The torrent of red ink flowing from China Cosco Holdings’ balance sheet may have eased in the third quarter with the help of government subsidies, but the problems facing the firm’s core dry cargo and container line businesses look far from over, as a slump in demand, too much tonnage in the global merchant fleet, and high-priced charters continue to weigh on the company. Overall, quarterly losses at China Cosco have been trimmed this year from a CNY2.69 billion net loss between January and March. The firm posted a CNY1.53 billion net loss in the third quarter, helped by a CNY490 million increase to CNY808.28 million in government subsidies. While some of the improvement came from high freight rates at Cosco Container Lines, analysts do not expect the rebound to continue. Jon Windham, head of the Asian industrials sector at Barclays in Hong Kong, said a decline in Asia-to-Europe freight rates since June signaled a sequential decline in container profitability in the fourth quarter. Winnie Guo, Shipping Analyst with CCB International Securities, said the third quarter did not live up to expectations as the container freight rate index declined 1% quarter-on-quarter.

China Cosco is the largest in revenue terms of the five listed subsidiaries of China Ocean Shipping (Group). The others are Cosco Container Lines, Cosco Logistics, Cosco Pacific – which is separately listed – and Florens, China Cosco’s container sales and leasing company. While the other separately listed Cosco group subsidiaries remained in the black, all saw steep declines in profitability. Cosco Shipping, the Shanghai-listed heavy-lift company, said net profit dropped 72.7% to CNY798.7 million in the first nine months of this year when it reported its third-quarter results on October 15. This was despite a 6% rise in revenue to CNY1.39 billion. Cosco Corp (Singapore), which controls Cosco shipyards and a dry bulk business, saw net profit drop 19% to HKD518.66 million in the first nine months of this year. Net profit at terminals company Cosco Pacific fell 24.5% to USD178.93 million in the first half while revenue rose 31.8% to USD367.36 million. Cosco International, whose businesses include marine paints, chartering, and ship services, saw interim net profit slip 1% to HKD232.42 million on revenue that fell 21% to HKD4.48 billion between January and June. Overall, the Cosco group operates at least 700 ships and employed 71,100 people in 2010, including 44,600 Chinese employees. Analysis of China Cosco’s interim results shows losses at the container and dry bulk shipping divisions dragged the rest of the company down. Cosco Logistics, terminals, and the container sale and leasing operations, all increased their profit contribution to China Cosco in the first half of this year. China Cosco’s on-balance sheet debt topped CNY79 billion in the first half, but Barclays’ Windham said there were thought to be additional off-balance-sheet debts of CNY13 billion in vessel capital commitments and CNY52 billion in vessel operating leases as of June 30 this year.