Decelerating demand growth and continuing expansion of new shipping capacity has led to new lows for freight rates on mainstream shipping routes, according to a profit warning from ocean carrier CSCL.
State-owned conglomerate China Shipping expects to record a net loss attributable to equity holders of 2.8 billion yuan renminbi (RMB) in 2015 ($426 million) versus a profit of 1.06 billion RMB in 2014, according to a profit warning from the company.
The company said the loss, based on based on “China accounting standards for business enterprises,” will result from an operating loss of 2 billion RMB and assets impairment of 800 million RMB.
China Shipping recently announced plans to combine with fellow government-owned shipping line COSCO, China’s largest shipping company, in a deal that would create the fourth largest ocean carrier worldwide with 288 containerships with around 1.6 million TEUs of capacity.
In a profit warning issued to the Hong Kong Stock Exchange, China Shipping noted, “In 2015, the total trade volume of import and export dropped to a negative growth rate of 8 percent due to the lackluster global economy and the slowdown in the growth of the Chinese economy.”
It said decelerating demand growth, and continuing expansion of new shipping capacity led to new lows for freight rates on mainstream shipping lanes.
The annual average of China Containerized Freight Index issued by Shanghai Shipping Exchange fell by 20.1 percent as compared with corresponding period of last year, the company said, even dropping below the level of 720 points in December, the lowest point in 2015.
Average freight rates on European routes dropped by 47.1 percent to $620.30 per TEU, while the average freight rate to the U.S. fell 25 percent to $1,481.82 per TEU, according to the filing.
China Shipping said it intensified and implemented operational and managerial measures, flexibly adjusted the layout of shipping capacity, strengthened marketing efforts and minimized costs to adapt to the changing market, but still expects the 2 billion RMB operating loss “due to the impact of the intensive adjustment of the shipping cycle.”
The company said it made the decision to record the value of assets because it is “uncertain for the shipping industry to see a recovery in the future due to the impact of the global economic downturn.”
China Shipping projects $426m operating loss for 2015
