¡¡¡¡COSCO's bulk cargo business headquarters have now been in operation in Tianjin for more than a month. Once the internal integration is stressed, the outside world will inevitably be impacted.

¡¡¡¡The end of "management fragmentation"

¡¡¡¡This bulk cargo business headquarters grew out of the integration of three of COSCO's former dry bulk subsidiaries: COSCO Bulk, Qingdao Ocean Shipping Company and COSCO Hong Kong. Working with their authorisation, the new headquarters will conduct contract negotiations, signing under the unified name of CHINA COSCO BULK.
¡¡¡¡The three companies used to be under separate management. According to Hu Yu, Head of Investor Relations of COSCO, before the new headquarters was open it often happened that, in the same tender, the final tenderers would always be these three competing against each other. Not only has this weakened the strength of the resources within COSCO, but it has also negatively affected profits for both the group and its subsidiaries.
¡¡¡¡Meanwhile, and more importantly, bulk cargo operations have been playing an increasingly important role for COSCO Group. Information disclosed suggests that the net profits for COSCO's dry bulk cargo operations were RMB 6.56 billion, RMB 7.94 billion and RMB 6.281 billion respectively from 2004 to 2006. In 2007, it even achieved a gross profit of RMB 19.65 billion, and was the main factor promoting the substantial growth in the company¡¯s overall profit during that year. If this internal friction was left unconcerned, obviously there would be enormous cost to pay.
¡¡¡¡Hu Yu says by establishing the new bulk cargo business headquarters, COSCO intends to integrate its internal resource advantages, increase profits made by coordination, enhance market competitiveness and develop a bigger and stronger bulk cargo transportation business. And the headquarters will just merge the three companies' daily operating for negotiating and signing contracts, without changing any of the previous individual financial and human resources structures. Now the integrated capacity comprises 10% of global volume and a huge amount of newly delivered capacity is expected in the near future. Suppose, 90 million dwt of ships are to be delivered in 2008 and 2009 globally, COSCO will take up nearly 10% of that, approx. 9 million dwt.
¡¡¡¡Whether the 2008 BDI index is rising or falling, COSCO's bulk operations headquarters will adopt locked high tariffs, capacity charter and similar flexible measures. COSCO already had locked tariffs for 54% of the 2008 dry bulk business by the end of 2007. Thus Hu Yu believes COSCO has a relatively stable market that will not subject to the outside influence.

¡¡¡¡Internal trade market changing

¡¡¡¡Although COSCO's strategic plan is still focused on ocean-shipping, the new headquarters will definitely have an impact on the internal trade shipping market.
¡¡¡¡As the leader in the current internal transport market, China Shipping is concerned about every step COSCO has taken. As Zhu Mei, Director of the Transport Section of China Shipping, introduced, early in 2004 COSCO enlarged its investment in the internal trade shipping market, where COSCO already ranked second in capacity so far, approaching the share of China Shipping. In recent years, many small ship owners have entered the same transport market, however they are randomly coming or going. For COSCO, the fairly stable strategy will probably make its market share of domestic trade gradually increase.
¡¡¡¡In fact, COSCO has confirmed expanded input into the domestic trade market with this new bulk cargo business headquarters, though specific amounts are yet to be decided. At the same time, some capacity will be drafted from the international shipping market into internal trade. A senior employee from Tianjin Hengshun Logistics Company told our reporter that in the shipping market, reputation and strength are equally important. Even if there is a surplus of capacity, COSCO will continue to succeed over many domestic competitors for its diversified ship and business models as well as its abundant operating experiences.