Potential Far-reaching Impact on the Ocean Shipping Community
Hanjin Shipping has been working hard all year to stave off bankruptcy, but it looks like the ocean carrier may have finally lost the battle. Hanjin Shipping’s creditors refused the latest plan to shore up the ocean carrier’s finances. The next step would be to file for court receivership.
What does this mean for the importing community?
There may be far reaching immediate and long term impact on the international shipping community. Let’s review some of the larger issues. Please keep in mind the following is just early speculation. More concrete details will follow in the coming weeks if Hanjin Shipping does indeed declare bankruptcy.
What happens to freight on board Hanjin vessels if Hanjin Shipping declares bankruptcy?
A representative from another carrier advised that in past bankruptcy proceedings, creditors were able to hold vessels and prevent containers from being offloaded. In one instance, containers were held on the vessel for months. This would be a worst case scenario for shippers and importer with freight on board Hanjin vessels.
Importers should begin asking their freight providers whether they do have any shipments on board Hanjin vessels. Due to vessel sharing agreements, it is possible that containers may be on a Hanjin vessel even if the booking wasn’t made directly with Hanjin. If importers do have shipments on board a Hanjin vessel, they should be preparing for a situation where their freight is possibly delayed due to the bankruptcy proceedings.
Containers that are already off the vessel and at the destination terminals should be safe from the reach of any hold from creditors.
What is the impact on vessel capacity and rates coming to the United States?
Asia to U.S. (West Coast and East Coast) ocean freight capacity has been stretched tight the past month. We’ve already seen a number of container rollovers in that time period.
Hanjin Shipping is roughly the seventh largest ocean carrier in terms of ocean freight capacity. Their fleet capacity is roughly 600,000+ TEUS. This represents just under 3% of the world ocean freight capacity. They offer about 20 different service strings to the United States. Many of these strings are offered via joint service with other carriers. Based on my research from the Hanjin website, the strings that primarily run on Hanjin vessels are as follows:
East Coast: AWH
West Coast: CAX, HPM, PNH, PSG (only partial)
There is no doubt that shippers will be reluctant to put upcoming shipments on board Hanjin vessels with bankruptcy as a looming possibility. Losing these strings is likely to severely impact ocean freight capacity, particularly for freight coming to the U.S. West Coast. It is unsure if other carriers will jump in and fill the void immediately. Carriers are just starting to raise ocean freight rates the past few months. After experiencing over half a year of historical lows in ocean freight rates, carriers will be seeking to restore rates at very least back to historical norms.
One big unknown is whether ocean freight rates will see a big increase immediately on September 1, 2016. Most carriers announced large General Rate Increases (GRI) for September 1st in the range of $600-$1000/40′. If carriers feel that space will be at a premium due to Hanjin’s possible demise, carriers may feel confident in implementing the GRI fully rather than partially. We will find out in the next few days.
Is any other carrier next?
There were rumors of troubles for Hyundai Merchant Marine earlier this year. There have also been rumors of financial trouble for other carriers. It is possible that the bankruptcy of one of the larger carriers will provide breathing room for the other carriers.
I will keep everyone updated in the coming weeks.
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