Hanjin’s Demise Sending Shockwaves around the World

After the South Korean shipping company filed for receivership on Wednesday, August 31, 2016, multiple reports stated Hanjin vessels could not berth or unload at ports because they risked being arrested, having the cargo detained by the port or seized by a creditor. For example, because Hanjin owes millions of dollars in port fees to Dubai’s Jebel Ali, none its vessels can berth from the port. Another ship, bound for New York, is drifting south of the Suez Canal because it does not have the capacity to meet the canal fees. At the port of LA-Long Beach, three ships remain anchored off the coast with no safe harbor to land. In order to release Hanjin containers in holding, several container terminals are responding by passing along these fees to freight forwarders or cargo owners. As a result, thousands of containers remain stranded in transit with the former shipping giant.

The initial response to Hanjin’s demise led to soaring spot market rates. However, the fallout from the company’s exit from the market is starting show some significant cause for concern. One alarming statistic discovered through an American Shipper survey on Thursday, September 1, found more than 70% of beneficial cargo owners and ocean intermediaries have cargo aboard vessels owned by Hanjin. Stationary containers hamper the flow of goods, and if they remain at a standstill will have a detrimental impact on the economy. Small to medium-size manufacturing firms exporting just-in-time shipments could have closures or see assembly lines stopped if the delays are longer than a week. Smaller trucking companies with Hanjin contracts could go under as well because these companies may not have funds to meet expenses without delivering Hanjin cargo containers carrying everything from electronics to car parts from ports to company loading docks.

Even the supply chains for large electronics manufacturers such as Samsung and LG are not safe. Hanjin handles roughly 20% of LG shipments and 40% of Samsung’s shipments. Samsung is already facing a recall issue with its new phones, and now some of those replacements phones are in flux. Hanjin’s collapse came at the worse time possible for the shipping industry as it moves to the peak season and works to meet holiday orders for retailers. The retail sector is starting to get nervous about the current situation because the delay is keeping millions of dollars’ worth of merchandise away from storefronts. Some of them have items already aboard ships out on the seas and others waiting to be loaded. Reclaiming cargo will be a daunting task, and some analysts predict cargo owners may wait for months to get their cargo off of the Hanjin ships. Major retail stores such as Wal-Mart, Target, and J.C. Penney would feel the brunt of this problem.

So, the most important issue now is for these vessels to unload cargo but finding the money is another problem. To help address this issue, it will require cooperation from operators of port terminals, railroad companies, and trucking lines. Unfortunately, many of these entities want to secure payment before providing services, and they simply cannot trust Hanjin at this time. To protect its vessels, Hanjin began filing for court protection in the United States and other destinations, but that process does not provide an immediate solution to all the stalled containers or remedy the nervousness in the global shipping industry.