A few days ago, 2467 listed companies in the A-share market were announced one after another. CSCL had a loss of 1.266 billion yuan.

Li Shaode, chairman of China Shipping Container Lines, pointed out in the report that “The company’s revenue and volume in the first half of the year were lower than the 50% expected for the whole year at the beginning of the year.” In the first half of this year, the revenue of China Shipping Industry was RMB 15.587 billion. However, its total operating costs are still high, totaling 16.619 billion yuan.

In order to reverse the loss situation, Zhonghaiji Sports has made frequent efforts. In 2012, China Shipping Container Lines used its sale of container assets to complete the turnaround. In July 2012, it adjusted the estimated service life of the company's container, extended its useful life, and reduced the annual depreciation cost. On the latest September 12, the company announced that it plans to transfer its 55% equity interest in New Oriental Terminal Co., Ltd. through a publicly listed subsidiary, Zhonghai Wharf, with a base price of approximately 765 million yuan.

However, under pressure from huge losses, CSCL is still making big purchases. On May 6, CSCL purchased five 18,400 TEU (Twenty feet Equivalent Unit, 20-foot standard container) container ships with a total contract value of USD 682.95 million. In fact, there have been precedents like crazy expansion. In 2009, CSCL ordered eight 4,700TEU ships with a total contract value of US$5.5984 billion. In 2011, 8 10,000 TEU vessels were purchased, with a total contract value of 7542.4 million U.S. dollars.

Today, the sequelae of expansion appear. At the end of the first half of 2013, the cumulative depreciation of CSCL was 9.127 billion yuan, an increase of 672 million yuan from the beginning of the period, which would engulf part of the company’s current profits. Right now, CSCL has stepped up efforts to dispose of old ships. “We will dispose of these ships according to the market conditions,” said the person in charge of the secretary general of China Shipping Container Lines. For CSCL's situation this year, Guotai Junan researcher Cui Shutian said, "The contradiction between supply and demand continues to suppress tariffs, and the annual loss is a foregone conclusion."

Overcapacity has a huge loss for China Shipping Container Lines in the first half of this year. The company’s director general explained that “because the shipping market has continued for more than a year of sluggish growth since 2012, the European and US economies are in a weak state, and the entire shipping market is under greater competitive pressure. On the whole, relatively weak and weak, the entire external environment led to the company's operating pressure this year."

Of course, the huge loss of CSCL is not due to the weakness of the industry. Cai Jianming, a research fellow of the China Investment Group’s transportation industry, said that in the field of containers, the phenomenon of oversupply and lack of demand in the industry is still prominent, and the continuous delivery of large ships of 10,000 tons or more in CSCL has intensified the contradiction between industry supply and demand.

In the first half of 2013, the international economic and trade recovery was weak and the pace of global capacity expansion continued. The shipping market was affected by the imbalance of supply and demand, and the freight rates of shipping routes fluctuated at low levels. With the intensified competition in the industry, the revenue from CSCL has stagnated and the cost remains high.

According to data from China Shipping Container Lines, total operating costs totaled 16.6 billion yuan in the first half of the year, a year-on-year increase of 462 million yuan, a year-on-year increase of 2.9%. The increase in total operating costs was mainly due to the fact that the cost of containers and goods was RMB 5.6 billion, an increase of 5.2% year-on-year. The branch line and other costs were 4.1 billion yuan, a year-on-year increase of 1.5%.

Costs have been difficult to reduce. In fact, it is closely related to the crazy expansion of CSCL in recent years. On March 25, 2009, CSCL ordered eight 4,700 TEU vessels from Shanghai Jiangnan Changxing Heavy Industry Co., Ltd., with a total contract value of US$5.5984 billion. As of June 30, 2013, CSCL has paid a progress of US$507.34 billion.

However, in 2011, CSCL suffered a huge loss of 2.7 billion yuan. Even so, the pace of expansion of the company continues. China Shipping Container Lines Co., Ltd., a wholly owned subsidiary of China Shipping Container Lines Co., Ltd. (Hong Kong), and China Shipbuilding (600150, stock bar) Industrial Trading Company, Hudong-Zhonghua Shipbuilding (Group) Co., Ltd., China Shipbuilding Heavy Industry International Trade Co., Ltd. and Dalian, respectively, on October 28 of that year Shipbuilding Industry Group Co., Ltd. signed a 10,000 TEU container ship construction contract and purchased eight 10,000TEU ships. The total contract value was US$ 754.24 million. As of June 30, 2013, CSCL has paid a progress of $160,027.2 million.

History is still repeating itself. Under the predicament of huge losses in the first half of this year, CSCL still increased its horsepower. CSCL (Hong Kong) entered into a contract for the construction of a 18400 TEU container ship with Hyundai Heavy Industries on May 6, 2013, and purchased five 18,400 TEU container ships for a total contract value of US$682.95 million. As of June 30, 2013, the company had paid a progress payment of 68.29 million US dollars.

Li Shaode believes that this is the time to grasp the shipbuilding market price is at the bottom of the market, further optimize the upgrading of the fleet structure, reduce the cost of a single box, improve competitiveness. In the first half of 2013, CSCL shipped a total of three new 4700TEU vessels.

In the past three years, the total contractual value of China Shipping International's purchase of ships was approximately US$2 billion, equivalent to RMB12 billion. For the expansion of China Shipping Container Lines, Cai Jianming said: "In the case where the industry is still oversupply and freight rates are falling, it is not very reasonable to make large-scale vessels. Currently, companies in the industry need to form a joint force to jointly control the capacity."

In fact, excess capacity has already plagued CSCL. As of June 30, 2013, the total capacity of the CSCL fleet was 620,000 TEU, an increase of 4.2% from the beginning of the year. However, in the first half of the year, CSCL only completed a total of 3,897,272 TEUs of heavy tanks, a year-on-year decrease of 1.6%.

Selling for survival With the increase of shipping capacity of China Shipping Container Lines and the increase of fixed assets, the depreciation that the company needs to accrue gradually increases and the maintenance costs also increase, which will engulf part of the company’s current profits.

At the beginning of the first half of 2013, the accumulated depreciation of CSCL was 8.456 billion yuan. At the end of the first half of 2013, the cumulative depreciation of CSCL totaled 9.127 billion yuan, an increase of 672 million yuan from the beginning of the period.

Huge depreciation accruals have always limited the company’s performance. In 2011, CSCL suffered a huge loss of 2.743 billion yuan. In 2012, CSCL made a profit of 523 million yuan, after deducting non-recurring gains and losses, the company lost 784 million yuan. Benefited from selling container assets, CSCL was able to turn around in 2012.

On July 12, 2012, CSCL adjusted the estimated useful life of the container and adjusted the estimated useful life of the container from 8-10 years to 12 years. This change has been applied since April 1, 2012. It is expected that the impact of the adjustment on financial data will reduce the depreciation costs for the entire year of 2012 by approximately RMB 86.65 million.

Even so, it is still difficult for CSCL to shake off the huge loss shadow. Suffered by huge losses, China Shipping Container Lines is in the process of urgently selling assets. Zhonghai Wharf, a wholly-owned subsidiary of China Shipping Container Lines, transferred 55% of its equity interest in Lianyungang (601008) and New Oriental Container Terminals Co., Ltd. through a public listing. The assessed value of these equity targets was 7.562234 billion yuan.

According to public information, the operating income of New Oriental Terminal for the year of 2012 was RMB 0, with a loss of RMB 4.396 million. In the first half of this year, the operating income of New Oriental Terminal was also 0 yuan and the loss was 53.333 million yuan. Zhang Yueming, a representative of CSCL Securities Affairs, told the Economic Observer that “investing in the port will take several years to build well, and the New Oriental Terminal has not yet been fully operational.”

In order to sell a good price, CSCL made a fuss about the depreciation of New Oriental Terminal. According to Article 33 of the "Accounting Standards for Business Enterprises", a fixed asset that has been constructed and ready for use is ready for use. However, if a fixed asset has not yet been processed for the final account of completion, the cost shall be determined according to the estimated value and depreciation shall be made.

The CSCL announcement stated that the establishment of the New Oriental Terminal took place on April 27, 2000. Its main assets had been basically completed since October 2010 and was ready for use. However, the major equipment of New Oriental Terminal has only been transferred to fixed assets since 2012, and depreciation has only been started since December 2012.

Once the starting date for depreciation is set in October 2010, the existing asset prices of New Oriental Wharf may shrink significantly. For CSCL to choose to sell the New Oriental Terminal in the third quarter, Cai Jianming believes that the third quarter of the shipping market is nearing the end of the season and is about to usher in the off-season for the four seasons. The sale of assets by CSCL is intended to avoid a loss in performance.

In fact, the sale of New Oriental Docks is not alone. On November 19, 2012, a subsidiary of China Shipping Container Lines, Hong Kong and Container Transport Asia, signed an agreement with CLC Maritime Container Leasing Co., Ltd to sell 210,481 TEU containers (3-6 year old) assets owned by CLC Maritime Container. Leasing Co., Ltd. sells for $358.6 million.

One month later, CSCL sold its assets again. On December 17, 2012, CSCL's subsidiary CSC Asia and the buyer signed an agreement to sell 57,786 TEU-owned, 6-8-year-old container-owned container assets owned by the company, totaling US$117.9 million.

Cai Jianming said that the contradiction of oversupply in the industry is still prominent. It is difficult for CSCL to achieve profitability through its main business operations, and asset sales can achieve immediate results. "But for CSCL, the sale of assets is not a permanent solution. Follow-up should strengthen cost control and optimize routes and capacity."

The China Eastern Chamber of Commerce official told the Economic Observer newspaper, the company will continue to adjust and optimize the fleet structure, and increase the efforts of old ships. “We have some ships that are due this year. If they are due, we will dispose of these ships according to market conditions.” However, the above-mentioned directors of the Office of the Secretary General declined to disclose how much of the vessel's volume was handled.

In the harsh winter of shipping industry, cooperation and cost control are the main means of wintering. Cai Jianming believes that “expanding foreign cooperation, optimizing the fleet structure, and increasing the disposition of old ships will help reduce the shipping capacity of CSCL and play a role in relieving the contradiction between supply and demand in the industry.”