Auditors probe COSCO over alleged financial irregularities

CHINA’s National Audit Office has issued a report accusing state-run Cosco, the nation’s largest shipping line, of alleged serious financial irregularities as the leadership in Beijing tightens its crackdown on corruption.

The mainland’s highest audit authority found that Cosco Group had allegedly falsified its earnings between 2008 and 2013, leaving out $48 million in revenue and $27 million in expenses, registering a net profit that was $20 million less than declared.

According to Newark’s Journal of Commerce, Group subsidiaries Cosco Logistics and Cosco Dalian Shipyard were also found by the auditors to have engaged in illegal activities, including alleged bribery and operational violations.

The report explained that a lack of risk management and supervision saw Cosco Group losing $5.5 billion between 2009 and 2013 when a gamble on long-term charter rates came spectacularly unstuck as the rates tumbled, demand fell off and shippers defaulted on contracts.

The National Audit Office said the alleged illegal activities just unearthed in its latest report would be investigated by the authorities.
Cosco is believed to hold 43.5 per cent of the China’s gross shipping tonnage, according to the Shanghai International Shipping Institute.

Singapore’s marine portal Splash 24/7 recently confirmed report that Cosco, China’s top maritime conglomerate has sealed deals for giant containership orders on home soil.

Brokers report Cosco has signed deals for nine plus four options on 20,000-TEU (Twenty Foot Equivalent Unit) vessels that will take Cosco Container Lines above one million slots for the first time.

The ships are split between three Chinese yards. Shanghai Waigaoqiao Shipbuilding (SWS) will build four of them; Nantong Cosco KHI Ship Engineering (NACKS) will build three, with Dalian Shipbuilding Industry Co (DSIC) contracted for two firm orders as well.

The giant ship order will take Cosco Container Lines’ fleet above one million slots for the first time.

Meanwhile, Cosco group recently secured a $1.75Billion financial agreement with Export-Import Bank of China (China Exim Bank) for its newbuilding programme.

The development is coming after a United Kingdom based Moore Stephens maritime experts made public the outcome of its survey on confidence levels in the shipping industry.

According to the group, overall confidence levels in the shipping industry fell during the three months to November 2014 to their lowest level for two years.

The survey revealed increasing concern about the high cost of achieving compliance with new regulations, and ongoing doubts about overtonnaging.

The loan will be used to fund COSCO to order 53 newbuildings at Chinese yards, including 90,000dwt semi-submersible vessels (the largest to be built by Chinese yards to date), 9,400teu container ships, as well as eco bulk carrier, which are planned to replace over 100 ships scrapped by COSCO within the past two years, according to the agreement.

This deal, according to www.ihsmaritime360.com is a crucial move to promote the implementation of the State Council’s programme to promote the transformation and upgrading of shipbuilding industry, said a senior executive from the bank at the signing ceremony.

“These newbuildings will save 20% bunker consumption on average when compared with the same type owned by COSCO at present,” said the executive.
He added that these new vessels would also help the structural adjustment of the Chinese shipbuilding sector, since they will be built at Chinese yards.

The China Exim Bank has provided a total of CNY580Bn loan to the Chinese shipbuilding sector since its foundation in 1994, and unded 9,637 ships with a total contract value of $197.7Bn.

In November 2014, the average confidence level expressed by respondents in the markets in which they operate was 5.7 on a scale of one (low) to 10 (high), down from the 6.1 recorded in August 2014. This compares to the record high of 6.8 when the survey was launched in May 2008.

All categories of respondent recorded a fall in confidence this time, most notably charterers (down to 5.4 from a record high of 6.7 three months ago) and owners (down from 6.2 to 5.5). Confidence on the part of managers, meanwhile, fell marginally from 6.2 to 6.1, while for brokers it was down from 5.3 to 5.0.

Geographically, confidence was down in Asia and Europe to 5.8 and 5.6 respectively from the levels of 6.0 and 6.1 recorded three months previously. Confidence in North America, however, held steady at 6.2.

A number of respondents referred to continuing uncertainty in the markets, resulting from a variety of factors. One said, “The market remains directionless. It needs accelerated scrapping, which would make economic sense for owners of older tonnage. But, given the recent drop in fuel costs, such owners could elect to hold on to their ships for the time being.”

One respondent predicted, “Most sectors will continue to struggle along the bottom, kept alive by low interest rates,” while another felt, “There is still too much capacity and an unreasonable expectation of performance levels, given all the new ordering that is taking place.”

Not everybody was quite so pessimistic, however. One respondent said, “The global markets are expected to pick up around mid-2015,” but warned that the viability of shipping depended on the scrapping of 60 percent of all vessels over 20 years’ old and on a drastic reduction in the number of new vessels being built.