COSCO Chairman Expects Shipping Slump to Persist

The global shipping market is unlikely to see a recovery during the next two years as it grapples with an oversupply of vessels, the chairman of China's largest shipping group said on Wednesday.

The sector has been battling overcapacity since the 2008 financial crisis because new vessels ordered before the downturn have flooded the market, dragging down rates and hitting Chinese ship builders hard.

Ma Zehua, the chairman of China Ocean Shipping Group (COSCO), told reporters on the sidelines of a conference in Chongqing that the firm was focusing on cost control, securing long-term customers and expanding in emerging markets, such as South America and the Middle East, to counter the slump.

"I don't think the market will recover within the next two years," he said. "There are a lot of new building orders, which means the chances of the supply-demand imbalance improving soon are small."

COSCO Group is one of China's largest government-controlled conglomerates, and is the juggernaut of its shipping industry. It controls more than 800 vessels and manages six listed firms, including China COSCO Holdings and COSCO Corp.

China COSCO, the group's flagship firm, narrowly escaped delisting by selling off assets when it posted a narrow profit in 2013, after two consecutive years of losses. Three straight years of losses can trigger delisting from the Shanghai bourse.

"Everyone will compete on costs, because improving income is very difficult, if you want to increase the freight rate it's tough, it's not possible, the only way is to control costs," Ma said.

As part of a recently-announced government push to reform and consolidate China's shipping industry, Ma said the company would also soon announce partnerships with other large Chinese shipping firms. He declined to provide further details.

China issued guidance this week to support and modernize its shipping industry, saying it would encourage mergers and private investment as well as develop its cruise industry.

At the firm's half-year results in August, Ma said it would be tough for the firm to escape a loss in 2014, but added the outlook for the shipping market was improving in the second half.

(Reporting by Brenda Goh; Writing by Adam Jourdan; Editing by Clarence Fernandez)