Chinese shipping industry suffers expanding losses
COSCO Shipping estimated over 50% declines in sales and Hainan Strait Shipping estimated 25% declines in revenue. China Ocean Services suffered expanded leakage of red ink. Even China Shipping Development, whose figures hovered slightly in gains amidst an adverse climate last year, did not manage to avoid losses this year. Monday, 20.Aug.2012, 01:40 (GMT+3)
Seven of the 12 Chinese shipping firms listed on the A-share market have publicized their advanced business and mid-year reports, the figures reflecting a mostly lackluster performance.
COSCO Shipping estimated over 50% declines in sales and Hainan Strait Shipping estimated 25% declines in revenue. China Ocean Services suffered expanded leakage of red ink. Even China Shipping Development, whose figures hovered slightly in gains amidst an adverse climate last year, did not manage to avoid losses this year.
China Merchants Energy Shipping publicized a mid-year report on August 17, showing that its net profits reached only 87.72 million yuan (US$13.8 million) in the first half, down 60% from a year earlier.
In the first half, both the BDTI (Baltic Exchange Dirty Tanker Index) and BDI (Baltic Dry Index) suffered substantial declines. The BDI plunged to 647, down 94.51% from its peak level of 11,793 in 2008.
Since the BDI peaked at 11,793 on May 20, 2008, the shipping industry has been experiencing four years of continuous decline. Amid the global financial tsunami, the BDI hit rock-bottom levels of 663 on December 5, 2008.
The BDI rebounded to 4,600 in November 2009 before declining again under the shadow of a long-term bearish market. In December last year, the BDI started to plummet and reached 647 on Feb 2, this year, the lowest since September 1986.
The plunge in shipping rates has driven down sales of shipping firms. China Ocean Service, for instance, raked in a profit of 10.83 billion yuan(US$1.70 billion) in 2008, down 43.3% from the 2007 level, with the profit-per-share reaching 1.06 yuan. In 2009, the company incurred staggering losses of 7.54 billion yuan (US$1.19 billion).
Analysts point out that massive amounts of funds flew to the shipping sector in 2007, largely expanding the shipping capacity. Subsequently, shipping rates plunged, inflicting serious losses on investors.
China Ocean Service managed to turn in growth figures in 2010 but incurred loss of 10.4 billion yuan (US$1.63 billion) in 2011 again. On July 30, the company announced that its losses jumped over 50% year-on-year in the first half this year.
China Ocean Service is the industry leader and its peers will inevitably be enduring hard times if the giant cannot keep afloat.
Fan Qianlei, a securities analyst, points out that thanks to the firm's coordination in shipping rates, the shipping industry is switching from heavy losses to the break-even point. Oil transportation also performed better than expected and an upturn in demand is improving profits of the industry.
The long-term sluggish business of dry bulk commodities is related to the decline in global demand and production of steel. Fan Qianlei believes that outlook for shipping demand in the second half is also not encouraging. For dry bulk commodities, sluggish prices and high inventory of iron ore will put a damper on the recovery of demand.