China Ocean Shipping (Group) Company (COSCO), the country's largest State-owned shipping conglomerate, is unlikely to buy or operate a giant bulk-carrier fleet currently owned by the Brazilian miner Vale SA, said Ma Zehua, president of COSCO Group.
"We are still studying the safety and profitability issues in managing the giant ships," Ma told China Daily in an exclusive interview.
In a bid to stabilize freight costs and iron ore prices, Rio de Janeiro-based Vale invested $2.3 billion in 19 of the 400,000 ton megabulk carriers and will control another 16 under long-term contracts, according to the company. Scheduled for delivery by the end of 2013, it will be the world's largest iron ore fleet.
The miner received the first ship in the fleet - built by China's shipbuilder Rongsheng Heavy Industries Group Co Ltd - in July and had planned to sail it to China's Dalian port on its maiden voyage. However, the company said that the giant vessel was diverted to Italy because of restrictions at Dalian and a request from a European customer.
"China's ports can't handle a vessel of 400,000 tons. They are too big and too dangerous," said COSCO Chairman Wei Jiafu.
"Because of the safety restrictions, we are not considering buying or running Vale's fleet for the time being. We have our own vessels," he said, echoing Ma's comment.
However, an industry insider said the hurdle to the deal was essentially the vessel's price and that there is still room for negotiation.
"Vale's senior officials admitted in private that investment in the fleet was 'a mistake', and now they are approaching ship-owners and shipping companies worldwide to buy or run the fleet for them," the source said on the condition of anonymity.
"If they offered a low-enough price, it is highly possible that COSCO would buy the ships," the source added.
Meanwhile, the company's inexperience in the shipping business means that Vale is likely to face some problems in managing the world's largest bulk fleet. "In principle, chargers should leave the transportation to ship-owners and shipping companies," said Torben Skaanild, secretary-general and chief executive officer of the Baltic and International Maritime Council (BIMCO), the world's largest association of ship-owners.
"As a charger, you will lose money if you sail back with empty vessels. Ship-owners and shipping companies are specialists in this respect. We know how to make the most profitable routes," he explained.
"We will not build any big vessels in the coming years," said Ma.
Pressed by industrial overcapacity and the surging price of oil, the company reported a 2.1 billion yuan ($330 million) deficit for the third quarter and predicted a full-year loss, but did not specify a precise figure.
Estimates suggest that the company will register a substantial loss this year, following losses incurred during the global financial crisis in 2008, after Chairman Wei Jiafu referred 2011 as the "most painful" year for the industry.
"We predict the difficult market will persist until 2014, or even longer," said Yudhishthir Khatau, BIMCO president and chairman of the board.
But despite the industrial downturn, Chinese demand for raw materials and natural resources is expected to continue to grow.