It has begun — Hanjin Shipping Bankrupt.
Hanjin Shipping was the #7 largest container shipper in the world. It was the largest container carrier in South Korea. On any given day it delivered roughly 25,000 containers to ports. At any given point in time, it has roughly 540,000 containers on its ships worldwide.
On Wednesday, it filed for bankruptcy.
While this is not shocking given the massive losses on just about every shipping company’s balance sheet right now, the immediate effects it’s had on world trade is mind blowing.
On Wednesday, container shipping rates jumped 50%.
Hanjin ships around the world were denied access to ports with all their transported goods stuck on board.
There were two major reasons: One, ports know they will not be able to pay the fees. Two, the ships & the containers are to be seized by authorities since they were used as collateral for the some $5B of unpaid loans. Once they are “seized” these ships will remain at a dock for several days if not weeks or months while affairs for each ships is sorted.
Needless to say, ports want NOTHING to do with Hanjin anymore. That’s a slight problem.
Left with no other options, ships are anchoring offshore. Waiting. Stuck for the foreseeable future. 540,000 containers — full of goods meant to be holiday inventory— are stuck with crews on board. The article below outlines it well. It’s absurdly complex and there’s no obvious solution…
But what does that mean for us? It’s a South Korean company, can’t they pick up the pieces?
Mostly (is the short answer) but it may not be able to help in full.
While the South Korean government has promised payment to South Korean port service providers they are not extending the offer globally (yet).
Hanjin Shipping accounted for ~7.8% of the trans-Pacific trade in the US, and the President of the Retail Industry Leaders Association is begging the Dept. of Commerce & the Federal Maritime Commission to “help” since “[this] could have a substantial impact on the consumers and the economy at large.”
It’s not moving fast enough for business to even know what will happen to their products on board. As I was told recently by a friend, it’s moving at the speed of government.
It’s exactly what happened when the mortgage crisis of 2008 happened. I wrote about this about a month and a half ago in The financial crisis no one knows about.
However, there is still plenty of shipping capacity in the world’s fleet. Prices will go up, which is a good thing from a macro prospective.
But, there are still plenty of ways to move the goods we love across the ocean. Phew.
But there’s a bigger set of questions.
Can this happen again? Will it happen again? Can WE as a country afford to let this happen again? What would happen if another major player in the space went belly up?
Unfortunately, it’s more likely another one will see Chapter 11 knocking on the board room door.
I hope it doesn’t happen. The ramifications could be catastrophic. Hell, this Hanjin mess could continue to escalate to catastrophic levels. I sincerely hope it doesn’t.
The scary part about this is, while one major player going under may just be the market adjusting to the demand, it may also be the start of a larger trend starting to appear in the shipping industry.
Shipping companies need to change. And as long as they do, there is hope. They need to figure out new business models to shift the tide toward profitability. I’m a firm believer technology will be the solution for many of them.
The question is, can they adopt it fast enough? Will they adopt it fast enough?
I certainly hope so.
Disclaimer: I have a new side project called Nautilus Labs where we’re developing IP to save shippers money, and reduce risks inherent to ship operation.
