Chinese dry bulk ship operating giant Cosco have resumed payments on their high-priced vessel leases after a dispute that lasted for weeks. Cosco overrode universal business principles when it did not pay leases for 200 of its chartered vessels, trying to force down the price. Cosco struck long-term deals with several charters in 2008, during the boom in rates for ships carrying iron ore, coal and other dry bulk commodities.
Fixed leasing rates as high as $80,000 a day for the largest ships turned out to be totally overpriced as the rates usual in the market dropped to an average of $10,000 a day in 2011, depressed by the delivery of large numbers of ships ordered during the boom. The company's strategy to conclude long-term contracts with determined rates proved to be invalid, meaning that Cosco have been losing money heavily on any business done with the highest-priced vessels. This generated a reaction that has never been seen from a large participant in the world's vital dry bulk market before. Cosco refused to pay the leases for its high-priced vessels to negotiate better rates, causing massive disputes with charters and threatening the entire dry bulk industry with their behaviour. Moody's warned in its weekly credit market report that the current low charter rates could "spur other Chinese shipping companies to seek more >favourable terms in their existing agreements".
Although Cosco has now resumed payments, the company lost a huge amount of credit. This dispute will have a negative effect on its future business and, in connection with heavy losses made, could contribute to dire straits in the dry bulk-shipping sector. (9 Sept)
© 2011 -ESM: European Supermarket Magazine
