21-11-2017

SIPG’s profits could be hit by move in China to lower handling tariffs

MOODY's Investors Service has warned that a decision announced on last week by China's state-run National Development and Reform Commission (NDRC) to reduce handling tariffs for import and export containers could lead to lower profits for Shanghai International Port Group (SIPG).

The move was prompted by the Chinese government's antitrust review on the business operations of coastal ports that is intended to reduce overall logistics costs and promote a fairer operating environment for shipping companies, reported Port Technology of London.

Other measures announced by China's economic management agency included a further opening of tugboat, tallying and shipping agency markets, and cancellation of unreasonable contract clauses.

SIPG is the top terminal operator at the port of Shanghai, which is the largest container port globally by throughput volume, and as of this September it was 59.38 per cent directly and indirectly owned by the Shanghai State-owned Assets Supervision and Administration Commission (SASAC).

Moody's vice president and senior analyst Osbert Tang was quoted as saying: "The reduction in tariff will negatively impact SIPG's profitability and cash flow generation capability from 2018 onwards, and reduce the financial headroom for its standalone credit profile."

"Effective January 1 2018 the import and export handling tariff for non-transshipment containers at the port of Shanghai will be lowered by 19.4 per cent to US$72 (CNY480) per 20-foot equivalent unit (TEU).

"The NDRC also ordered tariff cuts of between 11 per cent and 21 per cent at several other ports - including Tianjin, Ningbo-Zhoushan and Qingdao - that enjoyed dominant market positions in their respective servicing regions."

As a result of the tariff reduction, Moody's estimates that SIPG's container handling revenue will fall by $0.15-0.226 billion in 2018, resulting in a lower gross profit margin of 52-53 per cent for this business segment during the same year when compared with the 57 per cent achieved during the first half of 2017.

Source: Schednet

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