Friday, April 27, 2012

Container Handling and Shipping Traffic Cannot Outweigh Slump in Bulk Cargoes

Chinese Giant Suffers from Fall in Volumes
Shipping News Feature

CHINA – WORLDWIDE – No matter how much the bulk and container shipping lines change tack, diversify and cut costs there is no disguising that falling cargo volumes and overcapacity have had a major influence on all the big freight carriers and now the flagship Chinese national carrier has joined other box and product carrying fleets in demonstrating how hard the industry has been hit of late.

Last month China COSCO (Holdings) released annual figures showing revenues 12.3% down to the end of 2011. Yesterday the group revealed figures for the three months to 31st March and the comparison with the previous year makes interesting reading. The calculations demonstrate very clearly once again how the two sides of the industry, bulk freight versus box traffic, are directly influenced by the two methods used to pay for the actual use of the vessels, both of which are poles apart.

Container ships and product tankers are of course not interchangeable and whilst companies like COSCO can freely introduce surcharges and rate amendments to effectively increase revenue on their container traffic, allowing of course that they cannot do so when there is a glut of capacity unless they remain competitive, the bulk trade is vastly different with the whole vessel charter price per day being the key ingredient.

Common sense says that if ten bulk ships of similar age, size and carrying capacity are available then price will always be the deciding factor for the charterer whilst container shipping is more convoluted with the revenue coming by way of huge numbers of small increments with everything ranging from single boxes to bulk sales of container quotas all being negotiated individually.

Analysis of COSCO’s Q1 figures indicate that, by way of tariff increases, cost cutting and techniques such as slow steaming resulting in consequent fuel savings, their container carriage side now looks considerably healthier than their bulk freight sector. Overall the group moved over 1.7 million TEU’s in the period, up 19.5% from a year earlier. Despite this it only translated to a 2% rise in overall revenue but compared to the dry bulk sector this was a triumph. The downside is that COSCO still have 30 new build container vessels on order at a time when more capacity is probably the last thing they want having 159 such vessels in the fleet already.

Tonnages carried by way of the company’s bulk fleet fell a massive 10.9% in the comparable three month period and again 20 new ships are ordered with almost 2 million tonnes of capacity although COSCO can no doubt drop out of some of the charter agreements they hold before these all come on stream.

Meanwhile the group’s terminal handling businesses performed well with a jump in throughput to almost 13million TEU’s up 11.5%. The result of the three months activity means a net loss of 2.7 billion yuan, over $420 million, as opposed to the first quarter a year ago when a 503 million yuan loss was recorded.

The Chinese carrier possesses the largest bulk carrier fleet in the world and as such is vulnerable to the vagaries of that market and, as we have illustrated in earlier articles, the likelihood is that any recovery is likely to be slow. The Baltic Dry Index, a good general indicator, currently stands in the 1100’s, the best level since January when it was midway through it’s plunge from its December high, yet even that peak of around 2000 points was extremely modest when one considers the 11,000 plus levels witnessed in 2009, which caused so much of the current glut new build tonnage to be ordered.

COSCO has done much to insure against the peaks and troughs of the industry with investment in its container leasing and terminal handling businesses but the imbalance caused by the excessive amount of bulk capacity available to the group will weigh heavily upon it unless the Chinese and other ore and coal consuming economies improve to the point that rates in the sector rise appreciably.