Cranes Lift Upstart Above Competition

Beneath autumn skies, a freighter carrying four of the world’s largest container-cargo cranes glided into San Francisco Bay, squeezing under the Golden Gate Bridge en route to the docks of Oakland.

That day in the fall of 2000 was a spectacular, but not singular, triumph for an upstart Chinese company that dominates manufacturing of the most important piece of maritime machinery other than ships.

Just two months earlier, the Shanghai Zhenhua Port Machinery Co., known in the industry as ZPMC, had secured a contract to provide as many as 20 similar cranes to Long Beach for $143.5 million--the port’s biggest pact ever.

ZPMC’s ascendancy is remarkable, but the politically astute company has left a wake of disputes from coast to coast, including labor strife, litigation and claims of defects in the cranes.

The story of ZPMC’s rise illustrates the gathering, and at times controversial, economic might of China, as it dominates new sectors of global commerce. It also speaks to the intense worldwide competition among ports that buy $1 billion in bigger and faster cranes each year to help draw container-cargo trade in everything from auto parts to athletic shoes.

After being launched in 1992, ZPMC took just six years to become the leading maker of ship-to-shore cranes, and the company has remained at or near the top.

In U.S. ports, where the company sold dozens of towering gantry cranes for $5 million to $7 million, the formula for success was simple: Bid low and build alliances.

Using Chinese labor and its own fleet of delivery ships to cut costs, ZPMC consistently underbid the competition by hundreds of thousands of dollars or more to sell machines that look like giant erector sets and hoist tons like toys.

To gain entree to the American maritime fraternity and navigate arcane bidding processes, ZPMC hired former port officials from Long Beach and Vancouver, Canada, as sales consultants.

ZPMC forged particularly close ties to the publisher of an African American community newspaper in Oakland who once headed that city’s port commission. And the company sold its first cranes in Miami by forming an unusual joint venture with the port’s crane concessionaire.

But controversy accompanied the sales.

In Florida, a competitor accused ZPMC of stealing its design, and ZPMC’s partner was indicted on unrelated corruption charges.

In California, unions accused the company of stealing American dock jobs and of unsafe labor practices such as wearing bamboo hard hats. And state safety officials fined ZPMC for safety violations after a young Chinese worker was killed in an accident.

In both states, ports have grappled with worrisome and time-consuming problems with the cranes, the most recent involving bent crane legs and foundations in Long Beach and Oakland.

ZPMC officials defend the quality of their cranes. And port officials who have invested millions of public dollars in ZPMC cranes tend to dismiss the problems. They praise the company’s on-time delivery record and low prices that one port engineer said make them “look like heroes.”

“They made a lot of crane manufacturers wonder why they are in the crane business,” said Terry Smalley, head of the Port of Oakland’s crane unit, noting that one ZPMC bid was $1 million less per crane, or almost 15% less than the closest competitor.

The modern crane is an engineering marvel--a bridge-like steel structure with powerful electric motors, hydraulic systems and computerized controls that allow operators to pluck dozens of containers an hour.

Ports around the world have been ordering ever-larger cranes to serve freighters that are too wide to navigate the Panama Canal. The new cranes can weigh 1,000 tons or more and lift the equivalent of several dozen luxury cars.

In selling more than 200 ship-to-shore cranes and 300 smaller rubber tire gantry cranes, ZPMC has become a recognized leader in an industry once ruled by U.S. companies and later by Europeans, Japanese and South Koreans.

Although operators say ZPMC cranes are fast and productive, some California mechanics say they have experienced problems with oil seals, welds, gear boxes and hydraulic systems, and sometimes have trouble getting spare parts. Even so, they say down time has not been out of the ordinary.

But the big question for many is how long the cranes will hold up.

“The question is how could a Johnny-come-lately crane manufacturer get the expertise and be selected,” said a former ZPMC competitor, Bill Reynolds of Harbor Industrial Services Corp. in Long Beach. “The answer is they ... do not have the expertise. There are things about ZPMC cranes that already are showing premature signs of failure. [Cranes] should last 20 years, and many of us in the business think they won’t last 10.”

The idea of selling Chinese cranes in U.S. ports began 11 years ago around a bridge table in the East Bay hills, said Frank Wan, a former Chinese crane engineer and UC Berkeley business student. He was discussing maritime affairs with attorney Thomas Berkley, a former president of the Oakland port commission and a nationally known maritime figure.

“I said I was thinking we could work together to sell some cranes,” recounted Wan, who served as a ZPMC consultant in several ports. “And he said it was a pretty good idea.”

The next morning, Wan met Berkley at his building in downtown Oakland and was handed a key to his own office. Then he called a relative who was a government official in Shanghai. “I told him an American, Mr. Berkley, was willing to help us sell cranes in the U.S. market,” Wan said. “And he said ... we need a sales plan.”

By 1993, Berkley and Wan had helped sell two Chinese cranes to the Port of Vancouver and Wan’s relative had become president of the fledgling company known as ZPMC. The majority of its stock was held by government-controlled China Harbor Engineering Co. and two wholly owned subsidiaries--one an engineering company, the other a century-old port machinery plant in Shanghai.

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Miami: A First Foothold

ZPMC did not land its first U.S. sale until it teamed up with Calvin Grigsby, a nationally known investment banker and major Democratic Party donor.

It was a natural match: Grigsby had worked for Berkley years earlier during law school and considered him a role model as a successful African American attorney.

Grigsby also had strong ties to Miami-Dade County’s Port of Miami. He arranged port bond financing through his San Francisco company, Fiscal Funding, and ran the port’s crane operations through a subsidiary, Fiscal Operations.

He figured out that cranes could be fabricated almost anywhere labor was cheap. So when the port wanted to buy more cranes, Grigsby saw an opportunity. “I felt I could find somebody [to build the cranes] and bid it myself,” he said in an interview.

Grigsby said he worked on deals with ZPMC and its parent company while accompanying Commerce Secretary Ron Brown on a 1994 trade mission to China.

During bidding in Miami, records show, Grigsby listed himself and others who managed the port’s crane operations as lobbyists for a ZPMC/Fiscal Funding joint venture. The dual role, Grigsby recalled, wasn’t a problem because “There’s no such concept as conflict if you’re a private party.”

The Grigsby-led team prevailed with a low price of $24.7 million for four cranes.

“We have our friends who are helping us,” Liu Qi Zhong, ZPMC’s deputy general manager, said by phone from Shanghai. “But basically we won [contracts] through international bidding. We did not win a single contract by political effect.”

After ZPMC won the contract, the port’s project engineer, Blaise Lionelli, went to Shanghai to check out ZPMC facilities along the Yangtze River. The consultant found the engineering reassuring, but in a February 1994 report he described the erection site as “cluttered” and likened the pace to a “fire drill.”

The delivery of the first two cranes in 1995 did not inspire confidence. A mishap in the Panama Canal caused salt water damage, forcing ZPMC to replace 20 electric motors.

Acrimonious disputes erupted that year.

Kocks Crane & Marine Co., a competitor, filed a federal lawsuit in Pittsburgh, alleging that the ZPMC cranes were copies of six Kocks cranes previously built for the port.

The complaint, later dismissed because the judge ruled it was filed in the wrong jurisdiction, included parts of a deposition by Lionelli. He alleged that the ZPMC project manager told him that Fiscal Operations had provided drawings to ZPMC and that Wan had taken them to China.

ZPMC officials denied stealing the plans and said their cranes look like Kocks’ because that’s what the port specifications demanded.

Wan denied taking or transporting any Kocks plans. “I did take five or six engineers to the Port of Miami, and we got on the cranes and took pictures and a lot of measurements,” he said in an interview. “We did copy the Kocks design” and improved on it.

In December 1995, Lionelli told port officials that the ZPMC cranes had unapproved welds, instead of bolts, on a critical boom support and that it could be dangerous.

A port consultant concluded that the problem could reduce the cranes’ life expectancy by 40%, but ZPMC and a Shanghai university study said the cranes were sound.

Another problem surfaced in a February 1996 accident that caused more than $150,000 in damage to one crane. While the operator was lifting a container, the load tipped sharply and fell to the ground. Consultants for the port and ZPMC said the probable cause was a control system supplied by a ZPMC subcontractor, who rejected that explanation.

The port withheld $600,000 in payments to ZPMC because of the boom support issue and problems with personnel elevators, brakes and paint. The dispute has dragged on for more than five years, with port officials rejecting ZPMC demands for payment and ZPMC suing.

Port officials now say they are “comfortable” with the boom supports, and ZPMC is completing what port officials call “warranty” work at no charge.

While the dispute played out, Grigsby, ZPMC’s partner, was indicted along with former port director Carmen Lunetta on federal charges of misappropriating more than $1 million in port crane usage fees. ZPMC was not implicated.

Noting that prosecutors presented “substantial evidence of greed and public corruption” at the port, the trial judge acquitted Grigsby and Lunetta in June 1999 after concluding the allegedly stolen funds were not the county’s.

Grigsby is no longer associated with ZPMC, which recently bid on another Miami contract and came in $1.7 million a crane lower than its competitor.

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Oakland: A Surprising Find

On April 1, 1998, officials from ZPMC and Oakland gathered in Shanghai for a contract-signing ceremony for what they called the world’s four largest container cranes. Among the dinner speakers was Mike Jordan, an engineering consultant who worked on the world’s first container crane four decades earlier in the East Bay.

“In 1958, who would have believed that ... the Port of Oakland would be buying cranes from a company in ... China,” he said in prepared remarks. “Four years ago when Oakland decided to purchase cranes from ZPMC, we were anxious, very anxious.”

Like other U.S. ports, Oakland took precautions. Records show officials put aside more than $1 million to have consultants oversee ZPMC’s design and fabrication of three cranes in the port’s first contract with the company in 1994.

Helping ZPMC prepare its $18-million offer for three cranes was Berkley, Oakland’s port commission president in the early 1980s. Berkley’s role was “very important, even critical,” said his associate, Wan. “If he says Oakland should purchase Chinese cranes, his voice is 1,000 times stronger than anyone.”

Smalley, the port’s crane chief, had never seen a bidder hire a former commissioner. “I don’t want to say they owe the contract to him, but his efforts were pretty [helpful],” he said. “I think it was shrewd.”

Berkley declined to discuss ZPMC, saying, “I find the job for them, and they win or lose in public bidding.”

During the design phase, ZPMC’s young and energetic engineers lived in the Bay Area so they could work with port consultants and staff. They set up shop at the Oakland Post, a community paper owned by Berkley. They put in seven-day workweeks.

In summer 1999, after the port awarded ZPMC a new contract for four additional cranes at $6 million each and options for nine more, port staff made a disturbing discovery. “We have seen ... unusually high deflections in the sill beams of all three of our cranes,” Smalley said. “The ends are bending down, causing the legs to bow.

“I’ve never seen this before in a crane, but we’ve never had cranes this big before,” Smalley said. “Theoretically, it should not bend.”

The sill beams form the foundation above the crane’s train-like gantry wheels. The bending, Smalley said, could thwart a rocker device that equally distributes the crane’s weight among its wheels. He said repairs were made, and the port’s consultant assured him that the stress on the cranes is less than half the allowable amount.

Jordan said his firm evaluated 10 of ZPMC’s gantry cranes in the state and found that the three Oakland cranes and one in Long Beach had leg deflections of up to “a few inches.”

“I think [ZPMC] had some fabrication problems,” he said. “But the net result is a satisfactory crane, safe....The structural integrity is as good as the specification requires.”

Does it pose any conflict to evaluate cranes that his company was paid to help oversee during design and construction? “You can’t talk your way out of a structural failure,” he said. “It’s not as conflicting as it appears.”

Ben Hoiland, the state-licensed crane surveyor who detected deflections in a ZPMC crane at the Maersk Sealand terminal in Long Beach in the summer of 2000, said measurements over time will show whether the bowing is growing worse, posing any risk of collapsing like a card table. “If this condition is as reported and if the condition is dynamic, it is a major concern and needs to be addressed and modifications need to be made,” he said.

Officials at Cal/OSHA said they were unaware of the Long Beach crane deflections until an inquiry by The Times. They later heard about problems with the Oakland cranes through an anonymous call a year after the bending was discovered.

Ken Fry, senior safety engineer with Cal/OSHA’s crane unit in Anaheim, said, “We don’t like to see any deflection in them.” But he said the key question is whether the bending increases and whether it is greater than allowed under the crane’s engineering specifications.

ZPMC officials said the California cranes are an isolated case. “Those are allowable deformations and do not affect performance,” said Liu, ZPMC deputy general manager.

Maersk officials declined to comment. But Maersk and the Port of Oakland have ordered more ZPMC cranes.

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Long Beach: A No-Bid Sale

In the late 1990s, Long Beach was widely recognized as the country’s busiest container-cargo port. And it embarked on a controversial plan to build a new terminal on the former Navy base there for the fast-growing China Ocean Shipping Co., known as Cosco.

Cosco needed to order cranes for the terminal but did not want to be stuck with costly equipment if the deal was scuttled.

Bowing to Cosco’s wishes, the port agreed on Nov. 4, 1996, to assume the crane contract if the worst happened. And it did: An environmental lawsuit stalled development plans.

In the meantime, Cosco had signed a $31.6-million contract with ZPMC for six cranes. So the port had to buy half a dozen ZPMC cranes, without seeking competitive bids, selecting the manufacturer or setting its own specifications.

“The port probably could have said, ‘Sorry, those are your cranes,’” said Ari Steinberg, the port’s senior crane consultant. “But they are a valued tenant.”

In another twist, the port assigned five of the cranes to a Long Beach terminal used by Cosco--and the sixth was sold to Maersk.

When the cranes arrived in 1998, labor disputes flared.

The International Longshoreman’s and Warehouseman’s Union Local 13 received a call from the terminal where the cranes were being unloaded from a ZPMC ship.

“I came out and saw 30 to 40 [ZPMC] crew, moving forklifts, moving crates and unlashing, which is our work,” recalled Joe Donato, then Local 13 business agent.

After a heated discussion, the Chinese workers returned to the ship and the longshoremen went back to work. But similar disputes arose later.

ZPMC consultant James H. McJunkin, a Long Beach port director in the 1980s and a former president of the California Assn. of Port Authorities, attributed labor disputes to the company’s “growing pains” and inexperience in working at U.S. ports. “Los Angeles and Long Beach have more militant unions than most ports,” he added.

In January 2001, Bay Area unions filed lawsuits alleging that ZPMC had been violating labor and immigration laws while working on Oakland’s four new cranes. Union officials also said the Chinese were violating safety rules by using bamboo ladders and hard hats.

The suits were settled in April, with ZPMC admitting no wrongdoing but agreeing to use its employees for only technical work. The settlement also called for an undisclosed amount of restitution for any Chinese workers who were paid less than prevailing wages and for union ironworkers who were denied work.

Records show that Cal/OSHA fined the company $7,435 in 1999 after the death of a Chinese ironworker whose leg was pinned by a crane trolley. ZPMC was fined $10,375 in January 2000 for violations such as unsafe welding practices.

“Our people only work when they feel it is safe,” Liu said. “They just have a different understanding and customs. We agree we have to respect the local [safety] customs.” The death, he said, was “a sad story” and the only such tragedy involving ZPMC crane deliveries.

Long Beach sought bids in 2000 for one of the biggest crane purchases anywhere. As many as 20 cranes were needed for the Pier T Marine Terminal to be built on 375 acres of the former Navy base.

But not many companies could fill such a large order. And the contract called for penalties of up to $90,000 a day for late delivery. Only two companies bid against ZPMC.

Since its first U.S. contract, ZPMC had come far. It had 5,500 employees and a fleet of specially designed ships that could shave hundreds of thousands of dollars off its transportation costs.

When the Long Beach bids were opened, ZPMC, not surprisingly, was the low bidder. The only surprise was that it was so close.

Noell Crane Systems was about $4 million higher than ZPMC’s winning bid of $143.3 million.

Noell has started making some of its cranes in China to cut costs.