Hanjin Shipping enters administration

A shipping line going bankrupt is an unusual event, so Hanjin Shipping’s directors vote to enter administration yesterday has caused some disruption. It is by far the largest failure of a container shipping-line, with Alphaliner estimating that the South Korean company is six times the size of the next largest bankruptcy which was United States Lines in 1986, if measured in shipping capacity.

The move into administration was hardly a surprise as the company has had problems financing its more than US$4bn worth of debt for some-time and its leading creditor, the state-owned Korean Development Bank, has been threatening to ‘pull the plug’ for several months. This was driven both by an awareness of the state of the container shipping market in general but also out of frustration with Hanjin Shipping’s owners, Hanjin Group.

Yet the final collapse has still been a modest shock. There are reports of Hanjin vessels being “seized” at Chinese ports, although it is unclear if this was an official ‘arrest’ of a ship based on a court order. A Hanjin vessel in Singapore was arrested on Monday. US ports are reported to have declared they will not handle Hanjin ships or containers.

One immediate problem is the need to reclaim the consignments on-board Hanjin ships stranded at sea. Some ships may be able to return to their home ports, however many with unpaid crews or in need of fuel that they cannot buy, will be stuck until the Korean administrators can sort-out emergency funding.

Another issue is the relationship of Hanjin to its fellow members of the ‘CKYHE Alliance’. Many of these lines – COSCO, “K” Line, Yang Ming Line and Evergreen –  relied on Hanjin to provide part of their service network. In addition, many of these shipping lines customers may find-out to their surprise that some of their consignments are on Hanjin ships.

There are likely to be further effects on suppliers and pricing may be affected as the 600,000 TEUs of capacity are removed from the market, if only temporarily. And it may only be temporary. There are rumours that Hyundai Merchant Marine may be urged to take over Hanjin’s assets despite its own acute problems. If so this would only prolong the agony of a container shipping market over supplied with ships.

Source: Transport Intelligence, September 1, 2016

Author: Thomas Cullen