28780 members and growing – the largest networking group in the maritime industry!

LoginJoin

Saturday, August 8, 2020

Maritime Logistics Professional

China carrier takes industry losses to new lows

Posted to Far East Maritime (by on April 3, 2012

Mercifully, the 2011 reporting season is almost over and soon will be consigned to the scrapheap of history, or better still, wrapped in a shroud and dumped overboard.

Just when you thought the 2011 shipping industry losses could not possibly get any worse, along comes one of China’s state owned carriers to set the benchmark at a new low.

As China’s largest line, that honour naturally fell to Cosco, and the carrier duly stepped up and recorded an incredible US$1.6 billion loss last year. Compounding it all is that the dismal result comes after the line served up a US$1 billion bonanza in 2010.

Surely no company could withstand a $2.6 billion turnaround in profits – profits, mind you, not revenue – in 12 months without a bouncer having its back. And of course, the carrier has the biggest bouncer in the neighbourhood taking care of bidness.

Across the street at the other mainland line, China Shipping had almost a good year by comparison, losing a paltry $450 million in 2011.

Both carriers are in the world’s top 10 and are fast learning that bigger only means better in the good times. Economies of scale only work if you have the cargo to fill the ships, and only if that cargo is sold at freight rate levels that are not pulled out of the bargain bin.

Then there is the cost of fuel, the price of which no one can predict beyond the fact that it will rise for no good reason and then increase even further because Mali had a military coup or the Goldman Sachs guy who deals oil futures wants to impress a female colleague.

Running a shipping line in the 21 century is becoming increasingly difficult and you have to wonder whether the Chinese government has the right idea by owning the carriers so important to its economy.

Not all lines lose money, but the asset costs are so large and the business so volatile and poorly managed that it may as well be funded by the taxpayer and run by the government. Hell, even Maersk chucked $600 million or so down the gurgler last year. Surely that’s good enough for government work.

Okay, so letting the government own or control anything is a bad idea, but one has to wonder how such gargantuan losses can be racked up every other year and yet the shipping lines producing those amazing red letter books can remain in business.

Market forces should be at work separating the viable from the unviable but they are beaten off by state-owned entities or by consortiums of investors with nationalist mindsets. So much for the capitalist system.

Let them fail, was something Maersk’s former boss Eivind Kolding said in Hong Kong when the global financial crisis produced huge container shipping losses a couple of years ago.

And with 2011 industry losses at GDP-sized levels, those words still ring true.

 

 

 

 

Tags: ships technology government Piracy Maritime marine tankers safety Container