Ports/Shipping - Cosco Investment (S) Ltd's results for 2001 bucked the trend of shipping companies worldwide by showing an increase in profits.
Furthermore they were published with expressions of guarded optimism for the year ahead. In a year that saw so many shipping companies tighten their belts with scant effect, Cosco's profitability is a model worth studying.
Throughout 2001, Cosco's profits rose 41.5 percent to US$7.26 million on a six-percent drop in turnover.
The company's EPS improved, and its drop in turnover was credited to Cosco's decision to leave trading businesses, which were high on turnover but low on profit. Rather than diversifying from the difficult business of shipping, Cosco has taken the opposite track, increasing their shipping and shipping-related services, as a proportion of turnover last year, from 53 percent to 61 percent while further divestment of other interests such as property and oil trading took place.
For 2002 the company expects a continuing healthy trend, though a lower net profit due to the non-recurrence of one-off foreign exchange gains.
Teo Chuan Tech, Cosco's financial controller said the company "will concentrate on shipping and expect shipping with China to grow by leaps and bounds. We will expand in logistics and transportation business there. We expect shipping rates to recover in the second half of the year and will use IT to enhance efficiency and productivity."
Accession to the WTO and the Beijing Olympics are two strong reasons Cosco is bullish about China.
Last October, the company bought a 50 percent stake in China's NOSEC shipyard, an investment Cosco described as "very profitable." The company hopes to expand further in the ship-repair sector, perhaps in Singapore.
For the coming year, chairman Ji Hai Sheng has reckoned that "the biggest challenge facing us is the world economy. The second biggest challenge is competition from other shipping lines."
"Cosco has over 1,000 offices in China, but everyone wants to compete in China," he said.
"As for rates, it is very difficult to restore them to the level of early last year, but there is an indication that rates will go up around the peak season starting in September and October."
Cosco was profitable last year because its rates were locked in at a good price even before the September 11th attack. In addition, the company was less exposed than a line running solely as a container fleet; it operates eleven bulk carriers and has two more to come next year. Bulk carriers' rates did not suffer so heavily as container shipping rates. But even in its container-shipping arm, Cosco was well situated through its concentration in China, from which trade with Singapore and other nations has remained healthy. In December 2001, the company launched a new weekly service linking Xiamen, in China, with Northern European ports via Singapore, using eight vessels carrying 3,000 TEUs to 6,000 TEUs.
Unlike other lines, Cosco does not appear tempted to move from the PSA to neighbouring Tanjong Pelepas. Last October it signed a 10-year Virtual Terminal Agreement with the PSA, giving the line priority berthing and long-term price stability based on agreed volumes. Last year Cosco moved some 250,000 TEUs through the PSA with its 20 weekly calls.
Ji confirmed that there are close ties between Cosco and the Singapore government, though he would not rule out anything that might happen in the future.
"We have agreed rate schedules and PSA are our partners," he said. "Cosco is very satisfied with their performance. We have to consider all factors when choosing a terminal, including networks, as we have to consider the interests of shippers and consignees as well. At the present time we have no intention to move business to any other terminals."