4 key risks that could keep Cosco stuck in the doldrums

Price wars among the Chinese yards is one.

Sinking Cosco continues to face headwinds as it remains in the red with a total net loss of $36.8 million in 2Q16.

DBS Bank Analyst Pei Hwa Ho detailed looming risks for the container shipping service provider as it remains in the red, with fifth consecutive quarter losses in 2Q16.

Pei said while Cosco's gross orderbook stood at US$7.6 bn as of the end of June 2016, deferment and cancellation risks remained prevalent.

"Chinese offshore yards are more susceptible to deferments and cancellations in the light of a weaker customer profile of less established players/speculators, and balloon payment terms of at least 90% upon delivery," the analyst said in a report.

Secondly, Pei argued that the provision for cost overruns due to execution hiccups, longer-than-expected man-hours, and underestimation of project costs has been a major swing factor on Cosco's earnings.

Thirdly, Cosco may also have to brave price wars from other Chinese ship builders which jumped onto the offshore bandwagon amid the shipbuilding overcapacity.

And lastly, the analyst also underscored the risks of possibility of cancelling the fourth Sevan cylindrical rig unit, as Cosco has yet to find a charterer for the said asset.

Meanwhile, the group’s cancelled drillship unit, which has been on a price tag since 2Q13, has yet to find its purchaser.

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