COSCO's huge bulk carrier order tied to China's mega expansion strategy

Industry sources have informed Riviera that this significant order is part of a broader Chinese expansion strategy. According to these sources, the Chinese government has directed state-owned shipping companies to construct more than 100 bulk carriers in the near future.

Recent major newbuilding agreements involving Newcastlemax vessels by China Merchants and its subsidiary, Ming Wah, are also aligned with this plan. Sources indicate China Merchants is expected to invest in additional tonnage soon, pending internal budget approvals.

Milestone deal

Regarding COSCO, the company has entrusted the construction of 20 bulk carriers to a subsidiary of COSCO Shipping Heavy Industry, with the remaining 22 vessels to be built by CSSC Group’s Chengxi shipyard. Of the 42 vessels, 37 will be 80-82,000-dwt Panamaxes/Kamsarmaxes, while the remaining five will fall into the 64,000-dwt Ultramax segment.

Deliveries are scheduled to be completed by 2027, and the vessels will be leased to COSCO Shipping Bulk on a long-term basis. COSCO has disclosed this is the largest shipbuilding and leasing transaction since the company transitioned into a shipping industry and finance operator in 2016.

The new bulk carriers are designed to be energy-efficient and environmentally friendly, with some vessels featuring methanol-ready capabilities. Following an initial focus on smaller bulk carriers and multi-purpose vessels, COSCO now aims to invest in larger tonnage.

As of 31 December 2023, COSCO Shipping’s total fleet comprised 1,325 vessels, with 430 bulk carriers representing an aggregate capacity of 44.1M dwt. The company has also recently invested in dual-fuel methanol container vessels.

Orderbook surge

These new Chinese bulk carrier contracts are expected to significantly boost the market’s orderbook.

According to a recent report by Greek shipbroking firm Xclusiv Shipbrokers, the current orderbook-to-fleet ratio stands at 9.8% in terms of dwt. Notably, the Panamax/Kamsarmax/post-Panamax orderbook represents 11.7% of the existing fleet. Riviera estimates the latest COSCO deal will push this figure to 12.7%.

Shipbroking sources point out this Chinese ’newbuilding wave’ coincides with a slow period for dry bulk vessel orders. From January to August this year, 283 bulk carriers were ordered, compared with 420 during the same period last year – a decrease of 32%, according to Xclusiv Shipbrokers.