Global shipping giant COSCO Shipping Holdings (601919.SH) has delivered a first-half earnings report that shows rising revenue but falling profits, with the company's net profit excluding non-recurring items declining by more than a fifth year-over-year despite a modest revenue uptick. The company's profitability has now hit its lowest level for the first-half period in nearly six years, as the dual pressures of higher operational costs and a swing in financial expenses weighed heavily on results.
Over 90% of COSCO Shipping Holdings' revenue is derived from its container shipping business, which reached a peak in both revenue and profit during 2022 on the back of a sharp surge in freight rates. Since then, however, both metrics have experienced a dramatic decline. In the first half of this year, the company's earnings lagged behind the prior-year period, primarily due to a relatively large year-over-year increase in operating costs and the conversion of financial expenses from a net gain to a net expense.
Looking at the core operations, the container shipping segment saw a substantial year-over-year profit decline during the first half, driven by higher volumes but lower freight rates. The gross margin for this segment fell by over 30 percentage points compared to the same period in 2022. The company's other major business segment, port operations, also saw its gross margin decrease year-over-year. Overall, the company's blended gross margin experienced a drastic drop compared to historical first-half peaks. Meanwhile, COSCO Shipping Holdings continues to aggressively expand its fleet capacity even as concerns over excess supply in the industry intensify, a move that could pose even greater profitability challenges should the recovery in freight rates fall short of expectations.
Core Business Struggles with Volume Growth Outpacing Profit Gains
Listed on the Shanghai Stock Exchange in 2007, COSCO Shipping Holdings positions itself as a global digital supply chain operations and investment platform with container shipping at its core. The company conducts business through two main segments: container shipping and port operations management. In the first half of the year, the company recorded revenue of RMB 111.922 billion, a 2.59% increase, while net profit attributable to shareholders fell 23.48% to RMB 13.419 billion. Net profit excluding non-recurring items also declined 23.35% to RMB 13.387 billion, with both metrics hitting their lowest first-half levels in six years.
As more than 90% of revenue is generated from container shipping, the company's fortunes are closely tied to the freight rate cycle. After reaching a peak in 2022 due to soaring rates, both revenue and profit suffered significant declines as rates corrected sharply. Last year, revenue and net profit attributable to shareholders plummeted by 43.87% and 71.86%, respectively, compared to 2022, further underscoring the earnings pressure created by high cost burdens.
Within the first-half results, the core container shipping segment exhibited a trend of rising volume but shrinking profits. Global container volumes grew at a modest pace during the period, while market freight rates displayed a trend of being lower in the first quarter followed by a rebound in the second quarter. The China Export Container Shipping Index (CCFI) averaged 1,249 points, down a marginal 0.26% year-over-year. COSCO Shipping Holdings reported cargo volume of 14.2795 million TEUs, up 7.52% year-over-year, but route revenue only rose 0.9% to RMB 97.479 billion due to freight rate fluctuations. Among the company's main routes, only the Asia intra-region (including Australia) route saw revenue growth outpace cargo volume growth, while transpacific, Asia-Europe (including the Mediterranean), China mainland, and other international (including Atlantic) routes all recorded revenue growth below their respective volume increases.
The container shipping segment generated revenue of RMB 107.298 billion in the first half, an increase of just 2.38% year-over-year, a marked slowdown from the 7.49% growth achieved in the same period last year. This segment accounted for 95.87% of total revenue, down slightly from 96.06% in the prior-year period (before inter-segment elimination). Operating costs for this segment rose 6.62% year-over-year, causing its gross margin to decline by 3.29 percentage points to 17.19%. Net profit for the segment fell 28.74% year-over-year, severely dragging on overall performance.
Breaking down the cost increases, the most significant contributors were voyage costs, vessel costs, and other operational costs, which rose by 10.46%, 9.12%, and 20.95%, respectively. In stark contrast, during the first half of 2022, this segment’s revenue and gross margin reached as high as RMB 207.176 billion and 47.32% (figures as reported, subject to adjustments). Since then, both revenue and gross margin have been under substantial pressure due to falling freight rates and rising costs. In the latest first half, segment revenue has nearly halved compared to that peak, while gross margin has eroded by over 30 percentage points. The earnings pressure was already apparent last year, with total revenue down 6.14% and net profit attributable to shareholders and net profit excluding non-recurring items down 37.13% and 37.31%, respectively.
Continued Capacity Expansion Adds to Profit Recovery Challenges
The port operations segment also experienced headwinds in the first half of the year. Through COSCO Shipping Ports, the company handles container and bulk cargo loading, unloading, and storage across a network of ports spanning China's five major coastal port clusters, the middle and lower Yangtze River, Europe, the Mediterranean, and the Middle East. As of the end of June, the company operated 40 ports and 394 berths both in China and overseas.
According to the interim report, China's port industry maintained steady operations during the first half despite broad adjustments in the global trade landscape. Benefiting from structural opportunities such as global industrial chain restructuring and the rise of emerging markets, overseas regions emerged as a key growth driver for the company's performance. Total throughput at COSCO Shipping Ports reached 80.157 million TEUs, an increase of 7.89% year-over-year. Revenue from the port business increased 8.3% to RMB 6.327 billion (accounting for 5.65% of total revenue), though this growth slowed markedly from the 14.75% recorded in the same period last year. The segment's gross margin fell 0.42 percentage points to 27.63% due to higher operating costs. Compared to the first half of 2022, revenue has grown by roughly 37%, but the gross margin has declined by 2.47 percentage points.
Company-wide, operating costs rose 6.24% year-over-year in the first half, significantly outpacing revenue growth, leading to a notable contraction in gross profit. The overall gross margin dropped to 18.34%, a decrease of 2.8 percentage points year-over-year and a substantial fall from the over 47% margin recorded in the first half of 2022. Additionally, financial expenses swung from a net income of RMB -2.098 billion in the prior-year period to a net expense of RMB 357 million this year, while total period expenses surged 112.11% year-over-year, severely squeezing profit margins. The company attributed the jump in financial expenses to lower average deposit balances and deposit interest rates, which reduced interest income, alongside foreign exchange losses.
The company's gross margin has been on a steady downward trajectory over the most recent three first-half periods, declining from 23.46% to 21.14% and then to 18.34%. Similarly, revenue growth has decelerated from 10.21% to 7.78% and finally to 2.59%, reflecting a persistent slowdown. A key factor behind the continued high operating costs is the company’s long-term strategy of fleet expansion and structural upgrades aimed at achieving global, scale-driven development, which has become a major constraint on earnings improvement.
Worryingly for many investors, COSCO Shipping Holdings continues its aggressive capacity expansion even as performance declines. As of the end of July, the company's self-operated container fleet comprised 606 vessels with a capacity of approximately 3.66 million TEUs. The company also holds orders for 82 new self-owned vessels with a capacity of about 1.18 million TEUs, plus leased vessels under construction representing roughly 0.5 million TEUs. Combined, the existing capacity and order book exceed 5.3 million TEUs, implying a capacity increase of about 46% over current levels. However, the global shipping market continues to face concerns over excess supply, and the global economic growth outlook remains subdued. If demand-side recovery falls short of expectations, such a large-scale deployment of new capacity could worsen the supply-demand imbalance in the industry and further suppress freight rates. At the same time, rising depreciation, amortization, and charter costs may make it increasingly difficult for COSCO Shipping Holdings to restore profitability.