Hanjin Bankruptcy Will Have Global Impact

The bankruptcy of Hanjin Shipping Company will have long-term disruptions within the global supply chain and freight rates for imported containers to the United States may rise as much as 54%, according to one report. Just for starters, on September 1^st, there were three Hanjin container ships anchored outside the Ports of Los Angeles and Long Beach that were refused entry due to the company’s bankruptcy, according to a Port of Long Beach spokesman. Price Reduction Pressures On Ocean Carriers Have Boomerang Effect One ocean carrier executive said that shippers who pushed shipping lines for years to drop their rates have exacerbated ocean carrier losses that helped send Hanjin into bankruptcy: “The strategy of shippers driving down ocean carrier rates doesn’t look so smart when you drive a company into bankruptcy and find your containers stranded all over the world with no place to go,” the executive said. News reports suggest that ocean freight rates for imported containers coming into the United States may rise as much as 54%. As dislocations continue and holiday shipments surge, ocean freight rates may rise even further. Former Hanjin customers are scrambling to find space on non-Hanjin ships to transport their imported containers: “Those rates are going to be considerably higher than what they were paying last week as a result of the bankruptcy,” the executive said. Impact On TTI Then there is the uncertainty of what will happen to Total Transportation International, LLC (TTI), a major terminal operator at the Port of Long Beach. Hanjin owns a 54% stake in TTI. TTI processes 2 million twenty-foot unit (TEU) containers per year, the Port of Long Beach spokesman said. TTI is a full service marine terminal and stevedore operator. TTI operates two facilities in Long Beach and Seattle comprising a total of 460 acres of terminal acreage. Corporate headquarters for TTI is located in Long Beach with satellite offices in Seal Beach, CA; Chandler, AZ and Seattle, WA. TTI services the vessels and cargo of its anchor customers, Hanjin and Mediterranean Shipping Company (MSC). MSC owns a 46% stake in TTI, according to the Port of Long Beach. TTI’s other customers include China Ocean Shipping Company, Maersk, Yang Ming Lines, K Line, CMA, USL, NYK, and Evergreen. Impact On Harbor Truckers California trucking companies are also expected to suffer losses. Peter Schneider, vice president of T.G.S. Transportation Inc. based in Fresno, California, said some harbor trucking companies could be hard hit: smaller companies that “had all their eggs in one basket with Hanjin… may go under.” Hyundai To The Rescue? Michael Gold, communications director for the Port of Long Beach, wondered whether provisions will be made to transfer Hanjin assets to its sister Korean carrier Hyundai Merchant Marine. If this happens and the transition is done quickly then Gold hopes the “disruptions that we are seeing will not be long-term.” Hyundai Merchant Marine is deploying 13 ships to help ease cargo delays caused by the Hanjin bankruptcy, according to a Korean news report. Reportedly, one Hanjin ship has been seized in a foreign port and others seizures were imminent. It is estimated that as many as 540,000 containers could be impacted by the delays. Business Korea reported on September 2^nd that only key Hanjin assets would be absorbed by Hyundai Merchant Marine: “The idea is to achieve a merger between the two national flag carriers at a minimum cost.” The report went on to say: “At present, Hanjin Shipping has 95 ships carrying containers equivalent to 540,000 TEU. The company is currently in business with no less than 8,181 shippers around the world, including 847 in South Korea. Once the receivership is initiated, the ships are detained and their cargoes are forced to be unloaded. This means the shippers have to retrieve their 540,000 containers by finding other ships, which is likely to be very tough in the ongoing ocean line peak season of August to October. In this context, the government is going to utilize Hyundai Merchant Marine’s ships, four for shipping routes to the Americas and nine for those to Europe. It is going to ask CKYHE (Hanjin vessel alliance partners) to rearrange ships, too.” “Hyundai Merchant Marine is looking to absorb nothing but core assets from Hanjin Shipping” such as TTI and other container terminals, the news report said: “The financial authorities and creditors are estimating that Hyundai Merchant Marine will have to spend 300 billion won to 400 billion won on the key asset acquisition. ‘The Korea Development Bank, the largest shareholder, is mulling over providing assistance in the form of loans,’ said a high-ranking government official.” What About Hanjin’s Crews? One question that has not been addressed is what will happen to the crews of Hanjin ships, especially if they are not Korean nationals. In the case of ports where Hanjin ships have been seized, how will these crew members be fed, housed, paid and repatriated? Supply Chain Impacts Even though Hanjin’s ocean carrier market share was small, there will be significant impacts to many participants:

• Terminal operators who have permanently lost business and who are owed money.
• Shippers whose containers are now stranded throughout the world.
• Trucking companies who have contracts with Hanjin are likely to lose business and will face repayment problems.
• Rail operators, who relied on Hanjin business, will now see a reduction in cargo.
• Customs brokers, freight forwarders, ship agents and NVOCC’s (non-vessel operating common carrier) will all suffer.