Shippers May Experience Disruptions As Korean Firm Hanjin Files For Receivership
The seventh largest international vessel operator and member of the shipping partnership CKYHE Alliance filed for receivership on Wednesday (8/31) after losing financial backing of South Korean banks. Hanjin, which had amassed a debt of $5 billion by the end of 2015, has operated four out of the last five years in the red.
Overcapacity and weak demand contributed to Hanjin's inability to stay afloat as the world's major shipping lines went through numerous mergers, acquisitions and fought one another for market share.
"In the ocean carriers' quest to maintain or gain market share, they allowed the rate levels to slide below their variable operating costs," said Averitt's Vice President of International Operations Charlie McGee. "The result was the creation of an environment that led to Hanjin's demise, which also spawned a necessary market correction for ocean rates that will allow the remaining players to continue to provide service."
Though struggling in recent years, Hanjin had been buoyed by the backing of Korean financial institutions—most notably the state-run Korea Development Bank. However, the chances that the South Korean government will step in to save Hanjin from bankruptcy look very slim.
“The government will swiftly push forth corporate restructuring following the rule that companies must figure out how to survive and find competitiveness on their own while taking responsibility,” said South Korea's Finance Minister Yoo Il-ho.
What Hanjin's Fall Means For Shippers
Reactions in the international marketplace have been quick. Ports around the world, including Shanghai, Valencia and Savannah, have already begun blocking access to Hanjin ships over concerns that the ailing operator will not be able to pay fees. In Singapore and China, Hanjin ships have been seized by creditors.
On Wednesday (8/31), Hanjin stopped booking shipments at all ports of origin. For shippers that currently have cargo on a Hanjin vessel, the potential for delays may be very likely.
Additionally, as a result of the shared vessel usage agreements by members of the CKYHE Alliance, which includes Cosco and Evergreen among others, some containers from one partner may be on another's ship.
Many ports and creditors around the world may ultimately seize Hanjin containers and block them from entering or leaving container yards.
WHAT Shippers Can Do To Protect Their Assets Now
Shippers that have cargo currently in transit on a Hanjin ship or in a Hanjin container on shore should work quickly with their transportation service providers to determine a course of action to be taken if necessary.
"We are working closely with vessel operators that we have booked with to insure that they have a contingency plan in place to gain possession of any containers that might be impacted by these recent events," said McGee. "Fortunately, we have not booked direct with Hanjin for some time now and do not expect any issues for our customers."
What to expect in the months ahead
In the wake of this turn of events, it is expected that South Korean vessel operator Hyundai Merchant Marine will acquire some of Hanjin's assets and potentially take over a portion of its trade routes. The sudden capacity vacuum in the busy Korean marketplace, however, will not be resolved overnight and will have consequences.
"With the vessel and container capacity offered by Hanjin being suddenly pulled from the market, it will most certainly result in substantial rate increases and a shortage of capacity with the carriers that are remaining in the marketplace," McGee said.
"This is the moment that shippers need to reach out to their service providers and ensure they are working proactively and looking ahead."