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COSCO cuts capacity, suspends America-Asia service

By Moshood Aliyu, with Agency Report
21 June 2016   |   4:14 am
COSCO has suspended an Asia-United States west coast service operated with 8,500- to 10,000-Twenty foot Equivalent Unit (TEU) ships.
Cosco Ship

Cosco Ship

COSCO has suspended an Asia-United States west coast service operated with 8,500- to 10,000-Twenty foot Equivalent Unit (TEU) ships.

Agency report quoted the company as saying the purpose is to “rein in overcapacity on the transpacific route in response to sluggish demand and low freight rates”.

Meanwhile, the final eastbound vessel deployed on the America-Asia Container (AAC) service sailed from Lianyungang on June 8, 2016.

SeaNews explained that capacity reductions from the withdrawal of the service will be compensated in part through the upsizing of Cosco’s ‘CEN’ service by removing the 8,500-TEU vessels operating the service and replacing them with 13,000-TEU vessels, reported Alphaliner.

The ‘AAC’ service is operated by Cosco, with CMA CGM, UASC, Hamburg Sud and PIL taking slots under five separate arrangements.

It is the biggest service yet to be withdrawn, and the move will be followed later this month by the suspension of the ‘CC1’ service by the G6 carriers and the ‘Manhattan Bridge/AAE3/AUC 2/ASUS’ by the ‘Ocean Three’ shipping alliance and Hamburg Sud.

Total capacity removed will reach 16,000 TEU per week, resulting in overall transpacific capacity decreasing by one per cent in July year on year.

Contrary to a total capacity reduction of three per cent on the Far East to US west coast, Far East to US east coast capacity will increase by four per cent, due mainly to the introduction of new services by the 2M and CKYHE shipping alliances.

The company recently unveiled the world’s largest tanker company in Shanghai.

According to maritime executives news, COSCO Shipping Energy Transportation will be the top tanker firm both by tonnage and by ship count, “with 105 vessels of a combined 17 million dwt, valued at about one tenth of China COSCO’s assets”.

The company also boasts of some 200 domestic and overseas customers in oil and gas.

State-owned China COSCO chairman Xu Lirong explained that  the move would help “ensure China’s energy security,”  adding that it would serve as an example to other state-owned enterprises of the benefits of large-scale restructuring – a priority for the Chinese government given the domestic overcapacity in steel, coal, shipbuilding and shipping.

In 2014, COSCO Dalian and China Shipping Development Corporation – merged the beginning of the year as part of the COSCO-China Shipping tie-up – ranked as the number 11 and number 12 tanker companies, with 8.3 million dwt each.

The number one operator was MOL with 15.8 million dwt. COSCO explained that the newly formed entity will be investing in as many as 25 new LNG carriers, expanding its tonnage total.

“COSCO’s new step will transform its businesses into a more diversified operation model that can take full advantage of the opportunities likely to come from the Belt and Road Initiative and the development of the Yangtze River Economic Belt,” said Wang Mingzhi, an official with China’s Ministry of Transport.

Wang referred to Xi Jinping’s “One Belt, One Road” project, a continent-spanning infrastructure investment plan designed to link China with Central Asia and Europe; the Yangtze River Economic Belt is an economic development plan for the river drainage, which is home to forty percent of China’s population but varies markedly in economic vitality between its western and eastern halves.

COSCO posted a loss of $14 million in the first quarter of the year, led by poor activity in shipbuilding, marine engineering and bulk chartering, and it projected that business conditions would worsen.

The firm is making moves outside of vessel construction and operation: it has consolidated a financial arm in Hong Kong; diversified into offshore wind in a joint venture with DEME subsidiary GeoSea; and its ports division has been quite active, acquiring a lease to Greece’s Piraeus Port and buying a 35 percent stake in the Euromax terminal in Rotterdam.

Meanwhile, the drastic capacity cuts in the containership industry, which have resulted in the size of the idle global containership fleet hitting a five-year high with one million Twenty-foot Equivalent Unit (TEU) has failed to tackle the problem of slumping freight rates.

In an effort to restore the balance between supply and demand shipping lines have been removing capacity on most of the main trade routes, with the Asia to Europe trade lane seeing the most drastic cuts.

Of the 21 strings operated by the four main carrier alliances in the Far East to North Europe trade, two have been removed by the ‘Ocean 3’ and 2M alliances. The G6 and CKYHE have removed nine and five sailings respectively in November and December, the Hellenic Shipping News reported quoting data from Alphaliner.

The drastic capacity cuts, however, have been insufficient to reverse the slump in freight rates. Spot rates from Shanghai to North Europe declined to $409 per TEU last week according to the SCFI. Furthermore, shipping lines have not managed to retain most of the rate gains from the November 1 general rate increase (GRI), which ranged from $750 to $1,200 per TEU.

Despite cutting the number of weekly sailings by 3.8 strings in the fourth quarter, the capacity reduction on the Far East to North Europe route is only one per cent lower year on year.

The average size of ships deployed on this trade has risen from 12,000 TEU a year ago to 14,000 TEU at present. Last year, only one container line service offered a weekly capacity in excess of 17,000 TEU, now there are four such strings on the Asia to Europe trade lane.

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