http://www.businessweek.com/news/2010-03-14/china-cosco-is-full-of-confidence-on-container-rates-increase.html

China Cosco Is ‘Full of Confidence’ on Container-Rates Increase

March 14, 2010, 9:37 PM EDT
By Wendy Leung

March 15 (Bloomberg) -- China Cosco Holdings Co., the nation’s largest container-ship operator, expects to win a planned rate increase in new contracts as an economic rebound revives trade and shipping lines continue capacity restrictions.

“I’m full of confidence” about the on-going annual contract negotiations, President Zhang Liang said in a March 12 interview in Beijing. “The full recovery has yet to come but we are on the road to recovery.”

Asia’s largest shipping company by market value and other lines have agreed to seek an $800 per forty-foot container rate increase on U.S. west coast routes after price wars and overcapacity caused industrywide losses last year. Rates have risen this year as U.S. retailers rebuild inventories and lines pare capacity by slowing vessels and idling ships.



China Cosco, also the world’s largest operator of dry-bulk ships, may acquire new or second-hand vessels this year following a drop in prices, Zhang said. The company also intends to charter in dry-bulk ships during anticipated declines in rates, he said.

“We will grab opportunities in the market to optimize our fleet,” he said. The line may also delay some ship orders this year to ensure the “sustainable and healthy development” of its fleet, Zhang said.

Expanding Fleets

Pacific Basin Shipping Ltd., Hong Kong’s biggest commodity line, has also bought ships since December and said it plans to expand its fleet “significantly” amid lower vessel prices. China Shipping Group Co. plans to buy “quite a few” dry-bulk ships this year, President Li Shaode said on March 3. China Shipping is the nation’s second-largest sea-freight company behind China Cosco’s parent China Ocean Shipping (Group) Co.

Cosco Group will likely make a profit in the first quarter and for the full year, Executive Vice President Zhang Fusheng said on March 5. A.P. Moeller-Maersk A/S, the world’s largest shipping company by market value, has forecast a “modest” 2010 profit as the economic rebound helps revives freight rates.

China Cosco and the 14 other lines in the Transpacific Stabilization Agreement agreed to seek an $800 increase in contracts due to start around May 1. Other members of the group include Maersk, Evergreen Marine Corp., Asia’s biggest container-shipping line, and China Shipping’s container unit.

China Cosco gained 1.2 percent to HK$10.58 on March 12 in Hong Kong trading. The stock has more than doubled in the past year.

Dry-Bulk Volumes

Global commodity-shipping volumes will likely increase 6.3 percent this year, Zhang said, as China imports more iron ore and coal amid a rebounding global economy.

Worldwide steel demand will to return 2007’s pre-crisis levels this year, which will help boost iron-ore shipments 10 percent, Zhang said. Coal volumes may rise 7 percent, he said.

The Baltic Dry Index, a measure of commodity-shipping costs, will likely average between 3,000 and 4,000 this year, said Zhang, who’s also a vice president at Cosco Group. The index averaged 2,617 last year after plunging as low as 663 in December, 2008. It reached a record high 11,793 less than seven months earlier.

“The peak and the slump were not reflecting the real conditions, but only speculation and fear,” Zhang said. “The market is getting more and more rational.”

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"Courage is being scared to death - but saddling up anyway." -- John Wayne (1907-1979)