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CSCL diversifies to profitability, changes essence of core business

CHINA Shipping Container Lines (CSCL) is diversifying into engine management, ship maintenance and other ship management services, making less of its traditional container, coastal and river shipping roles.

The expansion of China Shippings core business area is a bid to seek profit growth from new businesses under current circumstances of low shipping rates, reports China Securities.

The carrier earlier sold part of the stake in its subsidiary Lianyungang New Oriental Container Terminal Co Ltd and the entire company of China Shipping Terminal Development, to improve it ailing balance sheet.

CSCL made a profit of CNY520 million (US$68.9 million) in the fiscal year of 2012. But the interim report of 2013 shows that CSCL recorded a loss of more than CNY1.2 billion as of June 30.

Though the Baltic Dry Index has increased from 804 in June to 2,000 points, the market conditions have not much improved, so it is changing the nature of its core business.

After selling its stake in Lianyungang New Oriental Container Terminal, its sale of China Shipping Terminal Development in October injected CNY870 million to counter its heavy loss.

China Shipping Terminal Development is the most profitable business of CSCL according to its interim report. Analysts said that its sale can bring CSCL a huge sum of earnings in the short term, but they are still taking a wait-and-see attitude on whether the move will do further help to CSCL in the future.

Shipbuilding, maintenance and ship-related facility manufacturing are growing steadily at a time when the shipping industry itself are hard hit by slack demand.

There were 1,647 shipbuilding and maintenance companies in China in 2012 with a 3.4 per cent year-on-year higher production value of CNY790.3 billion. Shipbuilding production value slipped 0.1 per cent to CNY595.1 billion.

While shipyard value grew 15.1 per cent to CNY113 billion, ship maintenance industry increased 11.6 per cent in value to CNY18.1 billion. Ship conversion value even increased 23.6 per cent to CNY31.7 billion.

Insiders of the industry pointed out that ship maintenance enjoys a profit as high as 30 per cent, because the sector is steady and is not much affected by shipping rates.

China Shipbuilding Industry Corporations interim report in 2013 shows that its shipbuilding, maintenance and refitting business achieved a core business revenue of CNY12.38 billion with a gross profit rate of 10.47 per cent, satisfactory in bad times.

Another example, Cosco, which recorded a huge loss of CNY9.5 billion in 2012, was seeing loss in only their shipping business. Their other sectors were in fact growing.

But a person from CSCL noted that ship maintenance is an entirely different thing from shipping after all. The company is just beginning to set its foot in this area. Whether they will expand this sector depends on how the sector performs.

 

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