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COSCO aims to consolidate freight units

By Randy Fabi | China Daily | Updated: 2011-09-02 08:00

 COSCO aims to consolidate freight units

A China Ocean Shipping Group Co (COSCO) container at a shipping terminal in Tokyo. COSCO's decision in the last few weeks to unilaterally halt payments for ships it has chartered has diminished the company's reputation in the maritime industry. Tomohiro Ohsumi / Bloomberg

Country's top shipping company restructures amid payment disputes

SINGAPORE - China Ocean Shipping (Group) Company (COSCO), will merge its dry-bulk freight units to improve its bargaining power with shipowners, as it struggles with a severe market downturn and payment disputes that have tainted its reputation.

The country's top shipping conglomerate hopes to consolidate COSCO Bulk Carrier Co Ltd, COSCO Hong Kong Shipping Co Ltd and Qingdao Ocean Shipping Co Ltd into one company as soon as possible, a COSCO official said.

The three units together own or charter more than 400 vessels, making COSCO, the parent of listed company China COSCO Holdings Co Ltd, the world's largest dry bulk company.

"For the three companies, they are right now willing to be restructured," said the official, who declined to be named as he was not authorized to speak to the media on the issue.

"It is a very good time for us to restructure so we can give one voice to our clients to bargain with them."

It has yet to be decided where the new company will be based and who will manage it, he said.

A decision in the last few weeks for COSCO to unilaterally halt payments for ships it has chartered has diminished the company's reputation within the maritime industry.

Shipowners have threatened to seize vessels they have leased to COSCO and some traders are looking elsewhere to transport their coal, iron ore and other dry-bulk goods.

"China COSCO probably made a misstep in refusing to pay, and it would have been a better route from a public relations standpoint to renegotiate and pay the penalties instead," said Janet Lewis, an analyst at Macquarie Securities Group.

"The outcome would likely have been the same, but without the public embarrassment."

On Friday, COSCO said it had resolved lease disputes with shipowners on 18 vessels and expected to reach more agreements soon.

Greece-based DryShips Inc said this week the Chinese firm resumed higher payments on three of its disputed vessels, although the terms were not disclosed. DryShips had threatened to seize more vessels if payments were not made.

Many of the shipping contracts currently being renegotiated were struck during the 2008 boom when the industry's largest "capesize" vessels were being rented by COSCO and others for more than $100,000 a day.

The dry-bulk freight market has since plummeted due to the economic downturn and an oversupply of vessels, leaving COSCO paying 2008 prices for ships that now rent for less than $20,000 a day.

"I think it is a very right decision for us to take some pains right now, to bite our nails right now and to prepare for the next two or three years and wait for the market to be stable and rebound," the COSCO official said.

COSCO had 234 self-owned dry-bulk vessels and 201 chartered dry-bulk ships with a combined capacity of 3.79 million deadweight tons at the end of June.

Reuters

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