The Hanjin Fiasco: A Perfect Storm of Logistical Problems
Even as Hanjin Shipping Co. is finally able to start unloading the cargo from its stranded vessels in Southern California this week—after three weeks of waiting in limbo—everyone in the ocean freight, import/export, and supply chain industries continue to reel from the havoc caused by the South Korean shipping giant’s recent collapse into bankruptcy. It has been, as one transportation and logistics provider told the Wall Street Journal, “kind of the perfect storm.”
The fallout has been wide-ranging, with industry professionals scrambling to readjust just as the holiday shopping season is about to get underway, while also hoping that the lessons to be taken from the fall of Hanjin can be applied to a sagging ocean freight industry in order to avert a larger catastrophe.
Late last month, Hanjin Shipping Co., part of the larger Hanjin Group which includes Korean Air, found itself in the most dire position possible, as their ships were refused permission to load empty containers or offload full ones at ports worldwide. Round 80 ships worldwide were stopped in transit, including four ships that were seized at the Port of Long Beach, as well as other vessels that were held offshore at the Ports of San Pedro Bay and Los Angeles. The reason behind this was concern over Hanjin’s ability to pay terminal operators after they filed for bankruptcy and were unable to receive financial help from creditors or the government.
By the end of August, Hanjin had surrendered its core assets to absorption by Hyundai Merchant Marines, and at the start of the second week of September, the Seoul-based company had pledged $90 million (including $36 million from the personal assets of its chairman) to help resolve the situation. Shortly thereafter, the bankruptcy court in its home country gave them permission to spend another $10 million on payment to port terminal workers.
As the offloading finally gets underway, those affected by the debacle can breathe a sigh of relief, although the damage has been done. Besides the strain on the crews of the stranded ships, other commercial shippers with full cargo loads have been forced to rebook their cargo with other carriers, a process that has particularly affected the large South Korean market. Meanwhile, docks have seen empty Hanjin containers take up precious space, which has caused some cargo handlers to do the extra work of first moving aside Hanjin’s empty containers before loading their own.
Exporters have also been drastically affected by the bankruptcy and its fallout. Hanjin is the 7th largest global ocean shipper, and they accounted for 3% of shipping containers worldwide, so their absence will have a huge effect on export prices. Exporters are expecting a 50% spike in shipping fees and may be forced to turn to China and other Asian countries for new indirect routes going forward.
The people hit the hardest by what’s happened—not counting those ship workers aboard the Hanjin vessels and those who haven’t been paid yet for their services (everyone from terminal workers and longshoremen to fuel suppliers)—are retailers, who have been forced to wait while their merchandise (all $14 billion worth of it) sits aboard Hanjin ships, rather than in their stores. This couldn’t have come at a worse time, with summer ending and the holiday shopping season right around the corner.
The Hanjin bankruptcy is the biggest result so far of the trouble that has beset the larger shipping industry, and which accounts for an expected loss of $6 billion dollars by the end of the year. The origins of the crisis lay in ocean shippers building too many large fuel-efficient ships during the last decade, when oil prices were climbing and the demand for goods in China was at an all time high. Once oil prices dropped and the global economy took a major hit (with China seeing a slowdown that has become a sluggish status quo), there were simply too many ships, with not enough merchandise for them.
This has led to not only billions in revenue lost, but consolidation of companies such as Matson and Horizon in 2015, and now Hyundai and Hanjin this year, with further consolidation likely to occur. Meanwhile, the disruption to the retail supply chain caused by Hanjin’s troubles has led to stalling, which has created a contradictory imbalance that’s led to a sudden shortage of supply.
Hopefully, the ocean freight industry and its related sectors will be able to absorb this hit, wipe their noses, pick themselves up and carry on, a little wiser for their troubles. No one is ringing the alarm bells yet about this becoming an industry wide catastrophe, but in order to avoid further such storms, there is some hard work to be done by all involved. Ocean freight companies are going to be forced to listen to industry analysts and commit to a major fleet culling effort that will, by necessity, require them to scrap many of their older vessels. Importers, exporters and retailers meanwhile, must remain vigilant with the freight companies they entrust their merchandise to, and must always have a life vest in the form of a Plan B at the ready, should they find themselves caught up in another such perfect storm.
