China Cosco Holdings Co., the nation's largest shipping line, predicted a full-year loss because of plunging rates for carrying commodities and containers.
The “declining international shipping market, especially the severe situation in the international dry-bulk shipping market” has hurt earnings, the Tianjin-based company said in a statement yesterday. It didn't give a loss forecast. It reported a 2.1 billion yuan ($330 million) loss for the third quarter.
Chairman and Chief Executive Officer Wei Jiafu, 61, will become non-executive chairman as Cosco contends with global overcapacity that has hammered freight rates. The company's average container rates fell 26 percent on transpacific routes from a year earlier in the third quarter and by 41 percent on Asia-Europe services, according to Bloomberg calculations.
“The dilemma for container-shipping lines now is that the more cargo you carry, the more money you lose,” Huang Wenlong, a Hong Kong-based analyst with BOC International Holdings Ltd., said before the earnings announcement. A recent pick-up in dry- bulk rates is also “unsustainable,” he said.
The shipping line declined 2 percent in Hong Kong trading to HK$4.34 as of 11:24 a.m. The stock slumped 47 percent in third quarter and has since surged 34 percent on speculation an economic rebound may revive trade.
Vice Chairman
Ma Zehua will take an executive director and vice chairman role at China Cosco as part of the management reshuffle. Ma won't become CEO at present, a Cosco spokesman said by phone. The spokesman declined to be identified, citing company policy.
Ma joined Cosco's state-owned parent as general manager in August from smaller rival China Shipping (Group) Co. Wei became chairman of the parent at the same time. Wei, who was previously president, said then that he would focus on long-term strategy, while Ma would run day-to-day operations.
Sales at China Cosco's container-shipping unit slumped 21 percent in the third quarter even as volumes rose 14 percent. Asia-Europe sales fell 33 percent, while volumes climbed 13 percent.
China Cosco, China Shipping Container Lines Co. and other lines delayed peak-season surcharges on Asia-U.S. routes in the third quarter because of an expanding global fleet and as economic concerns damped demand for back-to-school and holidays goods. China Shipping posted a net loss of 951 million yuan in the period.
Payment Disputes
China Cosco, which had payment disputes with shipowners earlier this year, reduced the size of its dry-bulk fleet by 32 vessels in the third quarter to 403. The cuts included returning 17 chartered-in Panamax vessels and three capsizes. The amount of commodities it carried in the period fell 1.8 percent from a year earlier to 67 million tons.
The shipping line's results were below expectations and it will likely “see less margin expansion than competitors” as it may pay higher fees for additional charter capacity in the aftermath of the disputes, Barclays Capital analyst Jon Windham said in a research note today.
The Baltic Dry Index, a benchmark for commodity-shipping rates, averaged 1,534 in the third quarter compared with 2,353 a year earlier. It closed at 2,091 yesterday.
