"Such a loss in the consolidated net profits of the group was mainly due to the sluggish demand and over supply of shipping capacity in the international and domestic shipping market in 2013, and which in turn resulted in the continuous decline of the shipping market and the downturn in the freight rates," CSDC said in a stock market announcement just before the market closed for the extended break over the new year.
CSDC added that it took a series of measures to reduce losses including scrapping vessels and attempts to renegotiate contracts. It detailed the impairment losses it made from these moves in a series of related announcements.
Over the last two months the board has approved the scrapping of 15 bulk carriers and seven oil tankers comprising over 170,000 ldt in tonnage. Two of the 22 vessels were scrapped last year and the rest will be disposed of over the course of this year. However CSDC has decided to recognise the impairment losses in its 2013 financial statements. This is estimated to amount to RMB418.11m, CSDC said.
In relation to the provisions made from various charter contracts, CSDC said attempts to ameliorate losses from charter contracts made at high prices in 2011 for two VLCCs and a bulker were not successful and as a result the company has decided to recognise the upcoming losses from current operations.
CSDC estimates the VLCCs will lose a total of $51.87m over 2014 and 2015 while the bulker will lose about $5.48m. Altogether CSDC expects some $57.36m in losses and will recognise RMB349.71m in impairments in 2013 from these three contracts.
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