In August 2016, South Korean shipping giant Hanjin – the seventh largest container carrier in the world – filed for bankruptcy. However, for anyone watching shipping industry trends over recent years, the fact that a shipping company collapsed may well have been less of a shock than the fact that it was Hanjin. Certainly Gavin Simmonds, director of policy at the UK Chamber of Shipping, wasn’t surprised; he believed it was inevitable that a company – or companies – would fail sooner or later, not many would have staked their money on it being Hanjin however.

Was this Inevitable?

The trend over recent years of building larger and larger ships, while freight prices dropped lower and lower, was unsustainable. According to energy and commodities information provider S&P Global Platts, tanker freight rates were in the region of $45 per metric tonne prior to the recession, but by summer 2016 had plummeted to an average of $9 per metric tonne. On the day Hanjin collapsed, the rate had dropped below $5 per metric tonne.

Perhaps ironically, the collapse of the company has given a boost to competitors who have managed to hold on. According to Braemar shipping analyst Jonathan Roach, in the week following Hanjin’s collapse the cost of shipping a standard container from Shanghai to Northern Europe rose from $695 to $949. While Roach acknowledges that the rise in rates is welcome, he adds a caveat, saying: “With a major player going out of the market, prices have been going up, but it’s a knee-jerk reaction. There is still a lot of overcapacity in the market.

The Immediate Effects

It remains to be seen how this will play out over the longer term, but what have been the immediate effects? The collapse of Hanjin resulted in some $14 billion worth of cargo becoming stranded, as many ships were either blocked from entering port or had cargo seized. The knock-on effect threatens SMEs and even the banking industry. John Ahearn, global head of trade at Citi, said: “All of a sudden I end up with indirect exposure, because I have got a lot of small- to medium-sized companies that if they can’t get that merchandise off the ship, they may not be in good financial condition come the end of the year.”

There would never be a “good” time for this to happen, but in the months running up to Christmas, it’s hard to imagine a worse one. So will there be havoc on the high street? Jonathan Roach says: “The Hanjin failure certainly won’t spoil Christmas.” His view is that “it’s a short-term crisis until the situation sorts itself out, but there are plenty of ships idle.” However, John Ahearn has a different view. He told CNBC’s Squawk Box that the Hanjin crisis “has the ability to impact retail sales in the US for Christmas and everything else. There’s an enormous amount of merchandise that’s still on the seas and no one knows what’s going to happen with it.”

Passing the Buck onto Hanjin’s Customers

So what are the options for those companies with stranded merchandise? One thing seems clear – it’s going to cost them more to get it to where it was meant to go. Shippers of perishable goods are arguably under the most pressure to get things moving. In September Singapore-based Agrocorp International reported that the terminal operator at Port Metro Vancouver held 24 containers and demanded a release fee of $450 per container.

This is not just isolated to Canada, the overriding question on many lips is whether ports may be looking to secure additional payments (whether or not to cover losses) by “passing the buck” to former Hanjin clients. As well as the release fees reported in Canada, there’s word of higher charges, as much as £480 per container and even deposits against each in excess of £2,000 from within the UK.

A “Blood Letting” the Industry Needed?

Those with merchandise on board ships heading to ports in China face additional problems. Typically a flat rate is paid to cover the whole journey, from the place of embarkation, via Hong Kong, to the destination port in China. As a result of the collapse, however, administrators instructed Hanjin to charge additional “commercial rates” for vessels to continue beyond Hong Kong, which in some cases resulted in an increase of up to four times on top of what had already been paid. Will Bennett, senior analyst at shipping data company Vessels Value, told CNBC (via email in September): “Overcapacity is likely to remain a problem, however, Hanjin’s competitors’ strategies of consolidation and finding further efficiencies may lessen the effect of this, and we may find this was the ‘blood-letting’ the industry needed.”

The sting of the Hanjin collapse has been felt up and down the supply chain – whilst some may never recover from this, others may suffer, but ultimately will be able to steer their way through the choppy waters. To echo Bennett’s remarks, we hope hard lessons are learned from this, the global shipping industry may well need to plot a new course, but it can’t afford to suffer another blow like this.

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