Cosco loss reflects state of dry bulk shipping

PUBLISHED : Saturday, 30 April, 2011, 12:00am
UPDATED : Saturday, 30 April, 2011, 12:00am


The slump into the red suffered by China Cosco Holdings in the first quarter of this year bodes ill for other shipping companies specialising in the dry bulk sector, a leading transport analyst said yesterday.

Jon Windham, director and head of industrials research at Barclays Capital, said the China Cosco results were a 'pretty good barometer' for other shipping companies focused on the transport of dry cargoes such as iron ore, coal and grain.

He added the results 'definitely' reflected a 'wider industry malaise'.

'Everyone in dry bulk shipping is feeling the pain,' Windham said.

He thought firms such as Pacific Basin Shipping, which already had 76 per cent of its fleet of handysize and handymax dry cargo ships chartered for this year, would feel less pain than others. But average daily charter rates for Pacific Basin are down.

The Baltic dry index, compiled from a basket of charter rates for various sizes of dry cargo ships on key trading routes, has fallen 62 per cent year on year and closed at 1,269 on Thursday. The six-month charter rate for an 180,000 deadweight tonne (dwt) Capesize ship was down to US$12,750 per day, the same rate for a 32,000 dwt handysize vessel less than a fifth the size.

This reflected too many ship chasing too few cargoes.

Based on existing orders, Clarksons, the British shipbroking house, forecast dry bulk ships totalling 260.8 million deadweight tonnes would be delivered over the next four years. This is equivalent to 47.3 per cent of the existing dry bulk fleet, but seaborne dry cargo volumes are forecast to grow by 8 per cent per year, according to rival shipbroker R S Platou.

China Cosco, which controls the dry bulk, container shipping and terminals business of the mainland's largest shipping company, posted a net loss of 503.26 million yuan (HK$600.33 million) in the first three months of this year, down from an 882.17 million yuan net profit in the same period last year.

Total operating revenues fell to 16.44 billion yuan in the first quarter, down from 17.4 billion yuan a year earlier.

The company saw its Hong Kong share price drop 3.12 per cent to close at HK$7.46 yesterday, a two-year low, after the results were published on Thursday evening.

China Cosco does not give operational data by division, but Windham estimated the firm's dry bulk business lost 700 million yuan in the first quarter, partly offset by a US$109 million net profit contributed by Cosco Pacific, the terminals business.

Cosco Container Lines saw a 12.1 per cent rise in container volumes to 1.46 million teu (20-foot equivalent unit) in the first quarter. But total revenue increased just 3.8 per cent to 7.88 billion yuan.

Volumes on Asia-Europe routes surged 27.2 per cent to 328,588 teu but revenue rose by 0.4 per cent to 2.49 billion yuan, reflecting price competitiveness. The intra-Asia market was Cosco Container Lines' biggest in volume terms, with container liftings rising 6.4 per cent to 378,668 teu, but revenue dropped 3 per cent to 1.42 billion yuan in the first quarter.

Windham thought China Cosco would see a stronger second half for container shipping and terminals that would offset the continued slump in dry bulk. He expects the company to make a full-year profit.

A Goldman Sachs transport analyst forecast the firm's dry bulk division would remain weak all year but that 'container contributions should rebound' in the second half.

Bulk discount

The Baltic dry index found rates for dry bulk ships fell this much year on year: 62%