Global Shippers Must Tighten Belts, China’s COSCO Chairman Says

By Fang Yan and Matthew Miller

BEIJING, March 13 (Reuters) – Global shipping firms must prepare for another tough year as a glut in global capacity will continue to weigh on profits and margins, the chairman of China’s biggest shipping group, China Ocean Shipping Group Co. (COSCO) said.

“The industry turnaround will still take a long time,” Ma Zehua told Reuters in an interview this week. “There are a lot of challenges ahead.”

COSCO Group is one of China’s top 100 central government-controlled conglomerates. The firm operates more than 700 merchant vessels with shipping lines covering 1,600 ports. The group controls five listed companies, including China COSCO Holdings Co. and COSCO Corp (Singapore) Ltd..

COSCO Corp (Singapore) reported a 71 percent decline in net profit last year, while China COSCO Holdings Co, the group’s flagship, said it should return to profitability after posting losses in 2011 and 2012 following the sale of its logistics business, stakes in a container manufacturer and office properties.

Ma, however, said he wasn’t sure China COSCO could make a profit this year given the uncertain outlook for the global economy.

“We haven’t announced any target (for China COSCO) because we can’t say for sure it won’t make losses in 2014,” Ma said. “There aren’t that many ways left to tackle losses through asset disposal.”

The shipping industry has been battling overcapacity since the onset of the global financial crisis, as the transport market needed to digest the large number of new vessels that flooded the market between 2007 and 2009, even as the world’s economy sank into its biggest slowdown since the 1930s.

While the outlook for the shipping industry is improving, excess capacity remains a big headache. According to a recent transport sector survey by international law firm Norton Rose Fulbright, 40 percent of those polled cited overcapacity as the biggest threat to recovery in the industry.

Maersk Line, part of Danish oil and shipping group A.P. Moller-Maersk Group, cut its fleet container capacity by about 1 percent between mid-year 2012 and 2013, and its chief executive Soren Skou said last year that the market may not recover until 2018.

China COSCO also sidelined 1 to 2 percent of its ships this year, fewer than last year, Ma said.

In February, COSCO Group and rival China Shipping Group signed a strategic agreement to share resources for terminal operation, shipbuilding and other areas.

Ma declined to talk specifically about the agreement or say whether the two firms would consider consolidation. “Many people have asked us (about merging), but we have nothing to say about it,” he said. (Reporting by Matthew Miller and Fang Yan in BEIJING; Editing by Miral Fahmy)

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