LONDON—China's largest shipping company, China Cosco Holdings Ltd., finds itself in hot water, taking criticism from across the industry in the wake of charges that it halted payments for long-term ship charters that were costing it too much money.
The controversy expanded Monday after Moody's said that China Cosco's charter-rate dispute could threaten the ability of companies in the dry-bulk shipping industry to get credit.
The global ratings agency said that China Cosco's failure to make good on the contracts it signed in 2008 could reduce the payments to other ship owners, hurting their creditworthiness. China Cosco is the publicly traded flagship of state-owned China Ocean Shipping (Group) Co.
"Charter rates are currently much lower than they were in 2008," Moody's said in its weekly credit outlook report. "Renegotiation of contracts could set a precedent that spurs other Chinese shipping companies to seek more favorable terms in their existing agreements."
Jeremy Penn, the chief executive of the Baltic Exchange, which monitors chartering activity around the globe, isn't persuaded that the issue will affect the entire dry-bulk industry. But he said on Tuesday that the alleged nonpayment by China's top shipping company is a cause for concern and that valid contracts must be honored.
"The exchange has a motto, 'Our word, our bond,' to ensure that people deal honestly and correctly with each other," he said. "Where there is a written contract, we defend the applicant of that contract."
On Friday, China Cosco's president, Zhang Liang, said that the company had negotiated new agreements with ship owners affecting 18 dry-bulk-vessel leasing contracts that were signed at the peak of the market. He declined to disclose the new terms and couldn't be reached for comment Tuesday. Dry-bulk vessels haul coal, iron ore, grain and other commodities.
There have been media reports that some ship owners, citing leasing-contract disputes, have seized several vessels operated by China Cosco after the Chinese shipping company halted payments.
Mr. Zhang said on Friday that the vessel seizures haven't affected the company's operations and that he is confident that China Cosco can settle the payment disputes.
The Moody's report cited DryShips Inc. as one of the ship owners locked in a payment dispute with China Cosco. DryShips couldn't be reached for comment on Tuesday.
Back in 2008, the largest category of dry-bulk ships, which can carry 150,000 metric tons of goods, were rented by China Cosco and other shipping companies for around $230,000 a day as industrialized nations demanded fodder for their booming economies.
Then, as the economic downturn hit and demand for bulk goods dried up, rental earnings slumped. Recently, they have dropped as low as $16,000 a day.
But even though the market is no longer as profitable for China's dominant shipper, Baltic Exchange's Mr. Penn argues that Cosco should still be able to meet its contractual obligations.
"It would be a different scenario if Cosco could not honor contractual obligations for financial reasons," he said. "But it seems they are able to."
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