On August 31, Hanjin Shipping filed for bankruptcy protection in South Korea after creditors rejected its proposal for continued funding. Though this is the biggest bankruptcy in container shipping history, Hanjin’s demise comes as no surprise for industry watchers. A symbol of an industry in pain, Hanjin Shipping is burdened with $5.5 billion in debt and has been operating at a loss for the past four or five years.
Hanjin’s impending bankruptcy has sparked a logistical nightmare in the shipping industry. $14 billion worth of goods are currently stranded, many of those items headed to the shelves of U.S. retail stores in preparation for the upcoming holiday season. Hanjin is the seventh largest container shipping line with 300,000 containers currently in voyage and another 230,000 already on land. At least half of its fleet - 49 ships - has deviated from scheduled routes because of this development.
Concerns about Hanjin’s ability to pay for services have led ports around the world to refuse Hanjin ships. In the cases where ships have been allowed to dock, terminal operators are taking a varied approach to Hanjin’s cargo, with some passing the handling fees Hanjin is typically responsible for onto shippers and refusing to accept export loads. Other port authorities are exercising a lien over containers, meaning that they are being held until Hanjin’s debt is paid. This is especially problematic as Hanjin does not own the cargo that its containers hold.
Hanjin ships have already been seized in the United States, China, Singapore, and Australia. The company has filed Chapter 15 bankruptcy in the United States. Last Friday, a federal judge in the U.S. granted Hanjin protection from vendors taking legal action against it, and the possibility of authorities seizing more vessels. Additionally, the Wall Street Journal reports that "Hanjin plans to file for court protection in about 10 countries, including Canada, Germany and the U.K., this week, and later expand that to 43 jurisdictions to protect its ships and other assets from being seized by creditors.”
The South Korean government has requested domestic shipping lines to send 20 ships to rescue Hanjin’s cargo. Hanjin’s parent company, the Hanjin Group, pledged $90 million last week to resolve the cargo crisis. Over the week, Hanjin Group’s flagship company, Korean Airlines, agreed to lend Hanjin Shipping $54 million, which was followed today by an infusion of $36 million of cash from Hanjin Group Chairman Cho Yang-ho’s personal wealth. On Friday, the Wall Street Journal reported that a South Korean court has authorized the company to pay to unload cargo on four U.S.-bound ships, drawing from a U.S. bank account holding $10 million. So far, two Hanjin ships have been allowed to dock at the Port of Los Angeles and Port of Long Beach.
Hanjin’s bankruptcy has agents canceling bookings on Hanjin ships and searching for alternative vessels to load their cargo. The tighter capacity created has prompted ocean carriers to raise spot rates by more than 50% and implement the General Rate Increase for the Trans-Pacific eastbound for September and October. This development will continue to send ripples through the shipping industry. We’ll monitor the situation and provide you updates on how this will affect shippers.
Photo: Courtesy of kees torn