Shipping firms count losses amid weak rates

Shipping companies are still reeling under huge losses suffered in the 2016 operating year, owing to shrinking of the market and weak shipping rates, as The Guardian learnt that some of the major operators including COSCO Shipping, Mitsui O.S.K. Lines (MOL), and LSC Group and many others posted financial losses.

As a result, many are fast tracking their mergers and acquisition plans. For instance, Shanghai-listed COSCO Shipping Holdings Co, a unit of China Cosco Shipping Corporation Limited, with revenue put at CNY 71.2 billion, reported a loss of CNY 9.9 billion ($1.4 billion) in the 2016 financial year, a considerable plunge from the profit of CNY 283.4 million posted in 2015.

As a result the company did not propose any dividend for distribution to its shareholders. The loss was mainly attributed to the challenges posed by the complexity of the company’s reform and reorganisation, along with the grave market situation, and record low container shipping freight rates.

For 2017, COSCO Shipping expects the market situation to improve as there are some signs of recovery in the container sector. The company is therefore eager to launch its alliance with the French shipping company, CMA CGM, Hong Kong-based Orient Overseas Container Line (OOCL), and Taiwanese Evergreen Line from April 1, 2017.

The carriers plan to deploy around 350 container vessels with an estimated total carrying capacity of 3.5 million TEUs under their Ocean Alliance. Also, a Japanese shipping major, Mitsui O.S.K. Lines, booked an extraordinary loss of JPY 20.5 billion ($183 million) in 2016.

The impairment loss on fixed assets in containership business, mainly vessels, is ascribed to the low spot freight rate market despite showing an improvement to a certain extent.

The company’s projected net income in its consolidated business outlook for the 2016 financial year, which was announced on January 31, 2017, considered the possibility of the above-mentioned extraordinary loss. Therefore, the impact on the full-year consolidated business outlook for FY2016 is minimal, MOL added.

MOL also revised its forecast for extraordinary loss for last year operations for its dry bulker business, saying it expects to record a greater loss due to structural reforms and cancellation of charter-in contracts for its operated vessels and transfer of remaining charter-in contracts to the company.

The consolidated financial result of LSC Group for 2016 also showed a loss of $25 million. The result was mainly attributable to the steady erosion in the value of the LSC Group’s fleet throughout 2016 in the amount of $24.1 million.

Meanwhile, CMA CGM returned to profitability in the fourth quarter of 2016 despite raking up a $452 million loss for the whole year. The world’s third largest container line, that integrated NOL/APL from the middle of the year, reported a Q4 2016 net profit $45 million, compared to a $46 million net loss in the same period a year earlier.