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COSCO Shipping sees better 2017 as Hanjin collapse pushes up rates

SHANGHAI (Reuters) - Amid the unraveling of South Korea’s Hanjin Shipping, shippers are looking for more robust alternatives, and freight rates are rising - all potentially good news for rivals such as China COSCO Shipping Corp.

Containers from China Ocean Shipping Company (COSCO) are pictured at a port in Shanghai, China, February 17, 2016. REUTERS/Aly Song/File Photo

Sun Jiakang, executive vice president of China’s biggest shipping company, told Reuters on Monday that rates had risen in the last month - a boost that should lift the state firm’s fourth quarter and continue into next year.

“Shippers are now more keen to choose shipping companies with good credit that can provide stable services, and they may shun companies with poor credit. In this respect, our group is one of the beneficiaries,” he said.

Hanjin, the world’s seventh-largest container line, filed for receivership last month, leaving more than 100 ships and their cargo at sea.

Formed through the merger of China’s two largest shipping companies in February, COSCO Shipping owns the world’s fourth-largest container shipping fleet by capacity, run by its flagship listed unit, China COSCO Holdings.

COSCO Shipping itself is among the most indebted of the global shipping firms, according to Thomson Reuters data, but it is also one of China’s largest state-owned firms, employing 330,000 people. Sun said its finances are improving.

Last month, China COSCO posted a first-half loss of 7.2 billion yuan ($1.08 billion), which it blamed mainly on the sale of its bulk shipping business and a dearth of government subsidies.

“Our fourth quarter will be better than our first or second quarters, and because of obvious changes in the industry, I think next year will be better than this year,” Sun said.

He warned that without an improvement in global trade and the economy, other smaller rivals could go the same way as Hanjin.

Overcapacity in the broader shipping industry remains a persistent problem, Sun said, noting that since 2008, global shipping capacity has grown 55 percent, with that in the container segment doubling in just over nine years.

TANGLED ALLIANCES

The collapse of Hanjin has also thrown the current container shipping alliance network into upheaval.

The Korean shipper and its rivals had formed teams in recent years to share vessels and routes to cope with a prolonged slump in freight rates. Now, Hanjin’s partners are scrambling to fill the gaps.

Hanjin’s membership of the CKYHE alliance, which COSCO Shipping is also part of, was suspended on Sept. 2. It had been due to join a new alliance with German container shipping line Hapag-Lloyd and four other firms next year.

Sun said he did not expect Hanjin’s collapse to impact COSCO Shipping’s own plans for a new alliance with France’s CMA CGM [CMACG.UL], Taiwan’s Evergreen Line and Hong Kong-based Orient Overseas Container Line, which is due to start in April.

“A lot of work goes into constructing a new alliance. It requires about a year of preparation,” he said. “So these dates won’t be adjusted, they won’t change because of Hanjin, the alliance won’t make any adjustments.”

The U.S. Federal Maritime Commission was still analyzing the planned new alliance, and COSCO Shipping was confident it met anti-monopoly requirements, Sun added.

COSCO Shipping, with interests ranging from ports to oil tankers, plans to complete its merger with former rival China Shipping Group by the end of this year, with its logistics and social services businesses among units still to be reorganized, Sun said.

Continued shifts in the global shipping market also continue to provide opportunities for potential acquisitions, he said, citing his firm’s deal last month to buy a majority stake in Piraeus, Greece’s largest port.

Reporting by Brenda Goh and Clara Ferreira-Marques; Editing by Ian Geoghegan

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