Abstract
In April, China COSCO, the world' s second largest integrated shipping company,
revealed plans to
reduce capacity on its key dry bulk and container fleet
as it struggles to adapt to challenging market
conditions (reported by
Reuters). BMI notes that the news comes shortly after the group announced
its
2008 financial results, showing a 40% fall in profits. A statement
released by the company revealed plans
to defer delivery of three
container vessels, each with a capacity of 8,495 TEUs, until 2010. Reuters
notes
that COSCO' s container fleet comprised 141 vessels as of December
2008, making it the sixth largest in
the world. 59 new vessels are
reported to be due for delivery by 2013, including nine in 2009 and a
further 15 in 2010. Meanwhile, the group is also expected to defer or cancel a
proportion of its dry bulk
vessel orders, thought to comprise of 58
vessels. This is despite COSCO chairman, Wei Jiafu, voicing his
expectations for the dry bulk shipping sector to return to health in April
2009. Jiafu, who oversees the
largest dry bulk fleet in the world,
(comprising 443 owned or chartered vessels) spoke of an anticipated
rise
in dry-bulk rates in Q209, driven by the recovery of the Chinese economy.
COSCO' s chairman said
that the situation is ' improving impressively in the
second quarter as shipping and leasing costs are
trending up' . He added
that in April 2009 COSCO had seen a rate increase of about US$150 on
individual
containers shipped by the company from China to Europe. BMI
notes that the group' s 2008 financial
results, released on April 23 2008,
were worse than had been predicted by many industry observers. They
showed
a 40.4% year-on-year (y-o-y) decrease in profit margin from CNY19.48bn
(US$2.85bn) to
CNY11.61bn (US$1.7bn).
China' s economy continues to
grow, albeit at a slower rate, driving trade and demand for freight
transport. Our latest estimates put GDP growth at 9% in 2008, easing quite
sharply to 5.6% in 2009.
China' s foreign trade will dramatically reverse
from 21.8% growth in 2008, with a contraction of 10.5%
in 2009, before
recovering with 16.9% expansion in 2010. Despite this year' s pause, the
resumption of
double-digit trade growth next year will continue to create
major demands on the country' s transport and
infrastructure capacity.
Underpinning the optimistic outlook is a supportive operating environment.
BMI
has given China' s freight industry a rating of 64.1 (out of a
theoretical maximum of 100), which places it
right up at the top of the
Asia Pacific region.
Based on available data, we have reduced rail freight
and river/ sea cargo growth. Our forecast for freight
carried across all
modes in 2009-2013 now stands at 8.7% per annum (pa). According to our
latest
estimates, transport and communications (T&C) GDP rose by 10.8% in
2008, 1.8 %age points (pps)
faster than overall GDP, which we estimate
will have expanded by 9%. For the 2009-2013 forecast
period, we expect the
T&C sector to continue outpacing the economy as a whole. It will achieve
average
annual growth of 8%, versus 7.1% for overall GDP. The total value
of T&C GDP will rise to US$393bn
in nominal terms by 2013, representing
6.3% of China' s GDP. The T&C sector employed 22.28mn
people, or 2.7% of
the labour force, in 2008. We see the figure rising to 23.4mn by 2013.
Despite current conditions, prospects for the freight transport industry
remain encouraging. As our figures
indicate, the freight sector will
continue to grow at a faster rate than the economy as a whole. This is in
line with intensifying demand for transport at this stage in the Chinese
economy' s development. By
transport mode, growth will be led by oil and
gas pipelines (at an average rate of 18.7% a year), shipping
and inland
waterways (9%), road haulage (7.3%), rail freight (also 6.8%), and air freight
(6%).
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