Cosco's shares traded lower on the news, with those in Hong Kong (HK:1919: news, chart, profile) falling 2.8%, while those in Shanghai fell 7.2%.

The Beijing-headquartered and state-owned shipping line said its dry-bulk unit purchased freight forward agreements linked to the Baltic Dry Index to lock in the cost of chartered-in vessels. These contracts, purchased when the index averaged 7,123 points, racked up huge losses as freight rates plunged, hitting 764 on Dec. 12. The freight rate has averaged 1,224 since Oct. 1.

"The global economic crisis further deteriorated since the fourth quarter, which has greatly affected the global shipping market," China Cosco said in a statement filed with the Hong Kong Exchanges & Clearing Tuesday. "The basic freight level of major shipping routes has declined dramatically."

Shippers and ship owners use freight-forward agreements, a type of option traded on the Baltic exchange, to hedge against price changes in the ocean freight market. The options are priced on the basis of the Baltic Dry Index, which reflects the spot rates of the global bulk shipping market.

The index ended at 803 Monday, compared to a record close of 11,793 on May 20.

China Cosco said it had a fair-value loss of 5.38 billion yuan on the freight forward agreements, but it was partly offset by a 1.43 billion yuan gain related to contracts that have been completed.

The shipping line said its business has also been hurt by falling demand and softer rates in its container-shipping business.

China Cosco, founded in 1961, operates a fleet of container cargo and dry-bulk ships. The company also provides port handling and logistics services.