China Cosco hit by market overcapacity as it struggles to get back into black
Shipping giant battles with market's severe over-capacity as two years of losses put it at risk of losing its Shanghai stock market listing
China Cosco Holdings, one of the largest bulk vessel operators in the world, is struggling to swing back into the black as the market remains overshadowed by severe overcapacity.
"We are pretty sure that the losses in bulk shipping can be reduced substantially this year through cost control measures and a reshuffle in the structure of vessels and markets," Xu Zunwu, the deputy general manager of China Cosco, said yesterday.
The company, the largest shipping conglomerate on the mainland, risks losing its listing on the Shanghai Stock Exchange if it has losses over three consecutive years.
It lost 9.56 billion yuan (HK$11.82 billion) in 2012, after a 10.50 billion yuan loss in 2011. Sales for 2012 rose 4.4 per cent year on year to 88.33 billion yuan.
The lower-than-expected earnings result announced on Wednesday sent the company's shares down 4.2 per cent to HK$ 3.66 yesterday. The main source of disappointment was an unexpected one billion yuan "compensation expense", which was reportedly paid by China Cosco for the early termination of dry bulk vessel charter contracts, a report from Credit Suisse said yesterday. Xu said the arrangement could help to reduce the operating cost of bulk shipping this year.
Jiang Lijun, executive director and general manager at China Cosco, said yesterday: "We will explore any proposal which can help to lift our profit and maximise the interest of our shareholders."
Disposing of assets and cost controls would be the major measures to help the company stay afloat, Jiang said.
China Cosco said yesterday that it would pocket 6.74 billion yuan from the disposal of its entire stake in Cosco Logistics to its parent and expects to book a pre-tax gain of 1.96 billion yuan for 2013. The transaction is subject to the approval of shareholders.
The bulk shipping sector experienced its weakest period since 1986 last year. The Baltic Dry Index, an indicator of spot shipping rates, fell 41 per cent year on year to 920 points on average.
Sales at Cosco's dry bulk shipping shrank by nearly a third to 16 billion yuan last year while operating losses rose 43 per cent to 7.77 billion yuan. The company will return about 30 chartered vessels to their owners this year and take delivery of 12 new vessels. At the end of last year, it operated 332 bulk vessels with a total of 30 million deadweight tonnes.
The container shipping division saw its losses fall to 1.5 billion yuan last year from 6.3 billion yuan in 2011. Sales rose 17 per cent to 48 billion yuan. At the end of last year, the division operated 174 vessels with a capacity of just under 757,000 20-foot equivalent units. It will take delivery of 18 container vessels this year.