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China COSCO to cancel orders

China COSCO to cancel orders
China Cosco Holdings Co., Asia?s biggest shipping company by market value, said it may cancel container-vessel orders.

China Cosco Holdings Co., Asia"s biggest shipping company by market value, said it may cancel container-vessel orders.

China Cosco Holdings Co., Asia"s biggest shipping company by market value, said it may cancel container-vessel orders after posting a second straight loss on slumping world trade. The company also plans to delay new ships, terminate charters earlier and lease or sell vessels to pare growth, it said in statement yesterday. Along with three partners, it will also cut Asia-Europe capacity by about 20 percent.

China Cosco"s container-shipping business, the nation"s biggest, had a 4.32 billion yuan ($632 million) operating loss as U.S. and European consumers pared spending on Asian-made goods, hammering rates. Its commodity-ship operations, the world"s largest, posted a loss after sales tumbled 72 percent on overcapacity in the global fleet.

Container lines ?will still be under pressure in the second half as rates won"t cover costs,? said Johnson Leung, a Hong Kong-based analyst at Tufton Oceanic Ltd., the world"s largest shipping hedge-fund group. ?The rate increase for the peak season may only be sustainable for a couple of months.?

Shipping "Crisis"

China Shipping Container Lines Co., the nation"s No. 2 cargo-box carrier, also said yesterday it will ?tackle the crisis? through steps including accelerating the sale of obsolete vessels. Orient Overseas (International) Ltd., Hong Kong"s largest container line, last night said it was delaying two new ships.

China Cosco fell 2.7 percent to HK$9.87 in Hong Kong trading. In Shanghai, it lost 4.7 percent. China Shipping Container dropped 5.5 percent in Hong Kong after posting a 3.42 billion yuan first-half loss.

China Cosco reported a 4.59 billion yuan first-half net loss, compared with a restated 15.1 billion yuan profit a year earlier. The company separately said it will pay 2 billion yuan to buy the outstanding 49 percent stake in a logistics venture from unit Cosco Pacific Ltd.

The shipping line"s losses from hauling commodities were larger than its container-shipping losses, once 6.7 billion yuan in gains from freight-forward agreements and net changes in provisions were stripped out, according to UBS AG.

?The quality of the result was much worse than we expected,? even if the net loss figure was in line with analysts" estimates, Damien Horth, a Hong Kong-based analyst for the bank, said in a note to clients today. ?This does not bode well for full-year estimates.?

Plunging Volumes

The company"s first-half dry-bulk volume fell 4.8 percent, with revenue plunging to 11.1 billion yuan. Container volumes tumbled 22 percent to 2.35 million twenty-foot equivalent units. Revenue dived 52 percent, led by a 70 percent slump on Asia- Europe routes. Average second-quarter container rates fell 47 percent, according to UBS.

The shipping line"s container fleet comprised 149 vessels as of June 30, with another 57 on order. It also operated 431 dry-bulk ships, with orders for 44 more. The company canceled eight commodity ships last month.

The shipping line, the world"s second-biggest by market value behind A.P. Moeller-Maersk A/S, won"t pay an interim dividend.

All 10 of the world"s largest listed container-shipping companies have posted losses this year, triggering industrywide efforts to raise rates through coordinated increases and capacity cuts.

China Cosco, controlled by China Ocean Shipping (Group) Co., plans to ?actively drive the market by promoting a raise in freight rates,? it said. The company and partners Hanjin Shipping Co., Yang Ming Marine Transport Corp. and Kawasaki Kisen Kaisha Ltd. will cut capacity on Asia-Europe routes from October, according to an e-mailed statement today.

Price War

Attempts to increase rates have stumbled amid excess capacity caused by plunging demand and the launch of new vessels ordered during a trade boom that ended last year. Maersk, the world"s largest container line, is ready to slash rates if rivals attempt to win market share by undercutting prices, Danish newspaper Dagbladet Borsen said earlier this week, citing Chief Executive Officer Nils Smedegaard Andersen.

UBS expects container rates to get stuck at just above a zero profit margin as anything more than this will persuade shipping lines to return idled vessels into service.

?This is now looking like a very optimistic scenario for China Cosco,? Horth said.


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