Chinese state-owned carrier China Shipping Container Lines (CSCL) has announced in a profit warning that it expects a 2015 net loss of US$425m due to severe market conditions, record low freight rates and vessel impairment losses.
In a profit warning filed to the Hong Kong Exchange, the company admitted that its 2015 loss, which includes a US$304m operating loss and US$122m worth assets impairment, represents a “relatively large” decline from the US$161m net profit recorded in 2014.
The carrier said in its exchange filing: “Affected by factors including the demand growth of the container transportation market decelerated while the new shipping capacity continued to expand, the imbalanced supply and demand landscape deteriorated, the freight rates of mainstream shipping lanes hit a new low, and the price of container transportation fell to the history low point.”
As CSCL added, the annual average of China Containerized Freight Index issued by Shanghai Shipping Exchange recorded a 20% year-on-year drop in 2015, hitting the lowest point in December with a level of below 720 points.
The company admitted that a future recovery for the shipping industry is uncertain due to the impact of the global economic downturn.
The China Shipping Group recently started proceedings to merge with state-owned line Cosco. Once the merger is completed, the CSCL division will transition from container carrier to a ship leasing and financing entity.
In an exchange filing released on the same day of its profit warning, CSCL stated that the US$122m loss expected from asset impairments of vessels and containers would not affect the material asset restructuring and lease arrangements of vessels and containers with China COSCO Holdings Company Limited.
The company said that it engaged independent shipping analyst Drewry to prepare a consulting report based on the market price of the lease of vessels and containers in the past three years, adding that the price ascertained in such report is treated as the fair price in the market.
“Therefore, such assets impairment would have no impact on the material asset restructuring and lease arrangements of vessels and containers contemplated by the company,” CSCL claimed.