Hanjin Shipping bankruptcy - what happens next?

  Sep.14--It has been two weeks since Hanjin Shipping dropped what Seaspan’s Gerry Wang likened to a nuclear bomb on the supply chain and huge uncertainty remains as to how the bankruptcy of the world’s seventh largest container shipping company will be unraveled.

  The numbers are staggering - $14bn worth of cargo stranded on 141 ships, including 98 containerships, Hanjin owed over $4bn when it filed for receivership, and has KRW600bn ($533m) in outstanding payments. While it has been promised $90m in emergency funding by its parent falls well short of the $145m it is estimated it simply needs to dock and unload its vessels.

  As yet the shipping line has only received $45m in emergency funds to start unloading its vessels stranded across the globe and only a few of its vessels have discharged their cargoes.

  “The most pressing issue remains the stranded cargo on Hanjin operated vessels,” analyst Alphaliner said in its latest newsletter. “Hanjin has yet to announce any firm recovery plans and although some of its ships have docked over the last few days to discharge containers, the majority of its fleet remain either idle at offshore anchorages or are slowed down at sea, with 75 out of 97 ships it operates still stuck with cargo onboard.”

  The impact the current situation hits a wide number of parties – not just those with cargoes stuck on the vessels. “Due to the inherent interdependency in the industry, the impact is likely to be far-reaching,” insurers Marsh said in a report. These include charter parties, ports and terminals, freight forwarders, alliance parties, as well as cargo owners.

  The current situation will also knock through to other parts of the supply and prouction chain. “It is clear that end users of goods or components could suffer delay or a loss of supplies. In either case, the disruption could be significant and have knock-on effects as facilities become clogged and competition for alternative capacity intensifies,” Marsh commented.

  Even once Hanjin’s vessels have been unloaded what happens to the ships next remains open to question. While the 65 chartered in vessels will over time be returned their owners, three of which have discharged their cargoes having done so already, what happens to Hanjin’s own tonnage is not clear. The company clearly does not have money to operate the vessels and there have been reports of crews running low on basic supplies such as food and water.

  Over time the vessels will presumably be sold, but this will no be that easy in a market already suffering from overcapacity, even if the ships put on the block at fire sale prices. Hyundai Merchant Marine has been put up as a possible buyer of some of the assets but it is worth remembering it is undergoing its own restructuring having narrowly avoided receivership in July this year.

  For chartered-in tonnage returned to their owners they will face having to charter them in a market suffering from oversupply meaning that many owners will unlikely to able to secure rate levels anything close to the existing charters with Hanjin. “The high charter rates obtained on long term fixtures concluded with Hanjin before the 2008 financial crisis, and during the short term recovery of 2010-2011, will be impossible to match in today’s de- pressed market, but acceptable figures might still be achievable for the most sought after units while LCS (large containerships) and classic panamax units will face rock-bottom charter rates,” Alphaliner commented.

  Marsh noted that given the number of vessels involved there would also be increased competition for charters which would further impact rates.

  Amidst all of this Hanjin is supposed to be coming up with a rehabilitation plan for the courts in Seoul by  November, which does still the possibility the company could be revived. However, the chances of this happening would seem remote given the way Hanjin has been allowed to effectively collapse and with no functioning business on which to build a rehabilitation plan.

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