Ningbo Ocean Shipping Co Ltd

LMIU Report Ref: 52448

Published: 26 July 2005

Registered Name: Ningbo Ocean Shipping Co Ltd

Registered Number: 3302001002085

Phone: +86 574 8735 6271 (switchboard)
Fax: +86 574 8735 3454 (direct)
Email: xuzq@nbosco.com

Incorporation Style: Private limited company

Incorporation Date: 14 July 1992

Place Incorporated: China

Share Capital:

Registered and paid-up capital: RMB 10,000,000, decreased from RMB35,982,000 in 2002.

Ownership:

Managers:
Mr Zhongqian Xu - General Manager
Mr Wei Wang - Deputy General Manager
Ms Xiaohong Wang - Deputy General Manager
Mr Jianping Shen - Shipping Manager

Affiliate Offices:

Ningbo Ocean Shipping Company International Freight Branch, and Ningbo Ningyuan International Shipping Agency Co Ltd.

Bankers:

Bank of China, Ningbo Jiangdong Sub-branch, A/C No. 402014824120021.

Bank of Communications, Ningbo Branch Renmin Road Su-branch, A/C No. 627201201500000842.

Business Summary:

Ningbo Ocean Shipping Co Ltd (hereafter referred to as NOSC) is a limited liability company which was incorporated in Ningbo in July 1992. The company is 45%-owned by Ningbo Marine (Group) Co Ltd (NMGC), which has recently become a joint stock company, with the Ningbo Municipal Government as the majority shareholder. The remaining shares in NOSC are owned by its staff. NOSC is active as a feeder liner operator.

Operations:

Having interviewed NOSC in July 2005, we were told that the company operates four containerships, with a total capacity of around 1,517 TEUs. These vessels are: the 292-TEU Ming Zhou 8 (built 1977), the 358-TEU Ming Zhou 12 (built 1977), the 424-TEU Ming Zhou 22 (ex-Sea Dragon, built 1985), and the 443-TEU Bei Dai He (built 1981). We understand that the first vessel is directly owned by NOSC, whilst the second and the third are registered to single-ship companies although ultimately controlled by NOSC. The Ming Zhou 22 had been under a long-term time charter to the company until March 2004 when it acquired the vessel from Cosco Container Lines (Coscon). The remaining vessel is time-chartered in from Cosco Shanghai Pan Ocean Shipping Co, a Cosco-affiliated company. The two vessels that were formerly under long-term time charters, the 412-TEU Tian Rong (built 1991) and the 490-TEU Ya Lu Jiang (built 2004 ), have been re-delivered to the owners in the last year.

NOSC offers liner services between Ningbo and hub ports in Japan and South Korea, which include Moji, Kobe, Osaka, Nagoya, Yokohama, Tokyo, and Pusan. Management advised us that the company currently operates around 4,000 TEUs (2,500 TEUs one year ago), of which around 700 TEUs are owned and the remainder are leased. In terms of business volumes, we were told that NOSC carried around 80,000 TEUs in 2004, which was in line with 2003, compared to 60,000 TEUs, 30,000 TEUs and 20,000 TEUs in 2002, 2000 and 1999 respectively. Management advised that the volumes for this year will probably remain unchanged or increase marginally.

We were also told that NOSC's major clients include the Art & Craft Import & Export in China, Itochu, Marubeni, and Mitsubishi of Japan. Major container lines such as Hanjin also use the company's feeder services.

As bunkers account for a significant part of the operating costs, we understand that the company normally buys from ports where prices are relatively lower if possible. For example, on the Sino-Korea trade, bunkers are mostly supplied in South Korea where prices are lower, whereas Ningbo is always the preferred bunkering port on the Sino-Japan routes.

NOSC has two wholly-owned subsidiaries called Ningbo Ocean Shipping Co International Freight Branch, and Ningbo Ningyuan International Shipping Agency Co Ltd. The former was established in 1996 and is involved in freight forwarding business. The latter was formed in December 2003 to provide agency services for vessels calling at the port of Ningbo.

Headed by the current general manager, Mr Xu Zhongqian, NOSC has a total office staff of around 80 people (including those in the two subsidiaries). Besides, the company has some 140 crew members. The day-to-day shipping operations are handled by Mr Shen Jianping, the current shipping manager. The current chairman of NOSC, Mr Zhu Min, is also the general manager of NMGC.

NOSC is 45% owned by NMGC, which is a state-owned company established some 50 years ago. NMGC in turn is controlled by the Bureau of Communications of Ningbo Municipal Government. NMGC also holds some 51% of the shares in the Shanghai Stock Exchange-listed Ningbo Marine Co Ltd (NMCL, ticker: 600798). NMGC is one of the major Chinese coastal shipping companies, operating a mixed fleet of more than 20 vessels including bulk carriers, general cargo carriers, containerships, tankers, and LPG carriers. The vessels range from 5,000 to 65,000 dwt, with a total capacity of more than 400,000 dwt. It is advised that the group is looking to increase it total fleet capacity to 1m dwt by the end of 2007. With its focus on coastal trade, NMGC also participates in ocean shipping. We understand that the group is active in the shipment of iron ore from Australia to China. It is reported that NMGC shipped a total of 7m tonnes of cargo in 2001. No up-to-date figures have been released.

History:

The origins of the business date back 50 years when the Ningbo Municipal Government established Ningbo Maritime Transportation Co. The name was changed to Ningbo Marine (Group) Corp in 1995. Since the late-1990s, most Chinese state-owned-enterprises have been undergoing organisational re-structuring. Consequently, Ningbo Marine (Group) Corp has recently been changed to a joint-stock company, and renamed as Ningbo Marine (Group) Co Ltd (NMGC). We understand that the local government remains the largest shareholder in the group.

Initially NMGC was involved in coastal and river (Yangtze River) freight transportation, until it set up Ningbo Ocean Shipping Co Ltd (NOSC) in 1992. NOSC was previously the only international shipping arm of the group, operating both containerships and bulk carriers. During a recent group re-organisation, the bulkers that used to be operated by NOSC have been transferred to the publicly-listed Ningbo Marine Co Ltd (NMCL), and NOSC is now dedicated to container transportation only.

Financial Figures:

Financial Summary:

The latest annual accounts for NOSC that our correspondent in China has managed to obtain are for the year ending 31 December 2004. These audited accounts have been obtained from the relevant government authority.

Although the company's business volumes remained flat in fiscal 2004, its turnover rose by nearly 16% to RMB161.89m (US$19.53m), largely as a result of increasing freight rates. Despite the soaring charter hire and bunker prices, the operating profit more than doubled to RMB17.31m (US$2.09m), implying the timing of chartering in vessels has been good for the company. After taking into account investment income and taxation, NOSC posted a net profit of RMB13.16m (US$1.59m) in 2004, up from RMB4.26 in the previous year.

It is reported that the competition on the China-Japan and China-South Korea lines is extremely fierce, with more and more shipping companies entering the market. On the other hand, the rapid expansion of the nearby Shanghai will probably have an impact on the throughput of the Ningbo port. It is reported that the Yangshan port, which is being constructed, is scheduled to open this November and will add an annual capacity of 2.2m TEUs to the Shanghai area. That said, NOSC still expects fairly stable business volumes for 2005 and beyond, probably due to its established relationships with the shippers. In terms of freight, there has been a recent dip, although it is not sure whether this is the usual seasonal fluctuation or a sustained downturn.

NOSC's balance sheet at the end of 2004 indicated a reasonable current ratio of 1.00:1 (compared to 1.16:1 at 2003), with current liabilities marginally outweighed by current assets. We note that cash held increased from RMB14.50m at 2003 to RMB16.83m (US$2.03m), implying a better cash flow during the period. Fixed assets jumped from US$2.51m to US$21.80m (US$2.63m), reflecting the purchase of the 1985-built vessel in the year. As there was no long-term recorded at year-end, the company appears to have acquired the vessel by cash. With total shareholders' equity jumping from RMB14.68m to RMB24.34m (US$2.94m), there were no gearing issues to consider.

Reputation:

Ningbo Ocean Shipping Co Ltd (NOSC) belongs to a well-established shipping group that is well-known in the domestic market. According to our market checks done in July 2005, NOSC continues to have a reasonable reputation amongst its suppliers.

In the container leasing market, we have obtained references from two leasing companies. The first lessor has an undisclosed number of reefer containers leased to NOSC, and considers it to be a good account. The other lessor, although ceased dealing with NOSC towards the end of 2004 when the contracts came to an end, advised that payments were normally made to 30-day terms.

In the bunkering market, we have spoken to its major supplier, a domestic company. This supplier grants NOSC 30-day credit terms, and payments are advised to be satisfactory. Its exposures are understood to be in the range of US$ high-five figures.

One domestic container manufacturer that has sold a number of containers to NOSC also expressed general satisfaction with NOSC's payment performance, although no details have been made known. This company also stresses the fact that NOSC purchased a containership from Cosco in 2004.

Operationally, NOSC appears to have a good port state control (PSC) record, with no detentions reported in the last few years.

Appraisal:

Ningbo Ocean Shipping Co Ltd (NOSC) is a small feeder liner company that was established in 1992. It forms part of the Ningbo Marine group, which is majority-owned by the local government. The group is one of the major players in the Chinese coastal shipping market, and has enhanced its presence in the international market in the recent years. NOSC appears to have established good relationships with a number of major shippers in the region, and its business volumes appear to have been fairly stable in the past two years and are expected to remain so in the near future despite the keener competition in the market.

The latest annual accounts for NOSC, available from the relevant authority, relate to fiscal 2004, and these reveal substantial growths in both turnover and profits. The ongoing profits and the acquisition of one containership have further strengthened the company's balance sheet at year-end, leaving it with healthy cash flow and significant fixed assets.

Market references for NOSC from the supply-side have been positive. Overall, based upon the information available to Lloyd's MIU, we would continue to view the company to be a reliable trading partner. At this time we feel that exposures of up to US$ high-five figures should present a below average risk.

Ratings:

Review Period: 12 months.

Fleet List:

Fleet List Text:

Owned vessels.