China Cosco may be shipping war’s first casualty
LONDON : The world’s largest shipping group is sailing into a perfect storm. Chinese state-owned Cosco Shipping doubled 2024 earnings but Washington’s proposed docking fees on China-linked vessels and tariff salvo will dent demand for its services. Rival CK Hutchison’s 1 $23 billion ports sale also suggests trade will reroute to Western peers.
The $30 billion conglomerate is the world’s third-largest container transporter and fifth-largest port terminal operator; its parent also owns the largest fleet by tonnage globally. Currently, the company boasts a leading 15% market share in the vital trans-Pacific Ocean shipping route, according to analysts at JPMorgan.
The level of heft and geographic reach has translated into a seven-fold surge in Cosco’s Hong Kong stock since 2020. Last year, the company reported record earnings of $6.9 billion. That’s partly thanks to robust demand from the U.S., where apps like Shein and Temu have boosted cross-border e-commerce flows. The company has also benefited from the crisis in the Red Sea, a conduit for some 30% of the world’s container traffic, which has increased freight prices globally. Revenue from Cosco’s trans-Pacific route, for instance, surged 63% last year.
Yet Cosco is facing choppy waters ahead. In January, under President Donald Trump’s new administration, the U.S. Department of Defense added its parent to a list of companies it says work with the Chinese military, putting the shipping group at risk of higher compliance costs or more consequential U.S. sanctions. More troubling is Washington’s proposal to impose docking fees on China-built or Chinese-flagged vessels. Analysts at Citi estimate that would add 15% of additional costs on the Trans-Pacific route. Cosco could try to pass on this expense to customers or absorb it. Either way, given Cosco has the largest Chinese fleet as a percentage of its total compared to rivals, the company is the most exposed. Its operating profit is forecast to plunge 67% and 62% in 2025 and 2026 respectively, per analyst estimates on Visible Alpha.
Moreover, Cosco’s grand ambitions to develop a global rail-and-sea trade network complementing China’s Belt and Road infrastructure investments may be in peril. Hong Kong-based CK Hutchison’s sale of its overseas ports spanning 23 countries to a BlackRock-led consortium augurs fiercer competition with Western rivals. Cosco may be the first casualty in what will be a long and costly shipping war.
China Cosco Shipping, part of the state group that operates the world’s biggest fleet by tonnage, reported on March 21 that net profit attributable to shareholders for the year ended December increased 106% to a record $6.9 billion.
The company attributed the improvement to robust consumer demand in the United States and the Red Sea crisis, which forced carriers to take on longer and more expensive shipping routes.
U.S. President Donald Trump’s administration is drafting an executive order to charge fees of up to $1.5 million per port entry of any ship that is part of a fleet that includes Chinese-built or Chinese-flagged vessels, and will push allies to act similarly, according to a draft reviewed by Reuters on March 6.
Source: Reuters