Finance chief of top container shipping line cites 'irrational price competition' as factor in failure to meet earnings forecast China Cosco Holdings, which operates the country's largest container shipping line, said first-half earnings plunged 42.2 per cent because of higher fuel costs and lower freight rates. Profit before tax fell to 2.56 billion yuan for the six months to June from 4.43 billion yuan in the same period last year, executive director and president Chen Hongsheng said. Turnover remained flat at 18.5 billion yuan. Including the 511 million yuan provision set aside to make state-owned shares of a Shenzhen-listed unit tradable, China Cosco's net profit fell 65 per cent to 978 million yuan, or 15.9 fen a share, compared with 2.77 billion yuan, or 67.4 fen a share, in the year-earlier period. That fell short of JP Morgan's forecast of 1.2 billion yuan. 'Our freight rates slipped 11.2 per cent, with the route between Asia and Europe suffering the sharpest drop of 19 per cent due to the irrational price competition,' chief financial officer He Jiale said. China Cosco's operating profit from container shipping slumped 74 per cent to 739 million yuan. Mr He said the profit margin from shipping business fell despite a 12.5 per cent growth in volume, as rivals overexpanded their fleets to grab market share at the expense of freight rates. He did not give exact figures on margins. 'During the second half of the year, we expect freight rates for container shipping to improve with the arrival of the peak season,' said chairman Wei Jiafu yesterday, adding that rates have risen 8 per cent to 10 per cent since April. '[However,] the international container shipping business is still facing challenges due to numerous factors including the increase in fuel price,' Mr Wei added. Although the company used hedging to combat rising fuel prices, bunker costs still leapt by 69.7 per cent, accounting for 71.2 per cent of the total increase in costs at its container shipping business. China Cosco, the overseas listed flagship of China Ocean Shipping (Group), operated a fleet of 139 container vessels with capacity of 381,039 20-foot equivalent units in June. Operating profit from container terminals dived 58 per cent to 382 million yuan as the sale of a 17.5 per cent interest in the Shekou terminal last year as well as the replacement of four quay cranes at the Cosco-HIT facility affected services. However, total throughput rose 23.5 per cent on strong global trade. China Cosco had interest in 99 container berths, two berths for cars and three berths for multi-purpose use in June, all run by Cosco Pacific. The container leasing business, which overtook container shipping as the company's largest revenue source in the first half, saw operating profit surge 2.4 times to 1.5 billion yuan, thanks to the delivery of new vessels and increased demand for containers. China Cosco booked a 511 million yuan one-off provision incurred by its 52 per cent-owned Cosco Pacific as compensation for shareholders of A-share listed China International Marine Containers (Group) in the state-owned share reform. Cosco Pacific, which owns 16.23 per cent of China International Marine Containers, needed to offer compensation to the subsidiary's shareholders to win their approval for the conversion of its stake into tradable shares on the Shenzhen Stock Exchange.