A great deal has been achieved since the mid-sixties when W. European design engineers shaped what eventually became a global multi-modal bulk transportation concept grafted on the dimensions of 20ft iso shipping containers. This, some 50 years later became the ‘packing’ of choice for producers of bulk world-wide and the industry presently counts a fleet of over 440,000 TEU’s. Their modular design characteristics enabled assembly line production in countries with low cost, yet another driver behind the industry’s economic vibrancy. Iso tank containers beat drums, and in the terrestrial bulk transport space tank containers gained market share at the expense of the special purpose vehicle variety, road tankers. The tank container industry has come of age! One of the hallmarks that underlines this are no doubt its institutions i.e. its own well established industry representative bodies.
ITCO and ATCO are organizations that both represent and speak for the entire tank container community, ranging from operators, lessors, tank depots, manufacturers, valve and fitting manufacturers to inspection agencies. Important work has been done and continues to be done.
These industry representative bodies to a large degree set the tone of the industry. They provide the central platform where the industry comes together and where it can all table matters of concern for consideration and resolution. But given the sheer size, complexity and geographic diversity of the industry perhaps not all deserving issues will always catch their attention, and those that filter through may not all make it onto an agenda with competing issues? Let’s take a look at what might be some of these!
Declining economic industry vibrancy & earnings potential, is there such a thing?
Well starting from the top, inevitably commoditization of tank containers brought along many of its known byproducts and in its wake the industry changed and had to adapt. It is not hard to tell which part affected the industry, the most. The money part, simply put, the economics that make the industry tick. Money especially the lack of it and tightening ones’ belt can a sobering effect on people and organizations. One of its casualties might be at least with some issues, what seems to be a diminished ‘can do’ enterprising spirit? Instead of taking the bull by the horns, are we ‘kicking the can down the road?’
Discounting the normal economic cycles that come and go, could more be done to restore or prop up the fortunes of the industry? How about innovation and product development? Is the industry perhaps relying too heavily on the tank manufacturers? Under the present global economic conditions, it is hard to expect a lift in earnings. Then what? How about wasting less? Is there something we all could collectively do to avoid selling ourselves short? Here are three talking points!
- Reduction of waste and excess
- Selling short
- Industry product innovation & differentiation
Reduction of waste and excess
What is it that we might define as ‘economically wasteful?’ Well right up there would be investment in equipment that ends up being idle. This includes some 20,000 new built tanks presently sitting in factories and depots everywhere around the World. To estimate the cost to the industry we have taken one newly built tank container with an Original Equipment Value of $18,000 that has been idle for one year. This is the estimated average purchase price between 2012 and 2015. In our calculation we discounted any economic depreciation. First up is the estimated cost of debt which is $577 followed by the cost of equity of around $305. Storage adds $365. The total comes to $1,247. Over 20,000 idle tanks it is US$24.9mn/annum. This cost represents a drag on the industry’s economics in more than one way. For one, the overhang on the supply side depresses businesses across the board. We have seen it all before in the container shipping industry when too much capacity was brought to market. Meanwhile we all read that Maersk had a change of heart about this and has decided to lay up some of their 18000/19000 TEU vessels and against exercising options on further new builds.
Much of the waste that we as an industry attract unsurprisingly surrounds the tank containers we purchase and operate. Our tools! Could any of this be avoided? How about a possible deficiency in tank container specification that result into higher maintenance cost, adverse effects on utilization and more…..? And are we paying too much for spares, additionally spend on things we don’t need or are otherwise useful, because there is a lack of expertise when we make the call? No matter how well we do, earnings can’t possibly be expected to offset systemic waste. The big one out there clearly must be shell corrosion damage ‘the new normal’ that was never meant to be. Not all cargoes are created equal, then why should we have tanks to carry them that are created equal? We are talking about the ‘one suit fits all’ T11 tank specification. It features shell material SANS 50028-7 stainless steel that have chemical and mechanical properties consistent with both 316L low carbon <0.03% DIN 17441 w1.4401 and 316 specification.
T11 type tank containers are deployed to transport thousands of different cargoes, both hazardous and non-hazardous. What is absolutely certain is that some of these cargoes cause corrosion. Which one would that be? The answer? It might be easier to tell which ones are not causing corrosion. That would be the petrochemical cargoes thought to make up some 50 percent of what gets moved around the World in tanks such as the lubricants, lub oil additives, fuels and aromatic solvents. But let’s face it, we also transport acids such as acetic and acrylic acid, amines and chlorinated volatile organic compounds. Unless we have good track records, we need to scrutinize each SDS and available corrosion guides. Corrosion damage could be reduced by changing tack. Lessors and Operators could widen the tank container specifications of their fleets to include specifications with more corrosion resistant shell material for transport of those cargoes we know or suspect to cause corrosion. It is fair to say that cargoes have become more corrosive! In their quest to compete in highly competitive markets, chemical manufacturers continued to ‘create value’ and cultivate new and more complex products.Some are reactive such as when in contact with water or humidity when these convert to hydrogen chloride gas the precursor of hydrochloric acid. Others could contain trace elements of corrosives like sulphur, sodium or sulphate that potentially can do a lot of harm, again others could be mixtures and blends, are chlorinated, exothermic or both. The problems surrounding shell corrosion is hands down one of the best kept secrets, in the industry. Everybody knows about or heard about it. The question is, are we going to do something about it?
To hazard an estimate what might be the economic toll this waste could possibly represent for the entire industry of 440,000 units? Assume depreciation over 20 years and a conservative average repair estimate of US$1500.00/tank container/annum for repairs of all forms of corrosion and associated work such as , buffing, polishing, grinding, welding and factor in an equally conservative average of 10 days of non-utilization at US$10/day. The estimated cost over 20 years comes to US$32,000.00/tank twice the current purchase price of a T11. Taken over the total this will work out not less than US$ 14.0Bn and over 40 years US$ 28.0Bn. Does that leave anyone with doubt about the need for cost reduction?
When we set out to cut waste, we could also look in the direction of our tank depots. For one, there may be inefficiencies there that could add up to cost that makes it onto the invoice that eventually lands on our table. Consider the high levels of efficiency and good housekeeping at the tank manufacture end, and then compare highly contrasting efficiencies in tank depots. Agreed, we are comparing the optimum in efficiency i.e. an assembly line operation opposite the stationary service type model of tank depots. A legitimate question though is ‘could depots move nearer to the efficiencies that manufacturers offer even if that requires re-engineering.’ Take the cost of spares! It rises dramatically the moment it changes hands via the depot into yours. Another example. ‘Pickling and passivation.’ This set routine is proposed, mostly after grinding, polishing and buffing. Bottom line is that it is all but redundant unless the immediate next cargo is a corrosive. After all, the chromium oxide layer of stainless steel gets restored for FREE in the presence of surrounding air. To reduce systemic waste at depots, it will help to review the current processes. Depots could ‘buddy’ stainless steel makers like Outokumpu or companies specialised in surface treatment of stainless steel. Routine disposal of manlid seals is something else that is wasteful and could at least in some cases be avoided by selecting the re-usable endless variety of encapsulated manlid seals, which as a bonus provides a much better seal. These seals can be used for multiple movements.
Short selling is there such a thing? There is the entrenched routine to provide free or subsidized logistic services to shippers. If we drill down to specifics, free or subsidized services occur in hubs where a trade imbalance exist. A case of too many inbound tanks chasing too few outbound cargoes. Shippers then identify opportunities to reduce freight cost and then, well ….Operators relent. The Operator choose the lesser of two evils i.e. he collects a contribution to freight cost, even if overall the movement runs at a deficit as opposed to moving the unit out empty, at cost. Could this be something we should all walk away from? Do free services gel with the objectives under Responsible Care? Surely not when there is the risk that the servicing of tanks e.g. the leaktest and repairs essential to attain fitness could become the casualties?
Industry product innovation & differentiation
There is scope to create value through product innovation & differentiation. An iso tank container is an engineering feat, a pressure vessel in a frame, of a specification that includes, a heating system, instrumentation, devices, valves and fittings. Thankfully innovation in the industry is still alive but we need more of it. Take the remote controlled airline with push pull function brought to market by Fort Vale. And in the September issue of this magazine we could read about innovation exploits by the Finnish, Langh group. For the shell material of their vacuum service tank containers (yes vacuum another innovation that stands out), Langh selected Supra 316 plus stainless steel. Interestingly Supra 316 plus UNS31655 stainless steel has greater corrosion and wear resistance. Langh expects the longer life span to offset extra cost. This kind of thinking departs from being overly fixated on lower cost. I mention this as it dovetails entirely with my own findings further down in the feature. Clearly there are opportunities in not less than three areas.
- Shell material
- Damage preventive features in specification
- Level gauging
For more corrosion resistant stainless steel we need to look at available options north of 316 and 316L. From the corrosion resistance perspective the most attractive material out there is undoubtedly Duplex 2205. Tank farms, product tanker Operators, industries intimately associated with bulk chemical storage went there long ago, and they are not coming back!
To make the case that it makes sense economically to do so, let’s look at all that goes into the financial calculus of a tank Operator who purchase tank containers. Unlike leasing companies, tank operators are not able to generate direct revenue from owning tank containers. Therefore, the model calculates costs associated with tank ownership. The model compute values corresponding with tank containers of different specifications. The shell material variables in the model are 316L-317L-904L and Duplex 2205. How and where are these materials different and how can we discern? The answer is through PREN and CPT values which are universal benchmarks.
|Option 1||Stainless steel austenitic grade ASTM 316L EN 1.4401 UNS S31603 |
PREN: (Pitting Resistance Equiv.) No: 24 and CPT: (Critical Pitting Corrosion Temperature) No: 27.5
|Option 2||Stainless steel austenitic grade ASTM 317L EN 1.4438 UNS S31703 |
PREN: (Pitting Resistance Equiv.) No: 28 and CPT: (Critical Pitting Corrosion Temperature) No: 35
|Option 3||Stainless steel austenitic grade ASTM 904L EN 1.4539 UNS N08904 |
PREN: (Pitting Resistance Equiv.) No: 34 and CPT: (Critical Pitting Corrosion Temperature) No: 55
|Option 4||Stainless steel duplex grade ASTM 2205 EN 1.4462 UNS S32205/S31803 |
PREN: (Pitting Resistance Equiv.) No: 35 and CPT: (Critical Pitting Corrosion Temperature) No: 52±3
Whereas each upgrade cost more right now as at present we lack scale to drive material cost down, even then the model demonstrates that higher cost is more than offset by less workshop time, better utilization, and finally a more attractive disposal value. Few will argue that a good shell makes a good proposition for remanufacture. Take a look at the lift of the ROI as the years go by as compared to Option 1.
The model assumes a life cycle of 20 years. We arrive at Present Value of future cash flows in the model by ‘discounting’ them. The underlying idea is that the company has to obtain funds to be able to invest. Funds come at a price! Amongst other one has to pay interest on debt and generate returns for shareholders. Therefore, future benefits that come in a form of cash flows need to be discounted. The cost at which funds are sourced is the discount factor that we use.
Could more be done to prevent or reduce damage?
We know exactly when and where tank containers get hit and damaged. Take repetitive cladding damage! Is there scope to select a far stronger material less prone to damage as compared to GRP and aluminum? Possibly! Take a look at Polyethylene – U.H.M.W. sheet. It is highly resistant to corrosive chemicals, has low moisture absorption and is 15 times more resistant to abrasion than carbon steel. How about frame corrosion? We see rising incidence of frame corrosion from the inside out that is unnecessary. By specifying treatment of hollow sections with an anti-corrosion agent such TECTYL as commonly used in motor vehicles, this could be expected to head of incidence of early corrosion that potentially age tank containers, before their time.
We have had to throw out the good old dipstick, but what as an industry have we put in its place? Right! Mind you the requirement has not gone, away!! What seems the most attractive would be the radar type non-contact level gauge. The body of the gauge needs to be compact so as to remain within the confines of the iso frame. As an industry why not leverage on technology in areas where we can do so? One company that markets such gauges is would be Tank link.http://www.tanklink.com/products/tanklink95