20 Operations Review COSCO Corporation (Singapore) Limited <strong>Shipping</strong> COSCO Corporation’s dry bulk shipping business is undertaken by COSCO (Singapore) Pte Ltd, a wholly-owned subsidiary of COSCO Corporation. COSCO (Singapore) currently owns and operates a fleet of 13 dry bulk carriers with a total combined deadweight tonnage capacity of 700,000 dwt, and an average age of 10 years. These vessels transport dry bulk cargo such as iron ore, coal, steel, cement and fertiliser along international routes for global trade in a tramping capacity, or along main shipping routes. These are usually from China to the key ports in the US, Europe, South America and South Africa, with Singapore as a transshipment stopover.
21 Operations Review COSCO Corporation (Singapore) Limited COSCO (Singapore) also charters ships out to chartering operators or other ship owners. The bulk of the company’s customers are large, established international ship owners and operators based in Germany, Norway, Denmark, Greece, Switzerland, the UK, USA and other countries. With these customers COSCO (Singapore) enjoys a good reputation and strong business relationships forged over many years. The year in review COSCO (Singapore) continued to deliver solid turnover and profit growth in FY2004, driven by increasing global trading activity, in particular the rising demand for dry bulk imports into China such as iron ore, cement, coal and grain. As a result, the Baltic Dry Bulk Index (BDI), which hit a historic high in FY2003, consolidated at around the same average level throughout FY2004. FY2004 therefore saw a strong increase in total revenue at S$92.2 million, or 36.8% more than FY2003. Profit before tax (PBT) however more than doubled during the year, rising to S$51.9 million from S$26.5 million in FY2003. This outstanding performance was in part due to an increase in freight rates during the year in review, with COSCO (Singapore) able to renew 8 charter contracts at the higher charter rates. Most of the vessels were locked into one year contracts, with an option to renew for another year. Another factor was the maximum asset utilisation achieved during the year, with the good market conditions enabling full employment of the fleet’s total tonnage capacity. Overall, the shipping business remained the main contributor to COSCO Corporation’s turnover, providing a good and steady flow of quality income amounting to 79% of COSCO Corporation’s total turnover, and 70% of profit before tax. Delivering operational excellence In order to maintain its competitive edge at the forefront of the industry, the company is committed to sustaining the highest levels of quality in service, operations and fleet condition. As part of its ongoing fleet renewal exercise, COSCO (Singapore) sold an ageing vessel, the “M.V. Sea Swan”, in December this year. However, the fleet is being expanded by four new dry bulk carriers, each with a tonnage capacity larger than the M.V. Sea Swan. The ships are currently being constructed and will be delivered over the next two years. The first two vessels, each with a capacity of 74,000 dwt, will be delivered in FY2005, with two more 55,000 dwt vessels expected in the following year. With their delivery, the total tonnage capacity of COSCO Corporation’s dry bulk carrier fleet will be boosted to a record capacity of almost 1,000,000 dwt. COSCO (Singapore)’s commitment to standards of quality are reflected in many other ways too. Having received ISO9002 certification in 1998, the exceptional standard of the Company’s operations and vessels is also evident in the recent awarding of the highly coveted United States Coast Guard “Qualship 21: certificate of eligibility” to three COSCO (Singapore)’s fleet this year. Awarded to COS Cherry, COS Intrepid and COS Joy for their high quality practices in sustaining marine safety and environmental protection, this certification enables marine vessels to enter US territorial waters without the need for US Coastguard clearance. Outlook and prospects Given China’s rapid pace of growth and development and its resultant accelerating demand for dry bulk imports, the good market conditions in global trade and shipping are expected to improve further in FY2005. While the Baltic Dry Bulk Index is anticipated to fluctuate a little in the short term, the average is expected to remain at the current high levels throughout next year, which is good news for shipping income. Charter renewals are therefore expected to be high, with the majority of vessels locked into one-plus-one contracts. Furthermore, with the anticipated increase in cargo volume globally, the additional capacity coming on stream over the next two years will enable COSCO (Singapore) to capture maximum income from the rising demand of on-board cargo space. In addition to rising cargo volume, significant increases in bulk freight rates secured on renewals of charter hire contracts are expected to benefit COSCO (Singapore) in the coming year. DRY BULK FLEET Name of vessel Capacity Age (years) Handymax: M.V. Sea Phoenix 40,473 dwt 19 M.V. Cos Fair 46,689 dwt 5 M.V. Sea Crane 46,040 dwt 19 M.V. Cos Hero 45,547 dwt 5 M.V. Cos Bonny 46,864 dwt 8 M.V. Cos Cherry 46,840 dwt 8 M.V. Cos Knight 52,341 dwt 2 M.V. Cos Lucky 52,341 dwt 1 M.V. Cos Glory 46,680 dwt 5 Panamax: M.V. Jurong Sea 69,203 dwt 21 M.V. Cos Angel 65,029 dwt 21 M.V. Cos Intrepid 74,061 dwt 3 M.V. Cos Joy 74,073 dwt 3 COSCO Corporation (Singapore) Limited Annual Report 2004
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