Hanjin Brings One of World's Busiest

Shipping Terminals Close to Standstill

Heejin Kim
September 14, 2016 2:30 AM ISTUpdated on September 14, 2016 7:30
AM IST
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Seaspan CEO: Hanjin Fallout Is Like Lehman for Shipping

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More than 11,000 jobs in Busan at risk if shipping line folds

Hanjin containers piling up, paralyzing terminal operations

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The Hanjin Shipping Co. terminal at South Koreas largest port used to be
one of the worlds busiest. Dozens of container carriers would line up to
ferry boxes to and from the giant cranes that loaded and unloaded the
worlds biggest ships.
Last week the terminal, as big as 100 football fields, came to a virtual
standstill. In front of hundreds of containers stacked four-high, Seo Seong
Deok, a 35-year-old driver of the port tractors, wondered if he would ever
get to move them again.
We have no work now, said Seo, one of about 1,000 tractor drivers
without work. This Hanjin terminal used to be always bustling with trucks
and ships. Now, I heard some fresh food such as mango or banana is rotting
in Hanjin container ships drifting somewhere in the ocean.
Since the worlds seventh-largest container line filed for protection from
creditors on Aug. 31, the port has been paralyzed as unshipped boxes piled
up. The collapse has come at the worst time: September is peak season for
the industry as manufacturers look to stock store shelves for holidays like
Thanksgiving and Christmas. Port officials say cargo owners have been
scrambling to find alternative ways to send goods.
For a map of Busan, click here.

The port in Busan, on the tip of the Korean peninsula about 325 kilometers
(200 miles) southeast of Seoul, handles more than 70 percent of the
containers that enter or leave South Korea, according to local government
data. Until last week, Hanjin alone accounted for about 10 percent of goods
that flow through its wharves. The company declined to comment on the
current situation in Busan.
The biggest concern is Busan losing its longtime reputation as a maritime
hub in Asia, said Kim Kyu-Ok, the citys vice mayor for economic affairs.
Hanjins collapse could make ship owners shun Busan.
Worst Scenario
That could mean more business for rival ports in Asia. Shipping companies
use large centralized transshipment ports like Singapore to store containers
and distribute them among vessels in order to move goods more efficiently
around the world. Busan had risen to become the fifth-biggest container
port and the city has ambitious plans to expand with new docks near
Gimhae International Airport, where Hanjins terminal is located.
The worst scenario for Korea because of the collapse of Hanjin is vessels
could head to other ports, such as Tokyo, Singapore, or China, said Jeon
Jun Mo, research fellow at IBK Economic Research Institute. The primary
reason for the popularity of Busan was its cheaper service charges than
other ports, and Hanjins exit will lead to an increase in charges for Korean
exporters.
The city has long played a strategic role in the countrys history. As the
closest port to Japan, it was the center of shipments between the two
countries and officially became Koreas first port in 1876.
When the North Korean army poured south in 1950, driving back South
Koreas forces, it was around Busan that the United Nations troops made
their stand, using the port to bring in massive supplies of troops and
equipment that eventually drove the communist soldiers back.
After the war, the port continued to prosper from South Koreas
industrialization, anchoring the nations biggest industrial belt. The city of
3.5 million holds Asias biggest international film festival and has plans to
bid to host the Olympic games.
Shipbuilding Slump
The citys shipping crisis comes on the heels of a slump in shipbuilding,
once a mainstay of Busan and other Korean yards. Daewoo Shipbuilding &

Marine Engineering Co., the worlds second-largest shipbuilder, based at

Busans neighboring Geoje City, has said it will cut its workforce by 20
percent and could reduce capacity by 30 percent. A group of companies in
Busan said another 11,000 jobs could be at risk in the city if the troubled
container line isnt rescued.
Temporary Relief
11,000? No way. There will be much more," said Kwon Ok Bong, a 68year-old taxi driver in the city, who witnessed the aftermath of the
shipbuilding decline in Geoje. Lots of restaurants and pubs shut down
after the shipbuilders got into trouble, he said. If Hanjin is closed, Busan
will have no big company.
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After roiling the global supply chain for more than a week, Hanjin won
some respite over the weekend after its biggest shareholder, Korean Air
Lines Co., agreed to inject 60 billion won ($54 million) to help pay for
handling charges at ports. Thatll provide temporary relief for goods already
on ships, but may give little respite for the thousands of Busan workers who
are waiting for the return of the vast container ships.
Business has already fallen off on Chungjangdae-ro, the street full of
restaurants and bars behind Hanjin Shippings office in central Busan
among offices of small shipping lines and sailors unions. During dinner
time last Thursday, the street was quiet, with many restaurants and coffee
shops empty.
Spending here is shrinking, said Lee Su Man, a 57-year-old owner of a
coffee shop on Chungjangdae-ro. The atmosphere is changing.
The slowdown could worsen South Koreas unemployment rate which
already rose to 3.8 percent in August from 3.6 percent in July, according to
Statistics Korea. The government agency noted that the jobless rate was
particularly noticeable in Busan and South Gyeongsang province, home to
the worlds three biggest shipyards.
The deterioration of Busans economy is not just a local issue, said Jeon at
IBK Economic Research. It could shake Koreas economy overall.

The bankruptcy of the Hanjin shipping line has thrown ports and retailers around
the world into confusion, with giant container ships marooned and merchants
worrying whether hundreds of tonnes of goods being carried by the South Korean
company will reach shelves.
The company filed for bankruptcy protection on Wednesday and stopped accepting
new cargo. With its assets frozen, ships were refused permission to offload or take
aboard containers because there were no guarantees that tugboat pilots or stevedores
would be paid.
Hanjin is the worlds seventh-largest container shipper and the news left cargo
headed to and from Asia in limbo. There were reports that some Hanjin ships had
been seized in China on behalf of creditors.

That Shipping Giants Collapse Is No Reason to Become a Pirate

now, no ones gonna say, September 2016: Thats when

the pirates took over.
A CENTURY FROM

Yes, the demise of shipping giant Hanjin will make life on the high seas a
bit more expensive and a bunch more complicated. But the pain will be
temporary.
First, the case for hysteria. South Koreas Hanjin Shipping, the seventh
largest company of its kind in the world, declared bankruptcy Wednesday.
Its ships that havent been seized by creditors have been turned away from
ports in Japan, China, Germany, Australia, and the US. Someits unclear
how manyare just sitting offshore. Those that have docked sit untouched,
cargo stuck on board.
Now that Hanjins assets are frozen, the stevedores, tug boat pilots,
truckers, railroad operators, and others who move goods from ship to shore
to store know they wont get paidand wont do the job. The Wall Street
Journal reports the deliveries of roughly 540,000 containers will be
delayed by up to a month.

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Meanwhile, Americas National Retail Federation is fretting as the holidays

approach. There is millions of dollars worth of merchandise that needs to
be on store shelves that could be impacted by this, Jonathan Gold, head of
supply chain and customs policy, said in a statement.
Oh, and those ships stuck at sea? They have people onboard.
Now, the deep breathing. This is going to be a short term crisis, says Ryan
Petersen, CEO of Flexport, which helps clients coordinate shipping through
the tangle of trucks, ships, and trains needed to take things from door to
door.
The sailors on those ships afloat wont starve or abandon ship. If theyre
really stuck, their union, the local Seamens Church Institute, or someone
else can bring them extra supplies. Creditors worried about the state of
valuable ships could arrange to pay sailors to keep them the job.
So no, this isnt your chance to swashbuckle onto ships full of suddenly up
for grabs goods. And no, the sailors on those ships wont crack open the
containers and enjoy lives of luxury under benign maritime law.
But yes, prices will go up. The cost of shipping a 20-foot container from
China to California is expected to nearly double, according to the Korea
International Trade Association. Thats because shippers are rushing to
profit from Hanjins demise. Theyre desperate, Petersen says, because the
whole industry is slipping under.

Heres a great opportunity for them to raise prices, right

before Christmas season.RYA N P E T E R S E N , C E O O F F L E X P O R T
Roughly five years ago, just about every shipping company started ordering
massive new vessels, enticed by the promise of greater capacity and
efficiency. Beasts like the 194-foot wide, 1,312-foot long1 Maersk
Triple-E can carry 18,000 containers and burn half the diesel of their
punier predecessors. But the global economy didnt keep up. Ordered years

in advance, ships kept hitting the water. Supply outstripped demand; the
price of shipping cratered.
Heres a great opportunity for them to raise prices, right before Christmas
season, Petersen says. Hanjin handled about 3 percent of ocean container
shipping, creating enough turmoil in the market for its competitors to
negotiate better rates.
Eventually, Hanjins ships will find new owners, the containers onboard
will get delivered, the sailors will go back to work, and the prices will return
to normal. This will be good for the rest of the shipping industry, says
Marc Levinson, an economist and author of The Box: How the Shipping
Container Made the World Smaller and the World Economy Bigger.
Theres just not sufficient demand to keep these things full, and
consolidation is the natural solution. Hanjins bankruptcy is a dramatic
manifestation of the shift usually expressed in mergers and acquisitions.
Key word: eventually. This may not be a crisis, but its certainly a mess for
those directly involved. Hanjin is a multinational corporation. It has ships,
subsidiaries, crews, creditors, and contracts all over the world. It filed
bankruptcy in South Korea, but the legal fallout will be international. When
shipping giant United States Lines went bust in 1986, it took two years to
put together a reorganization plan, and four more to totally liquidate the
company. The resulting litigation carried into the 2000s.
Hanjins death rattle promises to be similarly excruciating. There are
unions to consider, pension plans to fund, medical insurance premiums to
pay. There are about a million details, Levinson says. Nobodys really in
charge.
Forget piracybecome a lawyer.

Samsung alone said it had $38 million in stranded goods

aboard the ships.
The collapse of South Koreas Hanjin Shipping, the worlds seventhlargest container carrier, has disrupted global trade networks and
driven up freight rates.
Following are some of the key numbers:

* $14 billion the estimated value of cargo tied up globally as

Hanjin ships idle outside ports that wont let them in.
* 400,000 the estimated number of containers stranded on
Hanjin ships.
* 8,300 estimated number of cargo owners involved.
* $38 million the value of goods, mostly TVs and appliances, that
Samsung Electronics SSNLF 5.56% alone has said it has stuck
aboard two Hanjin ships.
* $1,700 the average cost to move goods in 40-ft containers from
the U.S. West Coast to Asia up from $788 in May.
* 7.8% of the trans-Pacific trade volume for the U.S. market
carried by Hanjin.
* 141 the number of ships Hanjin has (97 container ships, 44 bulk
carriers). More than half are blocked from docking, and four have
been seized as of Sept 11.
* $5.5 billion Hanjins debts (6.1 trillion won) as of end-June.
See also: Stranded Hanjin Cargo Ship Finally Begins Unloading in
U.S.
* $293 million Hanjins market value (322.5 billion won) down
by around a third in the past two weeks.
* $226 million (249 billion won) Hanjins operating loss in AprilJune, on revenue of $1.3 billion (1.43 trillion won)

South Koreas biggest container shipping line became the latest victim of a collapse in global
trade over the past few years, which has battered the countrys export-heavy economy.
The countrys financial regulator said Hanjin Shipping Co.s assets should be sold off to
smaller rival Hyundai Merchant Marine Co. Hanjin filed for court receivershipWednesday.
The firms shares fell 24.2% on Tuesday to 1,240.00 won (US$1.11) before being suspended
from trading after the companys creditors pulled support from the stricken firm. Hanjin
declared total debt of 3.6 trillion won at the end of June, equal to 6.4 times equity.

South Korea, one of the worlds leading exporters, is on the verge of losing its
biggest shipping company in the worst corporate fiasco the country has seen
since the 1998 economic crisis. As the company sinks, two of the big ideas
that helped drive 50 years of rapid development in South Korea are fraying:
that the government will always help out the countrys big companies and that
the countrys big companies are always served best by their founding families.
The change of these two firmly-held perceptions may yet take awhile to
harden. But if they do, it would be another big advance in the liberalization of
South Koreas economy. The incentives and behavior of the leaders of South
Korean businesses would be altered, and the risks to investors in South
Korean businesses would be lowered.
The bankruptcy filing of Hanjin Shipping on Aug. 31 left about 100 ships
carrying $14 billion worth of goods in limbo at sea. Four weeks later, about
one-half have been able to offload their cargo in ports around the world. An
infusion of $100 million from Korean Air, a sister firm in the Hanjin Group, and
the Korea Development Bank appeared likely to cover the costs for the rest to
reach port.
But Hanjin Shipping still needs more than $1 billion in cash to rollover its $6
billion in debt. It has less than $200 million. The company, which is the worlds
seventh-biggest shipping firm, appears headed for liquidation, with some of its
key assets likely going to its smaller rival, Hyundai Merchant Marine, which will
continue on and likely become South Koreas main player in the shipping
industry. But in one sign of just how distorted the global shipping industry has
become, overall capacity for container shipping will grow this year even with
the consolidation of the two South Korean firms.
Ever since the Hanjin Shipping bankruptcy, the South Korean business
community, media, and some in the public have speculated that the
government would eventually step in to rescue the firm. The government has a

record of bailing out big businesses in trouble, assistance that South Koreans
have seen as part of the price for the companys hyperfast growth since the
1960s. Just this summer, the government formed a $10 billion fund to assist
the countrys three largest shipbuilding firms, which are suffering from the
same contraction in global trade as the shipping industry.
Since Hanjin Shippings bankruptcy, the government has been helping
exporters and owners of cargo that is stuck on Hanjin ships but not the
company itself. Instead, it has let the forces of creative destruction unfold. In
mid-September, President Park Geun-hye said, Lazy thinking that the
government will have no choice but to help shippers if they run into problems
has ended up hurting trading companies. She added she would not be quiet
about executives who do not aggressively try to recover their businesses and
wait for government help. And last week, Finance Minister Yoo Il-ho told South
Korean lawmakers, Its heartbreaking to see the trouble the countrys No. 1
shipping company faces now. But its improper to inject further taxpayers
money into it.
Some business leaders, politicians and media pressured Park to do more for
Hanjin Shipping. The government has brought international shame to Korea
by dumping the countrys largest shipping company in the hands of the court
without studying the repercussions, the Joong Ang Ilbo, one of the nations
big newspapers, wrote in an editorial after the bankruptcy. It added the
government was sacrificing national security for an economic principle. Other
reports hypothesized of a personal rift between Park and the family that
controls Hanjin. But that speculation simply underscored how ingrained the
idea has become that South Koreas biggest companies can always count on
the government and taxpayer when the going gets tough.
That belief led to moral hazard in Hanjin Shipping where it shouldnt have
existed. The problems of the shipping industry have been emerging for years,
clear for all to see. Global trade slowed in the aftermath of the 2008-09

recession but capacity kept growing, fueled in part by overinvestment by

Chinas big carriers. Freight rates tumbled. And about one-fifth of the worlds
container fleet is now anchored because there isnt enough demand. As
scholars and policymakers study the companys demise, the looming question
will be: Did Hanjins executives react slowly, or not at all, because they felt no
matter what happened the company was too important for the government to
let fail?
Just as the expectation of a government safety net is being shattered in South
Korea, so is the perception that family leadership of big businesses is best.
South Koreans routinely learn about the social misdeeds, and an occasional
white-collar crime, in the founding families that control giant business groups
known as chaebol. Hanjin Group, which oversees businesses like Hanjin
Shipping and Korean Air, experienced such an episode of social
embarrassment when a daughter of its chairman threw a tantrum over
macadamia nuts on a Korean Air plane in late 2014. But the business acumen
of the controlling families is little questioned. Hanjin Shippings demise adds to
a series of recent chaebolproblems that are directly tied to mistakes by
controlling families. A fight between brothers has shaken Lotte Group, for
instance, and even the mighty Samsung empire is struggling with how control
should pass from a father who was incapacitated by stroke two years ago to
his children.
The Hanjin empire, like many of South Koreas biggest business groups, was
split on the death of its founder. Cho Jung-hoon, who died in 2002, left
businesses for each of his sons. But the son who got Hanjin Shipping died in
2006 and that business was left to his widow, Choi Eun-young, who led it until
2014, when she turned control back to one of the other Cho sons, Cho Yangho, and it went into his Hanjin Group. During her tenure, Choi contended with
the global economic downturn but also undertook a gamble that added to
Hanjin Shippings current difficulties. She expanded the Hanjin Shipping fleet
with lease agreements that significantly raised its debt. Regulators are now

looking into stock sales by Choi and her daughters, who divested of their
Hanjin Shipping shares shortly before it sought a creditor-led restructuring in
April. Called before a parliamentary committee in late September, Choi
confessed she was never prepared to lead the company when her husband
died. I had no expertise as I had been stuck home as a housewife, she said.
The effects of Hanjin Shippings demise are not as threatening to South Korea
as the troubles of 1997 and 1998, when many chaebol were forced to
restructure and the countrys economy was much smaller. But they are not
trivial. The Federation of Korea Maritime Industries estimates the countrys
shipping industry will face $15 billion in costs from the collapse. Among the
likely outcomes: a substantial downsizing of the Hanjin terminal in Busan,
which employs 11,000 and handles 70% of the containers going in and out of
South Korea.
Harder to measure is the opportunity cost to shareholders, employees and
South Korea itself of acquiescence to the Hanjin founding family and belief in a
government safety net. If those had not existed, would managers have
expanded the fleet and the companys debts? Would they have done a deal,
either a sale or an acquisition, that left the company a survivor amid the
industrys shakeout?
The big lesson of Hanjin Shippings demise should be that South Korean
executives own the risks they take and theres no connection between
genetics and past success.

When its Korean creditors pulled the plug on Hanjins financing in the last days of
August, its fleet was reportedly carrying 530,000 teu (20-ft equivalent units) in
manufactured goods and about US$5bn in debt.
With the countrys biggest container shipping line moving about 7% of the transpacific
market alone, the ramifications are being felt throughout the length and breadth of its
supply chain, with every link now facing potential losses. If there was ever a classic case

study for the connectivity of 3rd-party risk in the modern supply chain, Hanjins collapse is
it.

If there was ever a classic case study for the connectivity of 3 rd-party risk
in the modern supply chain, Hanjins collapse is it.
Cargo owners, some of whom didnt even book with Hanjin, have taken to the courts to
retrieve the more than $14bn in goods stranded on the carriers vessels across the
globe. It will not be an easy task; some terminal operators are refusing to berth Hanjins
ships without a cash advance, money which the line is struggling to produce.
One terminal operator in Hong Kong is charging cargo owners just over $2,500 for each
40-ft box to unload their goods (with half refunded when they return the box). The citys
cargo owners are outraged at the price, but have little alternative other than to pay, as
they have no contractual relationship with the terminal operator.
Others have also used the bankruptcy to their advantage: Spot rates on the transpacific
and Asia-U.S. east coast trades jumped 40-50% immediately after Hanjins collapse.
In the U.S., the fallout is playing out in several courtrooms: In New Jersey, a federal
bankruptcy judge refused to pave the way for several fuel and towage companies to
seize Hanjins ships to collect on liens they hold for unpaid goods and services.
According to their lawyers, they had little chance to recover their losses in Korea, where
the courts are far less likely to recognise the liens. At the same hearing, legal
representatives for cargo owners were equally frustrated about their inability to retrieve
their goods from the ships of Hanjins CKHY alliance partnersCosco, K-Line, Yang
Ming and Evergreenwith whom they had no commercial contracts.
Container lessors have also been left holding the bill. Representations in the same New
Jersey courtroom revealed Hanjin to be in possession of 20,000 units from one U.S.based lessor, whose agreement obligated the carrier to return them to Asia. As Hanjin is
in no position to do so, the lessor suggested to the court that the cargo owners should
have to foot bill for repositioning (estimated to be up to $20M), a request the judge has
rejected.

Current situation

Spot rates on the transpacific and Asia-U.S. east coast trades jumped
40-50% immediately after Hanjins collapse
In the past week, Hanjin has sought and was given limited protection against seizure of
its ships in the U.S., as well as from vendors seeking to break service contracts. Several
freight forwarders have been advised by their legal teams to withhold payments to
Hanjin for shipments already delivered until the shipments presently stranded are also in
their hands, worsening Hanjins cash-flow crisis.

In response, Hanjin has been reported to be considering taking legal action against
forwarders who have failed to fulfill the volumes they were contracted to deliver.
Cargo owners, truckers and marine transport intermediaries are all being advised to
protect themselves. All this before the major retailers begin to seek potential
compensation for the shelves that are in danger of being left empty for the peak
Christmas shopping season.

What to do
Each clients situation is unique; however below we seek to provide some possible
actions you may wish to take with regard to managing the situation.
For each issue we would recommend that clients consult with their legal advisers in
respect of how to address the bankruptcy/receivership issues that have arisen to date.
We are unable to offer any legal or bankruptcy/receivership guidance.
1. Locate cargo
Cargo owners and freight logistics providers can identify the location of their cargo
through the Hanjin website
In some cases cargo originally delivered to Hanjin may be in the hands of third-party
logistics contractors, and our understanding is that some of these contractors may
release cargo if the cargo owner satisfies the freight obligations that have not already
been paid. If that is the situation, clients may wish to take action to recover the cargo
even if there are additional costs. Clients should always consult with their independent
legal advisors as to their specific situation.
2. Keep accurate records and provide notice

Cargo originally delivered to Hanjin may be in the hands of third-party

logistics contractors
Keep accurate records of costs in addressing the current situation, place underwriters on
notice of potential losses if claims may fall within their policies.
3. Review insurance policies
A case-by-case and policy-by-policy review may be necessary to determine whether
there is insurance in place to cover damaged cargo in the possession of Hanjin and to
determine whether additional forwarding costs are covered. However, we have the
following observations:

Delay clauses

The Delay Clause contained in many marine cargo policies usually excludes all claims
for loss of market or for loss, damage or deterioration to the cargo itself arising from
delay, whether caused by a peril insured against or otherwise, unless such claims are
expressly assumed by other provisions written into the policy. Delay claims are also
usually excluded under both the S.R.&C.C. Endorsement and the War Risk Policy.
Most shippers interest policies contain this endorsement.
The Marine Extension Clause likewise usually excludes loss, damage or expense
proximately caused by delay or inherent vice or nature of the subject matter insured.
Loss or damage arising from the other insured perils remains in place during the delay,
but not the losses arising directly from the delay. A review of the relevant wording will
show what is under the scope of cover and what is not.
Insolvency clause

An Insolvency Clause excludes losses caused by carrier insolvency. The Willis Towers
Watson forms usually do not have this exclusion. However, the standard Institute Cargo
Clauses do contain the exclusion so it is always prudent to check which clause applies.
Forwarding expense clause

Many cargo policies include a Forwarding Expense Clause. This clause may allow for
recovery of additional expenses incurred related to the storage, transshipment, and
transit to destination when an insured voyage is disrupted. Insurers may also be
responsible for additional charges and legal fees which are incidental to the release,
storage and/or onward shipment of the insured cargo which are incurred by the insured.
Carrier insolvency

Freight forwarders and logistics providers should review their customer contracts to
determine whether they are protected from the insolvency of carriers. They may have
coverage under a freight liability policy if they have language in their policy akin to:
To indemnify the insured in respect of: Liability for, or arising out of loss or
destruction of, or damage to goods, or delay in delivery, howsoever caused
during the period of insurance stated, under Common Law, Contract, National
or International Convention, or by Statute.
Typically, each situation will be unique and will need to be considered on its own merits,
taking independent legal advice where necessary. If you have any questions, contact
your usual insurance broker for guidance.

The recent bankruptcy of Korea's Hanjin Shipping Co., Ltd.supplied stark evidence
that carriers cant continue to build more and bigger ships when the business isn't
there to justify them.
Hanjin, of course, has had its own set of problems, including an increasingly
insupportable debt load coupled with a sinking score on financial stress indexes. But
its problems are also those of ostensibly more stable rivals and service partners.
Overcapacity is the chief culprit, made manifest by carriers relentless drive over the
years to build mega-containerships that were supposed to offer unprecedented unit
economies. And they would, if only there were sufficient cargoes to fill the slots.
Other aspects of carriers behavior have contributed to this sorry state of affairs,
chief among them a decision around the year 2000 to begin slowing down their
ships. The move was touted as a nod to environmental awareness, as it cut back
sharply on the consumption of fuel. And, not incidentally, widened carriers profit
margins. Whatever its rationale, slow-steaming brought down speeds from a high of
25 knots to as little as 15 knots, forcing shippers to keep goods on the water for
longer periods of them, and raising their inventory cost.
In the end, it wasnt that great an idea for carriers either, given that they were often
impelled to add a vessel to a given route in order to fill in service gaps, thereby
boosting total capacity in the trade. Then came those ships of 18,000 twenty-foot
equivalents or greater, which carriers have struggled (and often failed) to fill.
Its no wonder that they were unable to sustain a series of general rate increases, in
the face of weakening demand and a persistent glut of supply. But carrier executives
have continued to engage in their particular form of chicken, daring their rivals to
sail off the cliff before they themselves reach the edge.
Which Hanjin now has, presenting the industry with the largest financial collapse of
a liner company in the history of containerization, in the words of Drewry Shipping
Consultants Ltd.(In terms of market share, Hanjin reportedly is the sixth largest
container line in the Asia-North America trade.) For shippers, Hanjins demise
couldnt have come at a worse time, occurring in the midst of the peak season for
cargoes moving to the U.S. for the 2016 holiday shopping season.
What happens next? In the short term, its a matter of freeing trapped freight from
stranded Hanjin ships, many of which lie off the coast because ports and terminal
operators refuse to work them for fear of not getting paid. In recent days, the
logjam has begun to clear, with at least one vessel being allowed to dock at the Port
of Long Beach following a temporary pledge of funds from Hanjin executives and
shareholders, and another at the Port of Oakland. (Subsequent reports put the

number of inbound ships to be unloaded at four.) Eventually, all of the captive

cargoes should find their way to anxious consignees, probably making it to store
shelves in time for Christmas.
But a deeper problem one thats sure to outlive the painful bankruptcy proceedings
that Hanjin must now endure confronts all major container lines and their
customers. For their part, carriers will have to assess their individual economic
plights, and figure out how to keep afloat in what promises to be a sluggish
economy for the foreseeable future.
Shippers will undergo their own painful self-examination. Their response could be
similar to that of customers of United Parcel Service back in 1997, when
a strike paralyzed operations for more than two weeks. Legions of shippers swore at
the time that they would never again trust a single major carrier with so much of
their business, recalls Joe Dunlap, managing director of supply chain services for the
Americas with commercial real estate giant CBRE Group, Inc.
He suggests that customers of Hanjin and other container lines will reach a similar
state of awareness today. They should consider signing contracts with multiple
carriers, he says, so as not to be left on the docks when one of their service
providers abruptly drops out of the trade. By spreading the business around, they
keep multiple options open, albeit at higher rates because of reduced loyalty to any
single carrier.
Such a move makes sense on paper. But the proliferation of slot-sharing agreements
among carriers today makes it difficult to carry out with any success. How does one
know, precisely, on which ship ones cargo will end up? Many shippers with
containers on Hanjin vessels booked with one of the carriers service partners. A
partial solution is to contract with multiple vessel-sharing agreements (VSAs), but
that still doesnt give the shipper precise knowledge about the actual line that will be
moving its freight.
Nevertheless, Dunlap has spoken with multiple CBRE clients that are beginning to
reassess their transportation-sourcing strategies in the wake of the Hanjin
bankruptcy. This time around, theyre paying closer attention to the subject of risk,
which is fast becoming a bigger concern of global supply chains in any case.
In the end, the bankruptcy of Hanjin (and other lines to come) could serve to alter
the mentality of carriers and shippers alike. Carriers because theyll finally abandon
the strategy of flooding the market with capacity in hopes that their rivals will sink
first. And shippers because theyll back off their obsession with price, realizing in the
event their partial culpability in the desperate plight of container lines. For which
there is no replacement.