Hanjin Shipping Co.’s vessels are getting stranded at sea after the South Korean container mover filed for court protection, roiling the supply chain of televisions and consumer goods ahead of the holiday season. LG Electronics Inc. is trying to find new carriers for its goods, the world’s second-largest manufacturer of televisions said in an e-mail. Shipments through Hanjin account for between 15 percent and 20 percent of LG’s deliveries to America, the company said Thursday.
Woes at Hanjin Shipping, South Korea’s largest sea container shipping firm and the world’s seventh-biggest with a 2.9 percent market share, are derailing the supply chains of companies that need to send goods well in advance of the year’s biggest shopping season as Thanksgiving and Christmas holidays approach. TVs, cars and sneakers sail about 10 days to reach Los Angeles from Asia while they could take as many as 30 days to Rotterdam. Hanjin Shipping owns 59 of the 132 container and bulk ships in its fleet.
“There’s going to be a short-term disruption in the supply chain,” said Rahul Kapoor, a Singapore-based director at Drewry Maritime Services Pvt. “This is going to play out for the next few weeks. Ports will not have these vessels because they are worried port and other fees won’t be paid.”
Hanjin Shipping’s local-currency notes due June 2017 tumbled to 13.5 percent of face value as of 1:49 p.m. in Seoul, according to Korea Exchange prices, after fetching 90 percent in March. Trading in its shares were suspended after a 24 percent plunge Tuesday to their lowest level since December 2009.
About 70 percent of South Korea’s overseas shipments is through sea, of which Hanjin Shipping accounts for about 6 percent, according to Cheong Seung Il, a trade ministry official. While the government doesn’t expect a large impact on exports, there could still be some issues with machinery and textiles shipped via Hanjin, he said.
Freight charges from South Korea surged about 50 percent after Hanjin Shipping filed for court receivership Wednesday, Korea Economic Daily reported, citing shipping industry officials it didn’t identify. The fees on Hanjin’s main shipping route between Busan and Los Angeles have jumped 55 percent to $1,700 per 40-foot equivalent box from $1,100, it said.
Three Hanjin vessels were stranded off the U.S. West Coast, Kip Louttit, executive director of the Marine Exchange of Southern California said. Large container ships that come within 20 miles of the port complex owe the exchange fees of as much as $1,000, while harbor pilots and tug-boat operators also receive payments for their services to incoming vessels, Louttit said in a telephone interview, without elaborating on the reason for the status of the Hanjin ships.
The Marine Exchange of Southern California directs traffic in the San Pedro Bay, which is shared by Los Angeles and Long Beach ports.
Refused in Busan
A labor union in South Korea’s Busan port refused to work on a Hanjin container vessel because the company hasn’t paid dues, a person familiar with the situation said, asking not to be identified, citing policy. Berthing of the ship had to be canceled as a result.
“The company is internally looking into measures in case our cargo gets stranded while it’s being shipped,” LG said in the e-mail in a response to a Bloomberg query.
Another vessel off the Port of Prince Rupert in British Columbia, Canada, was not “presently being handled,” the port said in a statement Wednesday.
“Some of their clients would be worried about getting their cargo if the vessels can’t enter ports,” said Shin Ji Yoon, an analyst at KTB Investment & Securities Co. in Seoul.
Hanjin Shipping filed for court protection after lenders rejected its restructuring proposal, scuttling revival efforts by the firm that’s been trying to reschedule debt under a voluntary creditor-led program since May. Hanjin’s woes reflect those of an industry that’s been operating at a loss since the end of 2015, and set to lose about $5 billion this year amid an oversupply of vessels, according to Drewry.
The possibility of a liquidation can’t be ruled out, though a court will determine the fate of Hanjin Shipping, said Yim Jong Yong, chairman of South Korea’s Financial Services Commission, in comments e-mailed by the regulator.
Louttit said he wasn’t aware what the U.S.-bound ships were carrying, though some of the cargo could be time-sensitive with warehouses loading up for holiday sales. Still, the three marooned off the coast represent less than 1 percent of the ship traffic in Los Angeles and Long Beach in August, he said.
Hanjin Shipping is part of Hanjin Group, which also owns Korean Air Lines Co., the world’s third-largest cargo airline. Korean Air loaned funds to Hanjin Shipping and bought shares in the container line in 2014 to become the biggest shareholder with 33 percent. The group, which also counts airport services, logistics and mineral water among its businesses, is headed by Chairman Cho Yang Ho.
Korean Air said in an exchange filing Wednesday that losses on its investments, including loans and an equity stake in the container shipping line, will be as much as 383.3 billion won ($342 million).
Hanjin is among shipping lines grappling with a slump in global trade since the 2008 financial crisis and the slowest pace of economic growth in China in a quarter century. The container line had debt of 6.1 trillion won at the end of June, according to its first-half earnings report.