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BY FRUITNET.COM STAFF

Tuesday 13th January 2009, 07:36 Central Time

COSCO cuts shipping capacity

COSCO plans to reduce container shipping capacity to Europe and the US and explore potential new markets in Asia in a bid to control costs

COSCO cuts shipping capacity

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Falling business and a gross misjudgment of freight rate movements have dealt a double blow to China's COSCO Holdings (COSCO), threatening to plunge the world's largest dry bulk carrier deep into the red, reports China Daily.

Shortly after COSCO announced a surge in profit for third-quarter 2008, it posted a statement on December 16 on the Shanghai and Hong Kong bourses disclosing a 3.95bn yuan potential loss arising from "misjudgment" in Forward Freight Agreements (FFA). In the disclosure, the company conceded that the situation was "serious", setting off a wave of selling of its shares.

CITIC Securities Co Ltd has estimated that COSCO's fourth-quarter loss could reach 5bn yuan, in contrast to a 5.5bn yuan profit for the previous three months.

COSCO said it will try to maintain "sound and healthy financial status" by cost control and investment compression. It also has planned to reduce container shipping capacity to Europe and the US and explore potential new markets in Asia.

"The shipping industry slump will last for at least one or two years," Qian Hongwei, analyst of China Securities Research Co Ltd,  is quoted as saying. "The fortune of the shipping industry is tied to the recovery of the global economy, which can be a long time away."

To conserve cash, COSCO has reportedly cancelled some shipbuilding orders and requested a delivery delay for others. This has affected orders for 126 vessels.

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