China Cosco Holdings, one of the largest bulk vessel operators in the world, is struggling to swing back into the black as the market remains overshadowed by severe overcapacity. “We are pretty sure that the losses in bulk shipping can be reduced substantially this year through cost control measures and a reshuffle in the structure of vessels and markets,” Xu Zunwu, Deputy General Manager of China Cosco, said. The company risks losing its listing on the Shanghai Stock Exchange if it has losses over three consecutive years. It lost CNY9.56 billion in 2012, after a CNY10.50 billion loss in 2011. Sales for 2012 rose 4.4% year-on-year to CNY88.33 billion. A major source of disappointment in the results announcement was an unexpected CNY1 billion “compensation expense”, which was reportedly paid by China Cosco for the early termination of dry bulk vessel charter contracts, according to a report by Credit Suisse. Xu said the arrangement could help to reduce the operating cost of bulk shipping this year. Jiang Lijun, Executive Director and General Manager at China Cosco, said the company would explore any proposal which could help to lift profit and maximize the interest of its shareholders. Disposing of assets and cost controls would be the major measures to help the company stay afloat, Jiang said. China Cosco said it would pocket CNY6.74 billion from the disposal of its entire stake in Cosco Logistics to its parent and expects to book a pre-tax gain of CNY1.96 billion for 2013. The bulk shipping sector experienced its weakest period since 1986 last year. Sales at Cosco’s dry bulk shipping shrank by nearly a third to CNY16 billion last year while operating losses rose 43% to CNY7.77 billion. The company will return about 30 chartered vessels to their owners this year and take delivery of 12 new vessels. At the end of last year, it operated 332 bulk vessels with a total of 30 million DWT. The container shipping division saw its losses fall to CNY1.5 billion last year from CNY6.3 billion in 2011. Sales rose 17% to CNY48 billion. At the end of last year, the division operated 174 vessels with a capacity of just under 757,000 TEU. It will take delivery of 18 container vessels this year, the South China Morning Post reports.

The strike at the Kwai Tsing terminals could further jeopardize Hong Kong’s ranking among the world’s leading container ports, according to shippers and an industry spokesman. Mainland Chinese rivals are already putting pressure on the city, with Shenzhen overtaking Hong Kong as the world’s third-busiest port. In a move that will further boost its standing, the Hong Kong Shippers’ Council advised operators and freight forwarders to divert cargo to Shenzhen as the strike at Kwai Tsing continued. Council Chairman Willy Lin said: “If this drags on, shippers have to look at other ports including Shenzhen and [Guangzhou]. If the strike continues, it will have a very negative impact on Hong Kong as a logistics center.” In the first two months of this year – before the strike began on March 28 – container throughput at Shenzhen increased 6% to 3.53 million TEU. Meanwhile, Hong Kong’s tally fell 4.3% to 3.48 million TEU, making it the fourth busiest port. Dockers are pushing their demand for a 20% pay rise. Gerry Yim, Managing Director of Hongkong International Terminals (HIT), said his company was losing HKD5 million a day because of the strike, adding: “We’ve lost our reputation in the international shipping business.” Some vessels waiting to bert at Kwai Tsing had since moved on to Shenzhen and Singapore. The Confederation of Trade Unions (CTU) argued that HIT was responsible for the loss of reputation as it refused to negotiate over wages. Hong Kong was the world’s busiest container port for more than 10 years until it was overtaken by Singapore in 2005, said Stephen Cheng, President of the Hong Kong Logistics Association. In 2010, Shanghai took over as number one. “Before 2004, Hong Kong was almost the only gateway to China, [but meanwhile] China has developed its ports,” Cheng said.

Hong Kong’s fruit supply was briefly affected by the strike, but would gradually resume as buyers adjusted shipping routes to avoid strike-hit container terminals. The city has been putting up with a volatile supply of overseas fruits, for which shipping is a major channel of import, since hundreds of dockers at the Kwai Tsing Container Terminals walked off their jobs on March 28. Cheung Chi-cheung, Vice Chairman of the Kowloon Fruit and Vegetable Merchants Association said the city needed 15 to 20 containers of oranges every day, but the number had dropped to three during the strike. The situation had improved slightly since the early days of the strike, said wholesalers. Merchants had arranged for ships coming from exporters near Hong Kong to dock at Kwai Tsing terminals not owned by port operator Hongkong International Terminals (HIT), or to divert to Shenzhen, Cheung said. Contractor Global Stevedoring Service announced that it was closing down after June 30 because it could no longer operate with nearly 75% of its dockers on strike. About 300 of the 450 striking dockers are employed by rival Everbest Port Services. The strike organizer justified the demand for a pay rise of about 20% because of inflation and “exploitation” in the past 18 years. But HIT said dockers already earned HKD20,000 a month on average and a 20% pay rise would “cause irreparable damage to Hong Kong”. Everbest warned dock workers to end their walkout or risk losing their jobs to 100 new hires.

Latest update: On April 25, About 300 striking dockers staged a sudden blockade and caused traffic delays on the Container Port Road South outside the Kwai Tsing Container Terminals. Strikers were marching slowly along the road in a bid to deal a blow to the operations of port operator Hongkong International Terminals (HIT).

ICBC Financial Leasing is targeting foreign shipowners with leasing deals as it seeks to double the value of its ship asset portfolio this year, Yang Changkun, Managing Director of ICBC Financial Leasing’s Shipping Division, told the South China Morning Post. Yang said the firm, a unit of the Industrial and Commercial Bank of China (ICBC), already controls more than 150 ships that it leases to shipowners. French offshore company Bourbon recently signed a USD1.5 billion sale and lease-back deal with ICBC Financial Leasing involving up to 51 ships. Bourbon said the ships, comprising 24 in operation and 27 under construction, which are to be delivered within 14 months, are worth USD2.5 billion. Under the deal, ICBC Financial Leasing will buy the ships at market prices with a vendor loan of up to USD116 million. The ships will be chartered back to Bourbon for 10 years on a bareboat basis, meaning Bourbon will be responsible for all crewing and operating expenses. Bourbon will have the right of first refusal to buy the ships if ICBC Financial Leasing decides to sell the vessels during the lease period. Bourbon initially started to negotiate the deal with Standard Chartered Bank, but the terms it was seeking, including a private equity injection and a shipping-trust-type structure, were unacceptable to Standard Chartered. Sources added that Bourbon then restructured its proposal to ICBC Financial Leasing into a straight operating lease, sale and lease-back arrangement. Yang said ICBC Financial Leasing had not set a target for its fleet size, but sources close to the bank said the Bourbon deal was relatively small compared with the amount of money it had available for ship lease deals. Its other clients include container ship owner Seaspan and Cosco. Yang said: “We are trying to do more overseas business. We are quite open. We like to talk to any experienced shipowner. We are trying to be the world leader.”

Pacific Basin Shipping has continued last year’s spending spree on vessel acquisitions despite what the company said was a weak outlook, “with moderate seasonal variations”, for the dry bulk market this year. The firm added a ninth dry bulk vessel to the eight it has agreed to buy for USD122 million since September last year. No details of the ship or the price paid were given in the firm’s first quarter trading update, but the company said its “strategic objective is to expand our dry bulk core fleet at attractive prices”. Six of the nine vessels have already joined the fleet while the remaining three will be delivered by the middle of this year. They comprise seven Handysize vessels of 25,000 to 39,999 DWT and two Handymax ships of 40,000 to 64,999 DWT. Pacific Basin, the largest Handysize operator in the world, paid an average USD15.25 million for the eight ships. It said the value of a five-year-old 32,000 DWT Handysize ship had risen to USD17 million, from USD16 million in the second half of last year. Pacific Basin outperformed the underlying Handysize spot charter market by minimizing the number of unladen voyages to load cargo. It said the average time charter equivalent earnings for its Handysize fleet was USD8,820 per day in the first quarter. By comparison, the average daily spot rate was USD6,530 for Handysize ships. Pacific Basin said 50% of the Handysize revenue days for the rest of the year had been contracted at a net USD9,500 per day. The firm, which owned and chartered 143 Handysize vessels, said the Handysize market “has followed a similar pattern to last year with a weak start giving way to improved rates going into the second quarter”.

Strong relations with charterers, particularly Japanese cargo owners, and a healthy balance sheet have helped dry-bulk shipowner Pacific Basin Shipping weather the downturn better than rivals, Chief Executive Mats Berglund said. He added that Pacific Basin did a lot of business with Japanese interests, including charterers, and these links gave it “access to deals that don’t show up on the open market”. A large proportion of Pacific Basin’s dry cargo Handysize and Handymax vessels were built in Japan and carry Japanese cargoes, especially logs. The firm had cash and deposits totaling USD753.46 million at the end of last year. The firm finalized an USD85.2 million 12-year post-delivery financing package earlier this month with the Japan Bank for International Cooperation and the Bank of Tokyo Mitsubishi UFJ. The deal covers three Handysize ships and a Handymax bulk carrier that are due to be delivered by mid-2014.

China’s shipbuilders received 9.57 million DWT of new orders in the first quarter of the year, a 71.1% surge on last year, but analysts still expect vessel prices to remain low because of newly added capacity. The first quarter figures compare to 5.59 million DWT in the same period last year, according to the China Association of the National Shipbuilding Industry. The rising new order book is in line with global industry trends, which show that shipbuilding orders grew 44% from a year ago to 20.58 million DWT for the quarter. “In a slow market, shipping companies place more orders due to lower prices, and it usually takes nearly two years to complete a shipbuilding order,” said Meng Lingru, Industrial Analyst with Shanxi Securities. Despite the pickup in new orders in China, completed orders during the quarter dropped 15.6% year-on-year to 9.45 million DWT, and total ongoing order weight dropped to 107 million DWT from 141.94 million in 2012, a decline of 24.6% year-on-year. Li Xiaoguang, Industrial Analyst with Shenyin Wanguo Securities, said in a research note that the figures showed the shipbuilding industry is consolidating, and is still at the bottom of its cycle. Shipbuilding costs have halved over the past two years, and many lower-tier yards in China are struggling to break even. China CSSC Holding, the Shanghai-listed arm of the country’s largest shipbuilder China State Shipbuilding Corp, revealed in its annual report that it had posted a CNY26.87 million net profit for the 2012 fiscal year, a 98.81% slump on 2011. Similarly, Guangzhou Shipyard International’s net profit tumbled 98% to CNY10.33 million. Data from the Ministry of Industry and Information Technology (MIIT) showed Chinese shipbuilders completed 21.4% fewer orders in 2012 from the year before, and newly received orders dropped 43.6% year-on-year. In addition, total ongoing orders fell 28.7%. Since the fourth quarter of 2011, the China Shipping Prosperity Index has stayed below the demarcation line for six consecutive quarters, indicating the overall outlook for the shipping industry is turning from bad to worse, the China Daily reports.