China Shipping Development, one of the country's major shipping conglomerates, said it was heading into more challenging waters in the second half after reporting a 60 per cent increase in interim net profit, reported the South China Morning Post.

But the company said it had prepared for freight rate volatility in the bulk shipping market by setting up more long-term contracts with mainland power plants and coal mines.

China Shipping recorded net profit for the first six months of US$144.18 million following sales of $814.42 million, a year-on-year increase of 34 per cent thanks to a 25 per cent rise in shipping volume.

The Baltic Dry Index (BDI), the indicator of the charter rates for various bulk vessels, has had a roller-coaster ride so far this year, dropping to as low as 1,600 points in July after reaching a high of more than 4,000 points in May. It closed at 2,515 points on Tuesday.

"We ought to brace ourselves for a rough market for the second half," said chairman Li Shaode. "It is possible that freight rates will experience a further dip in the second half. We have prepared for them falling back to 1,600 in the next six months."

The prospects for bulk shipping in the second half are clouded by an excess supply of new vessels and the slowdown in demand growth for iron ore and coal from China, said Karen Chan, transport analyst at RCM.

"On average, the BDI will be lower in the second half since it is impossible for the index to climb back to 4,000 points," she said.

To circumnavigate the volatility in the spot market, China Shipping has signed long-term freight rate contracts with major users and producers of coal and iron ore on the mainland, such as China Shenhua Energy Group, Boasteel Group, Huaneng and China Resources.

Meanwhile, two of China Shipping's joint ventures have entered an agreement to build a dozen 46,200 deadGSLght tonne bulk vessels and two 53,000 deadGSLght tonne bulk vessels worth a total of 2.88 billion yuan.

At present, China Shipping has outstanding orders for 49 vessels scheduled to be delivered by 2012.

The company is also waiting to take delivery of three very large crude carriers for long-haul oil transportation, lifting the total number of these carriers to 12. Freight rates for very large crude carriers rebounded from their low in June, which was caused by a ban on oil exports from Iran. The company predicted rates would be stable in the second half.
(Source:www.cargonewsasia.com)