What is the state of Hanjin Shipping’s unraveling? The announcement of the bankruptcy is only the tip of the iceberg. The ensuing battles over payments owed have drawn the ire of many different parties, each fiercely protecting their interests. In doing so, they’ve created a logistical nightmare that continues on.
Cargo: Caught in the Middle
It’s safe to say that after the Hanjin crisis, the everyday occurrence of ships docking at ports can no longer be taken for granted. Even after the U.S. court handling the Hanjin bankruptcy case granted protection for ships from being seized by creditors, terminals still needed to see that Hanjin had raised the funds to pay for their services before allowing them to call. Although delayed, a handful of Hanjin ships have successfully docked at East and West Coast ports since then. On Friday, the Hanjin Bremerhaver arrived at the Port of New York and New Jersey after being arrested three times on its journey to the U.S.
Once the ships are docked, there is still the problem of releasing the cargo. Not helpful are some of Hanjin’s own tone-deaf actions. Hanjin has been exercising liens over some containers for which the freight charges had already been paid, in order to demand payment on other debts by the beneficial cargo owner. This is permitted under maritime law, but Hanjin is treading on dangerous waters given the vast amounts of cargo that has been delayed because of stranded and arrested ships. SchenkerOcean sued in court, and Hanjin was ordered to release all cargo for which a beneficial cargo owner has already paid the freight charges.
In another major dispute, a well-known furniture retailer is refusing to pay Hanjin for services it says Hanjin failed to deliver. If this retailer is allowed an “administrative freeze” on payments by the court, will there be a domino effect for other customers? This is a major scare for the carrier, which claims that their entire accounts receivable is at risk. And in turn, their ability to successfully reorganize.
The Hanjin situation has gotten ugly fast. It’s clear that for all business interests involved, the goal is now to aggressively minimize losses. In the process, cargo can become a casualty.
Fortune reports that Hanjin owes $5.4 billion to creditors, who are now lining up claims. To pay its debts and reorganize, the carrier has put up its most important assets for sale, including the entire operations of its Asia-US routes such as manpower systems, five container ships, and 10 overseas businesses.
Will there be a rush to buy Hanjin’s assets? Industry analysts are skeptical.
Alphaliner predicts that the interest will be underwhelming among existing trans-Pacific operators because of redundancies. Drewry Financial Research Services added, “Why would one pay for a ghost network when the credibility of that network has been under threat?”
Freight Rates Stay Up
Hanjin accounted for 7% of the Asia-US trade, meaning that its sudden departure from the route has created tight capacity in the peak shipping season when demand for space is high and other vessels are already operating at 90-100% capacity. We saw spot rates jump more than 50% after the announcement of Hanjin’s bankruptcy. Carriers on the trans-Pacific eastbound route implemented a General Rate Increase for September and October. Ocean freight rates for the Asia-US route typically face strong upward pressures in September and October as shippers are moving merchandise in the largest volumes. Hanjin’s exit from the Asia-US route means that freight rates will remain higher than usual in November and may last until the end of the year.
Hanjin’s collapse will continue to create complications for shippers, vendors, and the container shipping industry. AGWorld will keep you updated about the state of Hanjin and its impact on the current ocean freight market.
Photo courtesy of Matthew Simantov