China Cosco scraps US$300m of orders
China Cosco Holdings, the world's biggest operator of bulk ships, cancelled orders totalling nearly US$300 million for eight handymax vessels to be built by its Singapore-listed sister company.
It is the first time in the current economic downturn that the company has scrapped an order.
The company also extended delivery of three bulk ships overdue by nearly a year from Cosco Shipyard Group, which is 51 per cent owned by Cosco Corp (Singapore). The ships will be delivered between next month and October this year.
The cancellation of the eight 57,000-deadweight tonne vessels underscored the company's concern about volatility in the bulk market, said Jack Xu, a transport analyst at SinoPac Securities.
The Baltic Dry Index, which gauges average charter rates on bulk ships, has had a roller-coaster ride this year, swinging from 700 points to more than 4,000 points.
Although the index seems to have stabilised at about 3,000 points in the near term, prospects for the bulk ship market would be overshadowed by overcapacity next year, Mr Xu said.
China Cosco decided to cancel the ships owing to volatility in the market and technical problems at the shipyard, said Xiao Junguang, a deputy general manager in the company's investor relations department. No other ship orders were under review for further delay or cancellation, he said.
China Cosco will recoup all of its deposit - usually forfeited in the event of a cancellation - on the ships. In return, the firm will forgo compensation for the delivery delay due to problems at the shipyard.
'The cost for other shipping companies cancelling vessels would be much higher, as mainland shipyards normally demand 20 to 30 per cent of the ship price as a down payment,' Mr Xu said.
