Cosco 'Full of Confidence' on Rate Increase

Cosco President Zhang Liang expects to win the rate increase targeted by the Transpacific Stabilization Agreement in new contracts as world trade rebounds and shipping lines curb capacity.

“I’m full of confidence” about the on-going annual contract negotiations,” he said in a March 12 interview in Beijing with Bloomberg News. “The full recovery has yet to come but we are on the road to recovery.”

As a member of the TSA, Cosco is among the 15 lines that have agreed to seek an $800 increase in rates for carrying a 40-foot container from Asia to the U.S. West Coast after price wars and overcapacity caused industry-wide losses last year.

The TSA members also implemented a $400-per-FEU emergency rate increase as of Jan. 15 that they more than achieved as shippers scrambled to nail down scarce vessel space in the weeks leading up to the Lunar New Year holiday that began on Feb. 14.

Trans-Pacific spot rates have risen to an average of $1,862 per FEU as of March 8, which is 184 percent higher than the low of $655 per FEU more than a year ago, according to Drewry Shipping Consultants benchmark for the Hong Kong to Los Angeles route, as U.S. retailers rebuild inventories and lines pare capacity by slowing vessels and idling ships.

“Cosco is likely to achieve the planned increase as rates are still below breakeven,” said Johnson Leung, a Hong Kong- based analyst at Tufton Oceanic, the world’s largest shipping hedge-fund group. “But, an early release of idled ships could jeopardize lines’ plans.”

Cosco, the world’s largest operator of dry-bulk ships, may acquire new or second-hand vessels this year following a drop in prices, Zhang said. The company also intends to charter in dry-bulk ships during anticipated declines in rates, he said.

“We will grab opportunities in the market to optimize our fleet,” he said. The line may delay some ship orders this year to ensure the “sustainable and healthy development” of its fleet, Zhang said.

Contact Peter T. Leach at pleach@joc.com.