Disaster ensues as retailers scramble amid Hanjin’s collapse
Weaker global trade and stiffer competition have fueled the downfall for many companies tied to the ailing shipping industry, the most recent downfall being Hanjin Shipping Co. Ltd.
The South Korean shipping line, which is the seventh largest in the world, filed for Chapter 11 bankruptcy protection in its home country on Aug. 31 in wake of the company’s main creditor withdrawing its support.
Korea Development Bank, which took part in the cargo operator’s $5.5 billion debt restructuring plan back in May, announced its decision to halt any further spending toward the funding efforts.
Like many of its competitors, Hanjin has been piling on debt amid the sluggish freight rates and has been under pressure by its lenders to become profitable again.
Hanjin’s financial struggles have led many port operators to turn the carrier’s arriving cargo ships away from their terminals. Creditors who sought remedial action seized several Hanjin ships in order to cut their losses.
However, as the holiday season approaches, it seems retailers will be the group most affected by the recent series of events. Retailers who are waiting for their shipments to arrive are scurrying to find alternate carriers to deliver their goods in time for the busy season. Most will have to reconsider their expenses as shipping rates could also increase.
According to the Wall Street Journal, Drewry Shipping Consultants Ltd. reported that rates could increase by 40 percent in the short term.
Shippers, who currently have their cargo stuck on the carriers, have not been given a guarantee as to when they will retrieve their items. It could take weeks or months before a settlement is reached.
In a letter to the U.S. Department of Commerce and the Federal Maritime Commission, Sandra Kennedy, president of the Retail Industry Leaders Association, addressed the concern that many major U.S. retailers shared, stating that, “While the situation is still developing, the prospect of harm is significant and apparent.”
Kennedy further reports that Hanjin is responsible for 7.8 percent of the trans-Pacific trade volume for the U.S. market and therefore its “impact on importers and exporters is having a ripple effect throughout the global supply chain.”
Individual ship owners who lease to Hanjin will also be impacted by the sudden demise of the cargo company; 61 of the 98 ships that are run under Hanjin are chartered by third-party operators. If the company undergoes liquidation, owners could be stuck with their losses for several years.
The South Korean government put the shipping carrier in a further bind after rejecting its potential merger with Hyundai Merchant Marine.
Instead, the Seoul Central District postponed the date to submit a rehabilitation plan to Dec. 23 and, in the meantime, encouraged Hyundai to purchase the group’s healthy assets.
For a long time, the shipping industry has dealt with the issue of keeping up with weakening demand for global trade.
Amid its mayhem, Hanjin has also announced its departure from the CKYHE Alliance, which includes China COSCO Holdings Co. Ltd. and Evergreen Marine Corp. Taiwan Ltd.
The news could give a boost to its major competitors, like Maersk Line and Haoa-Lloyd AG, which have fought with Hanjin to gain market shares in the past.
Less than a week after the initial reporting of Hanjin’s turmoil, Judge John Sherwood granted the shipping company Chapter 15 bankruptcy protection. The ruling gave Hanjin extra time to fix its dilemma and, more importantly, it prevented creditors from seizing the company’s assets. While the decision was a bit of a relief for Hanjin, it was only part of the solution, as the company will still have to find a way to pay cargo handlers as well as docking fees if it wants to unload its ships.
The Hanjin Group, Hanjin Shipping’s parent company, proposed a plan to aid the cargo operator by raising 100 billion won, or 90 million dollars, after it earned permission to dock four of its ships at U.S. ports.
Korean Air Lines, which owns 33.2 percent of Hanjin Shipping and is part of the larger conglomerate that makes up Hanjin Group, agreed to back the plan by using Hanjin Shipping’s Long Beach Terminal as part of the collateral.
Furthermore, Hanjin sought approval from the South Korean government to use an additional $3.5 million to complete its U.S. deliveries for cargo already unloaded at docks.
Hanjin’s collapse has left over $14 billion worth of goods stranded at sea. Ships that were originally scheduled to unload at major terminals weeks ago are still roaming around and waiting for further instructions from authorities.
Hanjin is in a race against time—if it cannot figure out a way to develop a rehabilitation plan that restores the South Korean government’s faith in the company, it could ultimately face liquidation.