Foreign Companies Suffer As China Moves To Save Its Shipping Industry

Beijing-COSCO Group, a giant state-owned conglomerate shipping company in China demands to small ship owners in dry bulk freight to reduce their rental

During the economic upturn in 2008, shipowners renting out charter vessels to COSCO received US$100,000 rental payment a day. However, the current rate has been lowered to $25,000 due to the recent economic slowdown.

The global economic downturn has led to oversupply of vessels and low freight rates, a Reuter report said. In an attempt to restructure negotiations and thereby, come up with better terms of agreements with small shipping companies COSCO has chartered, many contracts has been struck. Most of these companies were not paid by COSCO Group for the charter services they have rendered.

During an interview with Arthur Bowring, managing director for Hong Kong Shipowners Association, Reuter reported that COSCO is making a bad business with them for not paying the hiring costs while waiting to renegotiate on lower charter rates.

"If there are companies like COSCO and they are doing what COSCO Group is doing, I do hope their acts will bounce back to bite them," Bowring told Reuter reporters.

As of date, COSCO has closed agreements with several shipowners on 18 vessels, and expected to close more deals soon. One of the shipping companies that received payments from COSCO is DryShips Inc. based in Greece for its three vessels. DryShips Inc, however, chose not to disclose the terms of agreements.

Ore Shipment By Vale Shipping

According to AFP and AP reports, the oversupply in dry bulk freight market shall continue until 2013 partly because Vale Shipping Company in Brazil plans to work out a fleet accommodating mega bulk carriers, a move that certainly did not make Chinese shipping companies including COSCO happy.

However, an official of Vale told AP and AFP reporters on Monday that the Brazilian shipping company may sell or lease its fleet to Chinese and other shipowners. The announcement was made three months after its first ore-carrying vessel failed to get access to Chinese ports and was therefore forced to make a detour route to Italy.

Sources from the dry bulk freight market say the shipowners are hoping that such move will ease out the terms with them and may win over the politically powerful shipping companies, says the report.

A Plan To Consolidate

Most of COSCO' stocks are down to more than 50 percent this year. This led to a plan by COSCO Group to restructure its dry bulk freight vessels to cut down on costs and improve its bargaining influences with other shipowners.

In related news, a COSCO official who preferred not to be named was quoted saying the giant company wishes to consolidate COSCO Hong Kong Shipping, COSCO Bulk Carrier, and Qingdao Ocean Shipping to become more efficient and reliable.

Meanwhile, an analyst for Nordea Markets, Anders Karlsen, told Reuter reporters that COSCO is inflicting more pressure to Beijing to block port access to foreign competitors.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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