Wednesday, December 17, 2008
Cosco faces massive charter hire losses
Keith Wallis, Hong Kong - Wednesday 17 December 2008
The Cape Jupiter
CHINA Ocean Shipping (Group) is facing a charter hire shortfall running into hundreds of millions of dollars on vessels that were contracted at the top end of the market compared with current market rates.
Analysts estimated Cosco’s total exposure in the physical market could be larger than the floating loss of Yuan3.95bn ($580.9m) on forward freight agreements announced earlier this week.
One analyst estimated that Cosco currently had about 180 ships chartered-in on periods of up to three years.
He said that while a proportion of these ships were subsequently relet at relatively buoyant rates Cosco was still exposed to the cost of the original fixtures which were made at historical highs.
They include the 1999-built, 169,168 dwt Vogebulker fixed for 12-14 months in April at $132,000 per day, the 1997-built, 175,480 dwt Cape Jupiter fixed for 12 months in February also for $132,000 per day and an Imabari newbuilding fixed for three years from April at $109,000 per day.
The analyst said the total level of Cosco’s exposure on its chartered-in tonnage was the “800 pound gorilla in the room”.
He added: “Everybody knows it’s there but nobody is willing to admit it.”
Cosco’s bulk fleet is operated through Cosco Bulk Carrier, Qingdao Ocean Shipping Co (Cosco Qingdao), Cosco (Hong Kong) Shipping and Shenzhen Ocean Shipping Co (Cosco Shenzhen).
All the these companies except Cosco HK are controlled by China Cosco Holdings, the parent company’s Hong Kong and Shanghai-listed subsidiary, which said it operated 256 chartered-in dry bulkers vessels in the third quarter of this year.
Brokers said market rumours suggested that some of Cosco’s losses in the physical market had been incorporated into the FFA write downs announced by China Cosco Holdings late on Monday.
China Cosco said losses from changes in the fair value of FFAs held its dry bulk shipping subsidiaries, amounted to Yuan5.38bn from the beginning of the year to December 12 when the Baltic dry index hit a low of 764.
But there were gains of Yuan1.43bn related to the completed portion of these FFAs which helped offset these losses to create an overall floating loss of Yuan3.95bn.
Cosco China has declined to elaborate, but brokers said China Cosco is continuing to play the FFA market in over-the-counter trades through Cosco Bulk Carrier (Cosbulk) in Tianjin. They said a little FFA business is being done by other China Cosco bulk subsidiaries.
One Hong Kong-based FFA broker said: “Cosco is still active which is a surprise given the scale of its exposure, although there is not much activity overall. Cosco is seen as one of the best over-the-counter players because it is seen as state-backed.”
The broker said Cosco has continued to use his broking firm, but because they were over-the-counter trades it was impossible to know how much business Cosco is doing overall. “If it’s not done though us then we don’t know the overall level of business.”
He added that the scale of the floating losses was a “surprise” but that it had not appeared to have dented Cosco’s appetite.
“Cosco is still willing to trade,” the broker said.
The Yuan3.95bn floating loss, which was marked to market, was thought to be China Cosco’s total FFA exposure for 2008, although brokers said it could also include FFA positions next year and in 2010.
Consequently they pointed out there could be gains as there were this year which could cut the total amount of floating losses announced this week.
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