Cosco reports profit, extends logistics reach

Cosco reports profit, extends logistics reach

The holding company for Cosco Shipping’s ocean carrier and terminal operating divisions reported a profit of $102 million in first quarter 2019 thanks in part to a 42.6 percent increase in container transport volume. Photo credit: Shutterstock.com.

Cosco Shipping Holdings is continuing the expansion of its end-to-end logistics offerings after reporting a first-quarter profit, thanks in large part to the firm’s recent acquisition of OOCL and double-digit volume growth in its container division.

Cosco Shipping Holdings, consisting of container unit Cosco Shipping and terminal operator arm Cosco Ports, reported a net profit of 687 million renminbi ($102 million) for the first quarter of 2019, as revenue jumped 60 percent year over year to 35.08 billion renminbi ($5.2 billion). Cosco Shipping’s container transport volume in the first three months of the year rose 42.6 percent.

In its earnings report, Cosco said it was strengthening its ability to provide end-to-end solutions, primarily by building a sea-rail intermodal network. The Chinese carrier is one of several Asian and European ocean carriers that are increasingly focused on providing customers with deeper logistics services that go beyond conventional ocean shipping strategies.

Aiming to increase profitability, Cosco Ports said it’s speeding up the development of its logistics business, reaching beyond marine terminals. Cosco Ports in April announced plans to invest in a supply chain project based in the Nansha district of Guangzhou, which has become a fast-growing technology hub. Cosco said it aims to “develop a port supply chain platform and high-end warehousing business, and extend the upstream and downstream industries.”

While Copenhagen-based Maersk Line and France’s CMA CGM have their sights on becoming fully integrated logistics service providers, there’s a broader effort by carriers to move beyond moving containers from one port to another. Many of the carriers serving on the major east-west trades are offering more of the value-added services normally provided by a third-party logistics provider or forwarder, deepening their reach beyond the marine terminals to surface transport and even warehousing.

Following the unveiling of new strategies by their European counterparts, more Asia-based container lines are revealing their own plans that tilt toward deeper logistics services. The trend toward better integration of assets and extending their inland reach comes after global container growth moderated in 2018 and put downward pressure on port-to-port shipping rates, although growth is expected to resume soon. The annual growth rate of global container volume slowed to 4 percent in 2018 from 5.6 percent the year before, according to IHS Markit, but is expected to rebound 4.8 percent this year, and continue at an average 4.8 percent pace through 2025.

Cosco’s first-quarter report came the same day that Ocean Network Express (ONE), the merged container operations of Japan’s three largest ocean carriers, said it expects to turn a profit in 2019 after posting a $586 million net loss in its first 12 months in operation. Hapag-Lloyd of Germany said in March it expects to grow earnings before interest, taxes, depreciation, and amortization (EBITDA) between 28 percent and 43 percent and earnings before interest and taxes (EBIT) up to 50 percent for the year.

With the contribution of historically profitable OOCL, officially acquired in June, Cosco Shipping handled 5.88 million TEU in the first quarter of 2019. Of that total, Cosco contributed 4.28 million TEU, a 3.7 percent increase on first quarter 2018, and OOCL contributed 1.61 million TEU.

Container throughput in the carrier’s terminal operating arm increased 12.6 percent in the first quarter over the period before, helped by a 54.2 percent increase in volume through the Cosco-PSA International joint venture terminal in Singapore and a 24.4 percent increase in volume through its terminal in Piraeus, Greece.

Since the acquisition of OOCL, Cosco has “adopted [a] dual-brand strategy and has gradually achieved synergies,” including “fleet and network planning, procurement, container management, IT, commercial coordination, and marine operations,” the carrier said. The dual brand strategy, Cosco said, has also provided “a bigger and stronger platform for OOCL to further enhance its competitive advantages.”

The holding company said in a March 26 release that it has also increased its use of data and analytics, including harnessing the power of artificial intelligence ”to improve the level of marketing services” and operational efficiency.

Cosco Shipping has a fleet of 478 container vessels with a combined capacity of 2.78 million TEU, with orders for nine container vessels expected to be delivered this year, totaling 159,421 TEU.

Contact Hugh R. Morley at hugh.morley@ihsmarkit.com and follow him on Twitter: @HughRMorley1.