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August 26, 2011 3:33 pm
Cosco has defended itself against criticism over the way it has unilaterally reneged on charter rates agreed with shipowners, saying its decision to withhold payments was standard practice within the industry
China Cosco Holdings, the Hong Kong-listed unit of the world’s largest dry bulk carrier by fleet size, on Thursday announced Rmb2.76bn ($430m) in interim losses, a worse than expected performance that put more pressure on the company to cut costs.
“Contract disputes are normal, and the detention of vessels happen often when leasing contracts are being adjusted,” said Zhang Liang, executive director, on Friday. He added that the situation had been handled appropriately and that it was not surprising for individual shipowners to “hype things up”.
The Tianjin-based shipping line, which transports much of the massive volume of raw material feeding China’s growth, has stopped payment on some of its highest-priced vessel charters because market rates have plunged and it wants to negotiate better rates. A number of shipowners and others involved have responded by obtaining court orders to seize Cosco’s own ships in response to what they claim is highly unusual behaviour.
The company on Friday tried to downplay any potential fallout, saying disputes regarding 18 of such vessels had been resolved amicably with shipowners and that relatively few ships out of its 400-plus dry bulk fleet – of which about half are leased – were affected.
It remains unclear how many contracts Cosco is trying to renegotiate.
George Economou, the Greek shipowner who has 18 vessels caught up in the dispute, said on Friday: “We are still in ongoing discussions.”
Fortescue Metals, the Australian iron ore producer, was suspended as a member of the Baltic Exchange, the world’s largest shipping market, in 2009 after it refused to honour contracts to ship goods at high prices following a collapse in shipping rates. Jeremy Penn, the Baltic Exchange’s chief executive, has said Cosco could face similar sanctions if there is an official complaint about its behaviour.
However, Mr Zhang dismissed that possibility. “My judgment is that it won’t happen and cannot happen,” he said.
Shipping industry figures say it is very rare for solvent shipping lines to win cuts in charter rates without major concessions such as extensions to the duration of a lease. South Korea’s Korea Lines earlier this year won agreement from some shipowners to cut charter rates, but it was on the brink of filing for bankruptcy protection at the time.
China Cosco Holdings’ interim losses were a sharp reversal from the Rmb3.4bn it earned in the same period last year as excessive supply kept commodities freight rates low, while sales fell 7.8 per cent year-on-year to Rmb42bn.
The company said excess capacity continued to depress the market, although it hoped that factors such as China’s stepping-up of the building of social housing and rebuilding projects in Japan would provide some relief.
Its shares have fallen 50 per cent so far this year against a 16 per cent fall in the Hang Seng index. They were down nearly 1 per cent on Friday.
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