Lovis said tank operators shouldn't have to pay for removal of glue from adhesive placards at the time of off-hire. "It's wear and tear," he said. "If you don't want us to use adhesive placards, give me tanks with placard holders."

He added that the process of calculating off-hire costs has become a contentious issue, largely because lease rates have dropped so low. "We have become unreasonable in this business," Lovis said. "We argue over the replacement of pop rivets. It seems like depots sometimes see off-hire as an opportunity to make a lot of money."

Tank container lessors retorted that leasing customers need to be better informed. "You need to determine and agree on the costs when you sign a lease agreement," Hiromura said. "You can't begin negotiating repair costs at the time of off-hire. Everything needs to be understood upfront in a contract."

Merle-Bijitch added that anything can be negotiated in a contract. It's a cooperative process. He suggested that leasing customers might want to pay more attention to preventive maintenance because that is a key factor in minimizing off-hire costs.

"Lessors don't want to make money on off-hire, but we don't want to lose either," he said. "We have made an investment in an asset, and we have to protect it."