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Source: Alibaba
China's ocean-shipping industry continues to take on water from the financial storm of 2009 as the industry's future remains uncertain
As China's economy sails into calmer seas on its course to recovery, China Ocean-Shipping (Group) Co. (China COSCO) experienced choppier waters with lower performance improvements than anticipated. In its quarterly report released on October 30, 2009, China COSCO said that from January to September its operating revenue totaled 38.6 billion yuan ($5.65 billion), a drop of 59.5 percent compared with the amount of 95 billion yuan ($13.91 billion) during the same period last year.
Kept in the doldrums by the financial crisis, decreases in both freight volumes and cargo fees have contributed to the marked decline in operating revenue, the China COSCO report stated.
Registered in March 2005, China COSCO is the biggest ocean-shipping company in China. In June 2005, China COSCO was listed on the main board of the Hong Kong Exchanges and Clearing Ltd. Two years later, in June 2007, it was listed on the Shanghai Stock Exchange.
China COSCO mainly engages in container and dry bulk shipping. In early 2008, China COSCO had a container fleet of 144 vessels with a total capacity of 435,138 TEUs, ranking sixth in the world in terms of fleet size. It also has a dry bulk fleet of 419 vessels with a total capacity of 32.98 million deadweight tons, the world's largest dry bulk fleet.
The financial crisis has so far seen bigger companies facing bigger problems. China COSCO is no exception. As the captain of the Chinese ocean-shipping industry, China COSCO has had to navigate around larger obstacles than its competitors as it tries to stay afloat.
Stagnant waters
The Baltic Dry Index (BDI), issued daily by the London-based Baltic Exchange, tracks the worldwide international shipping prices of various dry bulk cargoes, reflecting the business climate of the ocean-shipping industry. If the index increases, it reflects that the economies of the world are in shipshape, international trade is prosperous and ocean-shipping companies are accruing profits.
During the months leading up to the financial crisis, the BDI dropped, indicating that international trade had taken a hit. After the financial crisis broke out, the BDI continued to sink rapidly.
According to the figures released by the Baltic Exchange, on May 20, 2008, the index reached 11,793 points, a record high since its introduction in 1985. Half a year later, on December 5, the index dropped by 94 percent to 663 points, the lowest since 1986. The index rebounded after that and recovered its lost ground to 1,316 points on November 6 this year.
Affected by the sharp decline of the BDI since the fourth quarter of last year, China COSCO's forward freight agreement suffered a huge amount of floating losses, the announcement stated. Although the economic returns of the company increased during BDI rebounds this year, the gains have been inadequate to make up for the huge losses.
China COSCO, while taking on the most water as profits sank, has not been the only victim of the financial crisis. Sharp declines in shipping prices and freight volumes, as well as financing difficulties, have placed burdens on the Chinese ocean-shipping industry as a whole.
Statistics from the National Development and Reform Commission showed that since September 2008 the number of small and medium-sized export-oriented Chinese companies closing their operations has been on the rise, leading to a reduction in port handling capacity. As exports dwindled and market demand fell, shipping companies were forced to cut cargo fees.
China COSCO figures also showed that in the five months after the financial crisis broke out, the freights on the three major routes between China and Europe, North America and the Middle East experienced considerable drops. Freights to Europe, the Middle East and North America fell by 30.8 percent, 13.4 percent and 10.5 percent, respectively.
Although ocean-shipping freights have risen in recent months, the increase is limited, with the price standing at a much lower level than that prior to the financial crisis. The China COSCO announcement states that the ocean-shipping industry is currently stuck in windless seas.
Good news won't come soon
When the sub-prime mortgage crisis emerged in 2007, China COSCO established a team to seek solutions to avert the financial dilemma brewing in the United States. Primarily seeking to avoid substantial losses and the risk of capital chain disruption brought about by the bankruptcy of U.S. banks, the team formulated a reliable plan: China COSCO should immediately transfer its debts in U.S. banks back to Chinese banks and then transfer its deposits in foreign banks back to Chinese banks as soon as possible. In the meantime, the company would need to cut unnecessary investment to secure its cash flow.
While trying to maintain normal operations on its existing routes, the company tried to adopt measures to control costs, according to China COSCO. After the financial crisis broke out in 2008, China COSCO attempted to reduce oil consumption and emissions on 17 of its routes. When the transport capacity rose by 14.1 percent, oil consumption fell by 3.9 percent last year. The company also grasped the opportunity to increase its transport capacity on domestic routes, witnessing a rise of 6.2 percent year on year.
However, these measures have been only slightly effective. The difficult situation faced by the ocean-shipping industry has remained unchanged.
The continued slowdown in market demand has been the biggest challenge to container shipping companies, China COSCO stated. The recovery of the economies and trade volumes in Europe and the United States—assisted by the implementation of economic stimulus plans and the decreasing inventory of retailers—will help guide the container shipping market into positive territory.
Since April 2009, the transport capacity of trunk routes and some secondary routes have recovered, with cargo fees rising to some extent. But compared with the same period of previous years, a truly "busy" season has yet to be seen.
China COSCO continued to suffer losses in the third quarter of this year, a year after the onset of the financial crisis, indicating that the ocean-shipping industry is still struggling in the shadow of the crisis. Already, dozens of shipping companies worldwide have ceased shipping operations, unable to ride out the storm. In June, Eastwind Maritime Inc., a U.S. shipping company, declared that it had filed for bankruptcy protection since it was unable to pay back its nearly $1 billion of debts.
Most industry insiders are pessimistic about the future of the ocean-shipping industry. Since container shipping mainly reflects developed countries' consumption demand for finished products, the industry has actually been operating at a low level since 2005. The present situation is much more dire, as demand from the European and U.S. markets continues to shrink and freights remain at low levels, leaving little hope that the industry will make any considerable gains in the near future.
During the current round of economic rebound in China, with a resumed demand for steel products and rising coal consumption brought by increased power generation volume, the dry bulk business has become the most eye-catching sector of the shipping industry. However, the potential withdrawal of economic stimulus packages and the adverse effect of the excessive production capacity in China have left many concerned about how long the upswing in the dry bulk market will last.
China's ocean-shipping industry continues to take on water from the financial storm of 2009 as the industry's future remains uncertain
As China's economy sails into calmer seas on its course to recovery, China Ocean-Shipping (Group) Co. (China COSCO) experienced choppier waters with lower performance improvements than anticipated. In its quarterly report released on October 30, 2009, China COSCO said that from January to September its operating revenue totaled 38.6 billion yuan ($5.65 billion), a drop of 59.5 percent compared with the amount of 95 billion yuan ($13.91 billion) during the same period last year.
Kept in the doldrums by the financial crisis, decreases in both freight volumes and cargo fees have contributed to the marked decline in operating revenue, the China COSCO report stated.
Registered in March 2005, China COSCO is the biggest ocean-shipping company in China. In June 2005, China COSCO was listed on the main board of the Hong Kong Exchanges and Clearing Ltd. Two years later, in June 2007, it was listed on the Shanghai Stock Exchange.
China COSCO mainly engages in container and dry bulk shipping. In early 2008, China COSCO had a container fleet of 144 vessels with a total capacity of 435,138 TEUs, ranking sixth in the world in terms of fleet size. It also has a dry bulk fleet of 419 vessels with a total capacity of 32.98 million deadweight tons, the world's largest dry bulk fleet.
The financial crisis has so far seen bigger companies facing bigger problems. China COSCO is no exception. As the captain of the Chinese ocean-shipping industry, China COSCO has had to navigate around larger obstacles than its competitors as it tries to stay afloat.
Stagnant waters
The Baltic Dry Index (BDI), issued daily by the London-based Baltic Exchange, tracks the worldwide international shipping prices of various dry bulk cargoes, reflecting the business climate of the ocean-shipping industry. If the index increases, it reflects that the economies of the world are in shipshape, international trade is prosperous and ocean-shipping companies are accruing profits.
During the months leading up to the financial crisis, the BDI dropped, indicating that international trade had taken a hit. After the financial crisis broke out, the BDI continued to sink rapidly.
According to the figures released by the Baltic Exchange, on May 20, 2008, the index reached 11,793 points, a record high since its introduction in 1985. Half a year later, on December 5, the index dropped by 94 percent to 663 points, the lowest since 1986. The index rebounded after that and recovered its lost ground to 1,316 points on November 6 this year.
Affected by the sharp decline of the BDI since the fourth quarter of last year, China COSCO's forward freight agreement suffered a huge amount of floating losses, the announcement stated. Although the economic returns of the company increased during BDI rebounds this year, the gains have been inadequate to make up for the huge losses.
China COSCO, while taking on the most water as profits sank, has not been the only victim of the financial crisis. Sharp declines in shipping prices and freight volumes, as well as financing difficulties, have placed burdens on the Chinese ocean-shipping industry as a whole.
Statistics from the National Development and Reform Commission showed that since September 2008 the number of small and medium-sized export-oriented Chinese companies closing their operations has been on the rise, leading to a reduction in port handling capacity. As exports dwindled and market demand fell, shipping companies were forced to cut cargo fees.
China COSCO figures also showed that in the five months after the financial crisis broke out, the freights on the three major routes between China and Europe, North America and the Middle East experienced considerable drops. Freights to Europe, the Middle East and North America fell by 30.8 percent, 13.4 percent and 10.5 percent, respectively.
Although ocean-shipping freights have risen in recent months, the increase is limited, with the price standing at a much lower level than that prior to the financial crisis. The China COSCO announcement states that the ocean-shipping industry is currently stuck in windless seas.
Good news won't come soon
When the sub-prime mortgage crisis emerged in 2007, China COSCO established a team to seek solutions to avert the financial dilemma brewing in the United States. Primarily seeking to avoid substantial losses and the risk of capital chain disruption brought about by the bankruptcy of U.S. banks, the team formulated a reliable plan: China COSCO should immediately transfer its debts in U.S. banks back to Chinese banks and then transfer its deposits in foreign banks back to Chinese banks as soon as possible. In the meantime, the company would need to cut unnecessary investment to secure its cash flow.
While trying to maintain normal operations on its existing routes, the company tried to adopt measures to control costs, according to China COSCO. After the financial crisis broke out in 2008, China COSCO attempted to reduce oil consumption and emissions on 17 of its routes. When the transport capacity rose by 14.1 percent, oil consumption fell by 3.9 percent last year. The company also grasped the opportunity to increase its transport capacity on domestic routes, witnessing a rise of 6.2 percent year on year.
However, these measures have been only slightly effective. The difficult situation faced by the ocean-shipping industry has remained unchanged.
The continued slowdown in market demand has been the biggest challenge to container shipping companies, China COSCO stated. The recovery of the economies and trade volumes in Europe and the United States—assisted by the implementation of economic stimulus plans and the decreasing inventory of retailers—will help guide the container shipping market into positive territory.
Since April 2009, the transport capacity of trunk routes and some secondary routes have recovered, with cargo fees rising to some extent. But compared with the same period of previous years, a truly "busy" season has yet to be seen.
China COSCO continued to suffer losses in the third quarter of this year, a year after the onset of the financial crisis, indicating that the ocean-shipping industry is still struggling in the shadow of the crisis. Already, dozens of shipping companies worldwide have ceased shipping operations, unable to ride out the storm. In June, Eastwind Maritime Inc., a U.S. shipping company, declared that it had filed for bankruptcy protection since it was unable to pay back its nearly $1 billion of debts.
Most industry insiders are pessimistic about the future of the ocean-shipping industry. Since container shipping mainly reflects developed countries' consumption demand for finished products, the industry has actually been operating at a low level since 2005. The present situation is much more dire, as demand from the European and U.S. markets continues to shrink and freights remain at low levels, leaving little hope that the industry will make any considerable gains in the near future.
During the current round of economic rebound in China, with a resumed demand for steel products and rising coal consumption brought by increased power generation volume, the dry bulk business has become the most eye-catching sector of the shipping industry. However, the potential withdrawal of economic stimulus packages and the adverse effect of the excessive production capacity in China have left many concerned about how long the upswing in the dry bulk market will last.
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