Hanjin: A Direct Hit, Plus Collateral Damage

It's a new and ugly world in international trade today. Hanjin Shipping's receivership and bankruptcy filing suddenly exposed how flimsy is the world of shipping alliances and just-in-time supply chain management.

Now five business days since Hanjin's filing, what do we know?

• Three Hanjin ships are reported arrested (in Long Beach, Shanghai and Singapore)

• 61 of their 98 vessels were refused entry at ports worldwide, and are either returning to Busan, or allegedly ‘safe” (meaning arrest-free) ports of Hamburg and Singapore.

• 540,000-567,000 twenty-foot equivalent units (TEU's), containing $13 billion worth of cargo due to 8,300 shippers, are stuck at ports worldwide, are on arrested vessels, or returning to a safe port in hopes of unloading, reloading, and re-shipment.

• Container rates, as reported by Xeneta.com and Shanghai Container Exchange, have soared 36-51% from Busan / China ports to USWC, USEC, and N. Europe.

• Ports in Europe are demanding forwarders / cargo owners pay Euro 1,000 – 4,000 per container for release; they are calling these fees ‘prorated unloading charges.' Litigation to reduce these extortionary charges is already underway.

What are the ramifications?

• Those 540,000+ TEU's worth of cargo will likely not be delivered for 2-3 months or longer, and the costs to cargo owners may exceed the value of the goods.

• Hanjin carried goods worth 6-10% of Korea's export earnings; a slump in Korea's export earnings should affect the exchange rate of the Won

• No shippers will contract for more goods until these goods are delivered, or at least firmly scheduled for delivery; this may cause a temporary boost in unemployment figures as manufacturing slows.

• Hanjin leased the majority of their containers, so the likelihood is they owe Triton, Textainer, others, considerable sums; the likelihood is the debt for these containers will be litigated before the containers – and their cargoes – are released.

• Lack of retail inventory for US-UK-EU holiday season, which will affect year end-financial figures for such US-EU-UK leading companies as Walmart, Carrefour, Tesco, and Home Depot, B&M, and Poundland.

• Lack of available holiday inventory means fewer part-time holiday workers need to be hired, which will affect US-EU-UK jobs reports.

Take LG Electronics: they ship 10-12% of their televisions and electronics to the US via Hanjin. This is the beginning of peak shipping season…how many TV's are in-transit? To-from Korea? Can LG find replacement container space? At what price? For shipment-arrival when?

The demise of a major carrier should be no surprise; three years of dropping ocean freight rates resulted in three years of losses estimated in the $ 16 billion range. With the majority of the carriers except Maersk and Hapag-Lloyd not offering financial results, one must look at the forced Cosco-CSCL merger, the Zim restructuring, or the rapidly-arranged Hapag-UASC merger to understand the severity of the losses.

Shippers bear substantial responsibility. Despite years of claiming reliability was more important than price. Maersk was forced to abandon their “daily Maersk” service as the vessel's utilization rates were at best anemic as most shippers pursued the cheapest rate. With 3rd Q 2016 China-EU rates for a 20' dry box in the $ 225-400, surely no shipper is surprised that a carrier went belly-up.

The carriers also bear some responsibility for Hanjin’s demise. While Maersk’s Triple was an important step in the evolution of container ships, Maersk had both the customers and the financing to make them financially viable. However with UASC and others quickly engaging “mine is bigger than yours” war of egos, there were quickly too many containers chasing too little cargo.

Those “Just-In-Time” delivery schedules for electronics and auto parts are now worthless as 540,000 TEU's of unloaded boxes steam slowly to Busan; for this to happen in a world economy as thinly-balanced as today’s, the collateral damage to shippers, exporters, importers, and retailers has the potential to be catastrophic. “Happy Holidays” or “Bah, Humbug?”

SC
MR