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China COSCO plans to cut, delay ship orders

(Agencies)
Updated: 2009-04-23 17:27

China COSCO, the world's largest dry bulk shipper, posted a bigger-than-expected second-half loss and said it was in talks to delay or cancel some new ship orders to help weather the market downturn.

The country's largest shipping group forecast a substantial drop in international trade this year as the global economy contracts and squeezes China's export environment.

"Considering the market conditions, the Group is negotiating with ship owners to postpone delivery of three 8,495 twenty-foot-equivalent units (TEUs) vessels to 2010," COSCO said in a statement.

Related readings:  COSCO expects lower Q1 earnings  COSCO Pacific granted operating rights at Greek port  COSCO signs deal with Greek port  COSCO H1 net profit doubled

China COSCO, the world's No 6 container ship operator, had an order book of 59 container vessels with a total shipping capacity of 444,752 TEUs at the end of 2008. It had 141 container vessels with total capacity of 496,317 TEUs at end-2008, up 14.1 percent from a year ago.

In 2009, the group is expected to take delivery and use nine newly built vessels with a total capacity of 60,411 TEUs.

China COSCO is also in talks with shipyards to delay delivery or cancel some new dry bulk vessel orders.

The company had an order book of 58 dry bulk vessels, with a total 7.5 million dead weight tons (DWT) at end-2008, and owned, operated and controlled 443 dry bulk vessels with total 34.36 million DWT.

Shares of China COSCO eased 1.1 percent to HK$6.27 on Thursday after its earnings announcement and have lost more than 12 percent since Monday on concerns about weak shipping demand.

China COSCO posted a net loss of 3.5 billion yuan ($512.6 million) in the second half as freight rates collapsed in the fourth quarter, leaving the firm with hefty hedging losses.

The net loss, calculated from previously reported earnings, compared with a 12.25 billion yuan profit in July-December 2007.

Full-year net profit fell 40 percent to 11.62 billion yuan, and included a 4.12 billion yuan net loss against purchases of Forward Freight Agreements and 5.2 billion yuan provisions for onerous contracts.

The Baltic Exchange's main sea freight index, which tracks rates to ship dry commodities, plunged over 90 percent from a record high in May to a low of 663 points in December.

Demand for container shipping also slowed during the reported period and the basic freight level of major shipping routes fell dramatically.

Both its dry bulk and container ship operations were loss-making in the second half.