COSCO secures $1.75 billion credit line for new building scheme
CHINA’S COSCO group has secured $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 funded 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.
One respondent predicted, “The shipping market will improve slightly over the next few months as it mirrors the slow improvement in global markets.” But not everybody agreed. “The road to recovery is very long and very hard,” said one respondent. “Europe is still struggling and it seems unlikely that things will improve soon, even if demand for shipping increases in other parts of the world where the economy is faring better.” Another noted, “The world economy is not as healthy as expected. China has changed its growth model, while Europe is struggling under austerity measures and a lack of investment. The US may be in better health, but it is not able to drag shipping out of the doldrums in the short term.”
Elsewhere it was noted, “We are heading for a low level of activity in all markets. With sanctions on Russia and Iran, and fighting in Iraq and Syria and elsewhere, people are spending less money, which results in fewer cargo movements.”
The cost of meeting the growing regulatory burden in the shipping industry was high on the list of concerns expressed by respondents, one of who noted, “The ballast water treatment legislation hangs like a dark cloud over all technical ship managers. This represents a huge investment accompanied by a high level of risk.” Another observed, “Regulation is becoming stricter, and now accounts for a greater slice of operational expenses than it did a few years ago. This is bad. But it is the only way to push older tonnage out of the market.”
Another respondent emphasised, “There seems to be a lack of willingness to acknowledge the negligible level of pollution caused by shipping in relation to the volume of merchandise which is shipped globally.” Other comments included, “New EU environmental regulations will have a knock-on effect beyond the primary maritime industries,” and, “Freight rates will not compensate completely for the additional cost involved in operating on low-sulphur fuel.”
Responses to the survey were completed before the announcement of the bankruptcy filing of OW Bunker, the industry’s largest fuel supplier. But a number of comments referred to the significant role played by fuel costs in the fortunes of the shipping industry, such as the respondents who note, “High fuel costs and operating costs kill small ship owners,” and, “Bunker rates will fall still further.” Another pointed out, “Bunker prices are currently low but, with new sulphur regulations coming in, customers are receiving a very mixed message. Nobody knows what the fuel price will be in six months’ time.Elsewhere, according to blog.moorestephens.co.uk it was noted, “New fuel types developed to achieve environmental compliance will have a major impact on vessel operations, but there is great uncertainty about how many incompatible variants will be available on the market. Vessels operating on a worldwide basis will face fuel compatibility challenges.”
Meanwhile, a number of respondents warned that there were still too many ships available for the cargoes on offer. “As long as an insufficient level of old tonnage is being scrapped,” said one, “and until investors in new buildings get a grip, the situation will continue to get worse.” Another observed, “It is already six years since the downturn in the freight markets and, despite there being no ground for a sustained upturn, new tonnage continues to be ordered. We have no explanation for this.”
Also, it was pointed out that “Over-ordering will continue to slow the rate of recovery for the foreseeable future, but this will not stop owners buying while vessels are so cheap.”
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