Chinese state-controlled shipping company China Cosco Holdings Cp. has been locked in multiple disputes after it withheld payments on contracts.The disputes have stem from Cosco’s unwillingness to pay long-term contract rates that it is bound to, which are higher than market prices falling a collapse in the shipping boom.
Moody’s has warned that the dispute could have major impact on the credit rating of the dry bulk industry as a whole, according to Financial Times.
Cosco is said to have withheld payments for long-term ship charters for as much as $80,000 a day at the peak 2008 levels. Specifically it is withholding payments on one ship held by Navios Maritime Holdings and three ships belonging to Navios Maritime Partners.
Cosco has defended its actions and said it is common practice in the industry. The company’s executive director said disputes are normal when contracts are being adjusted, and added that individual shipowners were hyping things up, according to Financial Times.
China Cosco’s many disputes
Typically companies are insured against defaults by charterers, but many have taken to the courts and had Cosco ships seized as collateral against unpaid fees.
George Achniotis, chief financial officer of Navios Maritime Holdings said he doesn’t expect to make a claim and hopes to see a settlement soon. George Economou CEO of DryShips Inc. who has 18 ships from two companies said last week that he will resort to seizing Cosco ships around the world if payments aren’t met. Swiss company Bunge SA, had a Cosco vessel seized as it sought $294,252 in fees among other costs, and Cosco had another vessel seized in Louisiana, and one in Singapore, all over payment disputes, according to Bloomberg.
Cosco’s dry-bulk business reported a first-half operating loss of 2.68 billion yuan, and its container-ship business lost nearly 950 million yuan. The company is said to be struggling with cutting costs and is trying to avoid being suspended from the Baltic Exchange.
Is it politically motivated?
Cosco which only a decade ago was a typical state-owned shipping conglomerate, is said to have taken to chartering ships as part of a larger political move. In 2007, the Communist Party announced that 75% of China’s trade should be carried out on Chinese ships.
While, Cosco’s Chairman Wei Jiafu has said the contracts were being reneged to maximise shareholder value, Financial Times reported that the real motive was bringing down China’s import costs.