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Dear shareholders,


First of all, on behalf of the Board and the management of COSCO SHIPPING Holdings, I would like to express my sincere gratitude to all our shareholders and customers around the world for their continuous attention and support to COSCO SHIPPING Holdings. Meanwhile, I would also like to thank all of our staff, onshore and offshore, for their diligence and tenaciousness. Thanks to the joint efforts of everyone, COSCO SHIPPING Holdings achieved outstanding results over the past year. 

In 2019, the Global economic and trade situation faced severe challenges. Economic growth had hit a new low since the financial crisis, and the demand growth in container shipping had slowed year-on-year. However, in the face of challenges, COSCO SHIPPING Holdings adhered to the guiding principle of “outperform the market, drive innovation, and lead the era” around Ocean & Plus strategy, to deeply facilitate various work including globalization, quality, digitalization and end-to-end business. Through the dual-brand collaboration and port and shipping operations, the Company continued to improve quality and efficiency, and released synergistic effects in depth, which significantly improved the Company’s operating performance. During the Reporting Period, according to the Hong Kong Accounting Standards, the net profit attributable to shareholders of the listed company amounted to RMB6.690 billion, representing a year-on-year increase of RMB5.460 billion or 443.9%; the basic earnings per share amounted to RMB0.55 per share. 

The operating performance of the Company’s container shipping business improved significantly year-on-year, and EBIT reached RMB6.62 billion (equivalent to US$0.96 billion), representing a year-on-year increase of 65.1%; EBIT Margin increased to 4.6% from 3.5% of 2018. The Orient Overseas (International) Limited, a subsidiary of the Company, disposed of LBCT LLC, which generated a one-time net income, achieved good shareholder returns, and recovered a large amount of cash. In addition, the Company raised approximately RMB7.7 billion through the A-share non-public offering in January 2019. At the end of 2019, the Company’s net debt to total equity ratio decreased to 101.5% from 185.2% at the end of 2018. 

In 2019, for the container shipping business, the Company handled shipping volume of 25.739 million TEU (on the comparable basis, representing a year-on-year increase of 2.7%), up by 18.1% as compared to 21.792 million TEU of 2018, of which COSCO SHIPPING Lines handled the shipping volume of 18.785 million TEU, representing a year-on-year increase of 2.3% and OOIL handled the shipping volume of 6.954 million TEU (on the comparable basis, representing a year-on-year increase of 3.8%). The COSCO Shipping Ports achieved a total throughput of 123.78 million TEU in terminal business, representing a year-on-year increase of 5.5%. 

During the Reporting Period, the Company’s shipping capacity increased moderately, a total of 10 large container vessels were delivered, with a total shipping capacity of 179,000 TEUs. They were put into operation in Northwest Europe, U.S. East Coast, and the Middle East, respectively. As of the end of 2019, the size of the dual-brand container fleet operated under COSCO SHIPPING Holdings reached 507 ships and 2,967,932 TEUs, representing a growth of 7.6% as compared to the end of 2018. The capacity scale continued to rank third among its peers in the industry in the world; COSCO Shipping Ports operated 197 berths in 36 ports worldwide with a total designed annual processing capacity of 113 million TEUs.

 

Adhering to the globalization strategy, actively focusing on dealing with the China-U.S. trade friction and continuously promoting the risk resistance capacity 

In 2019, adhered to the globalization strategy, on the basis of maintaining the competitive advantages of the east-west services, the COSCO SHIPPING Holdings accurately assessed new changes in the global economic and trade pattern, continued to increase its shipping capacity in emerging markets, non-China markets and regional markets, and further optimize and adjust its capacity structure and supply sources, to effectively deal with the uncertainty brought about by the China-U.S. trade friction. As compared to 2018, the Company’s dual-brand US routes capacity to overall capacity was reduced from 23.6% to 19.6%, and the US routes volume to total capacity was reduced from 19.3% to 18.0%. The amount of containers of the Company’s two brands in emerging markets and non-China markets reached 7.0% and 7.9%, respectively, significantly higher than the overall growth of container amount. The ratio of the non-China container volume to the total container amount of foreign trade increased from 35.5% in 2018 to 37.0%, the foundation for global development has been further consolidated, and the ability to resist local risks has been significantly improved.

 

At the beginning of April 2019, the OCEAN Alliance successfully launched the “DAY3” route product, involving 39 alliance routes, 322 ships, 3.82 million TEU capacity. The scale and coverage of the route network and services are industry-leading and provide customers with stable, reliable services and competitive products, the alliance’s cooperation period has been extended to 2027.

 

In respect of the terminal business, as the leading global port operator, COSCO SHIPPING Ports, a subsidiary of the Company, actively improved the global terminal layout and the operation quality and service level of terminal project. The COSCO SHIPPING Ports ‘s Abu Dhabi Terminal, as a core terminal invested and developed, as well as operated and managed by the Company in the Middle East, was formally inaugurated and is planned to become a major container gateway port and important hub in the Middle East. In 2019, the COSCO SHIPPING Ports successfully acquired 60% equity interest in Chancay Terminal in Peru, which is the first terminal project in South America controlled by the Company, it is a milestone for the Company to complete the construction of the global port network system.

 

Returning to the nature of shipping services, adhering to the customer-centric concept and continuously improving market competitiveness 

In 2019, the Company focused on customer care, to solve the pain points of service and constantly improve service quality and achieve a new leap in quality development, which effectively enhanced market competitiveness. 

COSCO SHIPPING Lines conducted the theme activity of “Quality Wins 2019” customer service, which focuses on the pain points of service reflected in the customer satisfaction survey, finds the cause one by one, and implements the improvement plan. At the same time, relying on OOCL’s leading information system, COSCO SHIPPING Lines ‘s booking platform functions, transfer operations, and schedule management have been greatly improved, and its service reliability has been significantly improved. In terms of optimizing cabin management and booking operations, the global 2-hour booking confirmation rate has been increased to 98% from 95% in 2018; the global time-to-order rate has exceeded 99%; all domestic ports and 23 key overseas companies, 98% of the notice of arrival is realized at least one day before the arrival of the goods to customers. 

According to the Global Carrier Schedule Performance (GCSP) launched by Shanghai Shipping Exchange, COSCO SHIPPING Lines and OOCL rank top 3 in the world in term of the overall on-schedule rate in 2019.

 

With the dual-brand synergistic development, the synergy effect exceeded expectations 

In 2019, the Company took the advantages of the scale and synergies after the acquisition of OOIL, and further tapped potentials in route network planning, container management, supplier procurement, and information system construction. With the “dual-brand” strategy achieving significant results, it exceeded the synergy goals set at the beginning of the year. 

During the year, COSCO SHIPPING Lines and OOCL strengthened the overall arrangement of shipping capacity to optimize vessel types deployed for each route. Through the exchange of several vessels of different types by chartering, the fleet resources were fully utilized. The Company achieved dual-brand complementary advantages in route planning. The routes within the European region are managed and operated by COSCO Shipping Container Lines; the Atlantic routes are managed and operated by OOCL; the OOCL brand enter the African and South American markets, covering 10 groups of Far East-Africa Air routes and 5 groups of Far East-South America lines; the branch lines and shipping agency services of COSCO SHIPPING Container Lines have opened up the use of OOCL, effectively extending and upgrading the respective service areas and capabilities of the two brands. In addition, the dual-brand coordinated the management of the containers, shared the container inventory information of both parties through the information system, and coordinated the arrangement of transportation, which effectively improved the efficiency of container use. 

The dual-brand synergy effectively improved the profitability of COSCO SHIPPING Holdings’ container shipping business. Both of the COSCO Shipping Container Lines and OOCL achieved good operating results in 2019, of which, the COSCO Shipping Container Lines realized an EBIT of RMB3.89 billion (equivalent to US$0.56 billion), representing a year-on-year increase of 40.0%; a net profit of RMB1.16 billion, representing a year-on-year increase of 19.6%. OOIL realized an EBIT of US$0.45 billion (equivalent to RMB3.12 billion), representing a year-on-year increase of 44.2%.

 

Promoting the digitalized development with conforming to the trend of information era 

In July 2019, companies under COSCO SHIPPING Holdings entered into Global Shipping Business Network (GSBN) services agreements with a number of ocean carriers and terminal operators. Under these agreements, each signatory commits to provide resources to support preparatory work required to establish the GSBN, a non-profit joint venture to accelerate the digital transformation of the shipping industry. Upon its establishment, the GSBN intends to provide a data platform for all shipping supply chain participants to work collaboratively to accelerate technology innovation and develop solutions through trusted and secure data exchange platforms. The GSBN can unlock underlying data value and create exciting new opportunities for all shipping supply chain participants in a more open and transparent way. In early 2020, they entered into the GSBN Services Agreements, which clearly stipulated the governance structure and business nature of GSBN. GSBN will be formally established and put into operation after completing all the regulatory approval procedures. CargoSmart, a subsidiary of OOIL, will provide technical solutions and platform operation services for GSBN. In addition, various companies under COSCO SHIPPING Holdings actively researched block chain-based digital products, such as [permitted dangerous goods] [PH Notes: Plz revise], which have been piloted in the dual-brand fleet; they have jointly researched block chain-based cargo distribution products with Shanghai Port Group and completed tests and pilots. 

The COSCO Shipping Container Lines constantly improved its customer service experience, operation efficiency and transaction volume of self-operated e-commerce platform. In September 2019, the Company’s visual shipping e-commerce platform Syncon Hub was newly launched, providing a full-process online integrated logistics solution. In the full year of 2019, the domestic e-commerce platform’s transaction volume recorded a year-on-year increase of 14%, the transaction volume exceeded RMB1.3 billion. The foreign trade e-commerce business continued to expand and covered all foreign trade routes, and recorded a year-on-year increase of more than 150% in loaded cargo volume. 

After the nearly half a year technical preparations of the dual-brand IT team, since August 2019, the IRIS2 system used by COSCO Shipping Container Lines has been gradually switched to upgrade to the IRIS4 system used by OOCL by batch and by route under the global online situation. The successful upgrade of the system further improved the efficiency of internal management, which laid a solid foundation for improving the customer service experience. 

The COSCO SHIPPING Ports actively promoted the “5G Smart Port Lab”, and built the world’s first 5G signal full coverage terminal port at Xiamen Ocean Gate Terminal, to provide high-quality wireless communication service for existing production operations, office operations, warehousing and logistics, and external services.

 

Innovating business model to further expand end-to-end business 

Developing end-to-end business is not only an important way for container transport industry to mitigate risk of operation, broaden profit channels and build high-quality services, but also an effective way to create value for customers. 

In 2019, COSCO SHIPPING Lines successfully implemented a global logistics solution represented by Tesla transportation project, marking new development in the full-service capabilities of the Company and forming a new model of value marketing. 

The rapid development of International New Land and Marine Routes represented by the China-European railway services and the China-European Sea-rail Express means that the implementation of the Belt and Road Initiative of the PRC is becoming a new driver for the Company’s strategies. In 2019, Company launched 26 new China-Europe railway container liner service routes, totaling 34 routes and completed 719 container freights and the total volume increased by 173% year-on-year. For the China-European Sea-rail Express, the Company completed 1,365 container freights and the freight volume increased by 64.3% year-on-year.

 

Reform our systems and mechanisms and further stirring up the enterprise’s profit-generating vitality 

On 30 May 2019, the Share Option Incentive Scheme of COSCO SHIPPING Holdings was considered and approved at the annual general meeting and the registration of first grant was completed at the end of July. The participants under the Share Option Incentive Scheme include senior to mid-level management personnel and key employees of COSCO SHIPPING Holdings and its major subsidiaries, among whom a total of 460 participants were granted with an aggregate of 190,182,200 A Share Options of the Company at the exercise price of RMB4.1 per share. Through the implementation of Share Option Incentive Scheme, the Company’s mid to long term incentive plan is further improved, which is beneficial to promote the Company’s value enhancement and long term development. 

In addition, COSCO SHIPPING Lines also pushed forward its personnel system reform, carried out its professional manager system reform at the senior management level and implemented its reform on three systems of “Employment, Personnel and Allocation”, thus arousing the employees’ profit-generating vitality in an all-around manner.

 

Actively fulfill social responsibilities and lead the sustainable development of the industry 

The Company put great efforts to develop green shipping, smart ports, and smart vessels and fully implemented IMO2020 Sulfur Emission Reduction and other emission reduction regulations. It has played an exemplary role in energy conservation and environmental protection and technological innovation. 

In 2019, the Company continued to promote and use various advanced energy conservation and emission reduction technologies, and effectively reduced fuel oil consumption through management measures such as optimizing structure of its fleet and design of its shipping routes and improving operation efficiency of vessels at port, thereby reduced the environmental impact and carbon emission from the business operation. With an increase of 7.6% in the capacity of the dual-brand fleet, the annual fuel consumption of the Company’s fleet decreased by 1.0%. 

In response to the new regulation on limiting sulphur emission implemented worldwide by International Maritime Organization (IMO) in 2020, the Company proactively studied and compared various solutions, and decided to use low-sulfur oil that complies with the standards and install desulfurization devices on several vessels to meet the requirement of new regulation. As at the end of 2019, a total of 7 vessels of the Company’s dual-brand fleet were retrofitted with Exhaust Gas Cleaning Systems for operation, and from the fourth quarter of 2019, depending on the route voyage and the bunkering ports, other vessels in operation were scheduled for tank cleaning and first filling of low-sulfur fuel oil on a route by route, ship by ship and tank by tank basis so as to ensure that all the vessels in operation satisfy with the new requirements before 1 January 2020. 

Through continuous efforts of the Company in serving the development of global economy and trade and fulfilling social responsibilities, the brand image and market recognition of the Company have been further enhanced. In July 2019, the Company was included in FORTUNE China 500, ranking the 75th in the list. In September 2019, the shares of the Company were selected as a constituent stock of the Hang Seng Corporate Sustainability Index Series for the second successive year. In January 2020, the Company won the “Best Listed Company with Social Responsibility (最具社會責任上市公司)” for the second successive year in the Golden Hong Kong Stock Award. 

Since the beginning of 2020, facing the sudden outbreak of COVID-19, COSCO SHIPPING Holdings has actively fulfilled its social responsibilities and made every effort in the epidemic prevention and control. The Company immediately initiated the emergency response plan, adopted a series of active and effective prevention and control measures and strictly complied with the control policies on epidemic prevention made by different countries and regions, which effectively protected the life, health and safety of its on-shore and off-shore employees and ensured the smooth and orderly business operation. Furthermore, for the purpose of actively making contribution to the battle against the epidemic, the Company coped with the difficult situation to give priority to ensure the transportation of supplies for epidemic prevention and the living in the epidemic areas and opened the “Green Channel”, which fully demonstrated its strong commitment to prudence and responsibility. The overseas subsidiaries of the Company actively donated epidemic prevention supplies to local hospitals and government agencies to contribute to the overseas fight against the epidemic.

 

Looking forward to 2020, in general, the global economy will experience sluggish growth alongside the increasing uncertainties, the PRC economy will run steady towards an upward direction in the long run alongside the short-term overlapping pressures, and the shipping industry will see the relief from pressure on shipping supply alongside the increasing risk. 

On one hand, the data on the global economic growth in 2020 forecasted by many authorities at the beginning of the year are at a low level since the financial crisis. International geopolitics and local social unrest have brought uncertainties to the global economy. The sudden outbreak of novel coronavirus pneumonia will have a material impact on China’s economy in the short term and pose challenge to global economic growth if it spreads globally, which will in turn strike global trade. However, on the other hand, there are also some positive factors that should be noted, China and the United States have reached the first phase of the economic and trade agreement, which indicates that cooperation is still the mainstream for the development of the global economy. The Chinese government has quickly and efficiently promoted the prevention and control of the epidemic, and has increased counter-cyclical policy adjustments against the impact of the epidemic. It is expected that the downward pressure on the global economy will be effectively eased. Meanwhile, China has been promoting its economic transformation and expansion of domestic market, and its business environment continues to improve and its industry chain has apparent comprehensive advantages. The Chinese economy will continue to maintain stable growth in the medium and long term and will be a major stabilizer for global economic growth, thereby continuing to support the development of global shipping market. 

As a global leading container liner company and terminal operator, facing the challenges and opportunities in global economy and in the shipping market, COSCO SHIPPING Holdings will adhere to the “Three Focuses” policy, namely focus on high-quality development, focus on breakthrough development, focus on integrated development with the sense of urgency and follow the established strategies to achieve higher quality and more sustainable development.

 

Focus on high-quality development to enhance core competitiveness 

COSCO SHIPPING Holdings will shift its focus to quality development from rapid growth while continuing to promote a modest growth in its scale. 

In respect of the container shipping business, the Company will firmly advance the global route network layout to enhance global competitiveness and further adjust and optimize the route capacity structure. Meanwhile, the Company will consolidate its global sales network and increase its ability to create value in order to continuously improve service quality and customer experience. Moreover, the Company will continue to improve the onshore supporting logistics network, taking the China-Europe Land and Sea Express as a model, to strengthen the channel construction, extend the service value chain and build the design and construction of end-to-end service channels to provide customers with more competitive full-service products. 

In respect of the terminal business, the Company will continue to strengthen the construction and structural adjustment of our global terminal network and actively expand logistics industry chain in order to build a comprehensive port service platform.

 

Focus on breakthrough development to promote digitalization reform 

COSCO SHIPPING Holdings will hold tight to opportunities in the development of global trade and logistic industries empowered by digitalization and seek for digitalization innovation and practice across the industry chain. The Company will strengthen digital network construction to improve service-integrating capabilities. The Company is committed to comprehensively improve our support for customer service by standardizing, concreting and digitizing business processes based on its strength of the IRIS4 system so that the “long distance and wide coverage” business model of our global container shipping can be effectively connected in the system. 

The Company will also continue to work with all parties to promote the development of the GSBN blockchain alliance, and use data to realise digital collaboration to promote digital innovation in the shipping industry. Meanwhile, we will accelerate the commercial application of the IOT technology and the development of shipping e-commerce platforms to provide customers with more convenience.

 

Focus on integrated development to promote the release of synergy effects 

Adhering to the efficient synergy of the two brands, the Company will highlight the complementary advantages of the global operation of the two brands, and enhance its global value service capabilities. Meanwhile, we will continue to rely on the advantages of scale to build a more comprehensive service network according to customer needs to further deepen the synergy work at all levels. 

Meanwhile, the Company will continue to promote the synergy effects in the industry chain. In respect of ports and shipping synergy, we will actively promote the construction and development of the Abu Dhabi terminal and the Chancay Terminal in Peru using Piraeus Port in Greece as a model and in accordance with the win-win integrated development model of fleet and terminals. 

In short, the conditions of the industry are very challenging, we will carefully analyze the market situation and actively seize market opportunities. We firmly believe that in 2020, there are challenges, but also more opportunities; there are difficulties, but also greater hopes. Looking back, we can always find opportunities for balance in the imbalance and achieve possible breakthrough in challenging conditions. Our industry and enterprise development is like sailing a vessel in the ocean, we always move forward in the storm, but the terminals will be successfully arrived in the end. 

In the new year, as the most significant component of core businesses, listed platform of the container shipping service supply chain and listed flagship of China COSCO Shipping Corporation Limited, COSCO SHIPPING Holdings will endeavor to build the Company as a world class integrated container shipping service provider and to provide customers with better services and create greater value for shareholders through adhering to “Three Focuses” and value creation and striving to reach the goal in the shortest time and living up to the good times.

 

 

 

XU Lirong

 

30 March 2020


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