Blog November 2, 2016

Recovering from the Hanjin hangover

By Nicola Byers

For those who still believed that Hanjin Shipping might make some kind of miraculous recovery, last week marked the end of the line. The company has just announced that it will be closing its European operations and is also trying to sell its 54% stake in the Long Beach terminal.

While there are some rumours that the company may try to keep going as a small, intra-Asia operator, many now see liquidation as the only option.

When Hanjin Shipping filed for receivership on August 31 after creditors had refused a restructuring plan for the firm’s £4.4bn debt, it was the industry’s biggest bankruptcy to date. The numbers at the time were staggering. Hanjin was the world’s seventh largest operator in terms of capacity. The bankruptcy left 400,000 containers stranded on ships and involved 8,300 cargo owners. Samsung alone had $38 million in goods stranded aboard their ships (I wonder how many of those were exploding Galaxy Note 7s? Maybe there’s a silver lining for Samsung there…).

Hyundai is expected to have first choice of Hanjin’s ships. The Seoul District Court has said that the carrier’s largest trade route between Asia and North America will also be sold off to meet creditor’s claims. Some observers would question who would want to take that route on, given the problems of overcapacity in the industry and the fact that rivals have moved quickly to fill the void left by the bankruptcy. By the time the sale goes through, will there be anything left?

A shipping bankruptcy happens in slow motion compared with business on land.  Of the firm’s 97 container ships, The Wall Street Journal is reporting that 81 vessels have now finished unloading cargo, nine are still stranded at sea and seven are heading back to South Korea, where they can berth without fear of being seized by creditors.

The next big date is December 23, when Hanjin is due to submit a restructuring plan to the Seoul Bankruptcy court that will either be approved or result in liquidation. After that, the court cases could go on for years. In addition to filing in its home country, Hanjin has also filed for Chapter 15 bankruptcy in the US. A quick search of the news related to Hanjin reveals a host of lawsuits about how shippers can secure the release of their cargo, what Hanjin must do to get goods to their final destination and what happens to the thousands of containers and chassis left around the country. There are also claims related to insurance and bill payments. By October 24, over 4,000 creditors had filed in Seoul. At least the lawyers will be happy.

Amid all the wrangling about contracts, containers and chassis, we need to take a step back think about what this means for the industry. While losses are common in a cyclical industry such as shipping, bankruptcies are not, and this one took many by surprise. It was well-known that Hanjin was in trouble, but few believed it would be allowed to go under. Now that the air of invincibility has gone, what will the carriers do next? Keep merging, or collaborate and try to deal with the overcapacity problem? A report from Drewry stating the container shipping industry is scheduled to lose $10 billion this year should focus minds. How long can that go on?

Those discussions will run on as long as the lawsuits, we should also keep in mind the human cost of this bankruptcy. With the closure of Hanjin’s European business around 250-300 people in    sales and operation roles will lose their jobs, according to The Loadstar (without counting related jobs). To get a better idea of the impact of this kind of bankruptcy, I recommend reading the report of a BBC journalist who managed to get aboard a Hanjin vessel in October that had only just managed to dock in Singapore and begin unloading.  In the article, the first officer describes the company as being “like a family” and said that the crew “don’t have a future”. “When we arrive in Korea, we will stay maybe somewhere outside a port at sea. If the owner of the ship changes, then we will have to deliver this vessel. Then, we don’t know what will happen to us.” They are unlikely to find many opportunities in the same industry.