hankyoreh

A reflection in glass at Hanjin Shipping headquarters in Seoul’s Yeouido neighbourhood on Aug. 30

With South Korea’s top-ranked shipping company Hanjin Shipping on the verge of entering corporate rehabilitation (court receivership), a pressing question is what the impact will be, not just for Hanjin itself but for the economy as a whole. In addition to the likely effects for shipbuilding and other related industries, the development is also certain to have a negative effect on shipping of import and export items.

If Hanjin Shipping’s rehabilitation does become uncertain after entering court receivership, it would leave over 2,000 people at risk of losing their jobs. Around 1,400 jobs at Hanjin Shipping and around 1,000 at Busan port-related businesses could be reduced or lost. On Aug. 29, the Korea Shipowners’ Association claimed the damage from job or project cuts could amount to 17 trillion won (US$15.2 billion).

With most of Hanjin Shipping’s cargo transhipments taking place at the Port of Busan, the Busan area stands to face a heavy blow. On Aug. 30, 24 related Busan-area associations and groups released a statement voicing concerns that court receivership could result in “over half the one million TEU Hanjin Shipping shipped to overseas ports going to other companies, reducing the Post of Busan’s sales by around seven to eight trillion won (US$6.3-7.2 billion).” The already struggling domestic shipbuilding industry also faces a heavy hit if it loses its chief customer.

Another possibility is that the operation of Hanjin Shipping’s vessels could be paralyzed. To begin with, the 93 charter ships among the company’s 157 container ships and bulk carriers are expected to be returned to their owners.

“Normally, charterage is so high that it’s impossible to return the [ships] even if they wanted to, but under a court receivership situation the court could make the decision to return them,” explained a shipping industry source. “If the red ink starts massing, they could end up returning most of the charter ships.”

Hanjin Shipping is currently in arrears not only on charterage but also port usage fees, fuelling fees, and container box usage fees.

It would also be difficult to operate the 64 vessels the company acquired through shipping finance. Creditors and shippers could detain vessels overseas to exercise their security rights. Lawsuits could be filed to claim damages for cargo loaded onto ships but never transported. The company also appears likely to lose its place in the international shipping group the Alliance if its vessels fail to sail, as well as its rights to sail on assigned routes.

A halt to vessel operation would also mean a crisis for shipping of South Korean export and import cargo. Foreign shipping companies would have to be used for the much of the cargo previously assigned to Hanjin - which has accounted for 6.6% of domestic container export and import volumes. Second-ranked shipping company Hyundai Merchant Marine, which accounts for just 2.1% of the world’s container deadweight tonnage, is in no position to take over the 5.1% of deadweight tonnage handled by Hanjin.

The situation could lead to a freight charge hike. But shipping industry analysts said the possibility was not likely, since the international shipping industry is facing oversupply issues. Internally, Hanjin’s past transactions with 16,400 shippers in around 80 countries are expected to end, with those shipper turning to shipping companies overseas with their cargo.

Once Hanjin Shipping does apply for court receivership, the Ministry of Oceans and Fisheries (MOF) plans to come out with emergency measures to prevent it from wreaking havoc on distribution. With no precedent yet for the world’s seventh-biggest and South Korea’s biggest container shipping company entering court receivership, fears of a backfire are running high.

The MOF currently plans to launch an emergency response team, with representatives from the Korea Maritime Institute, the Korea Shipowners’ Association, and shipping businesses.

“If vessels are detained, the issues with their cargo, the shippers who consigned items, and the shipping crew become more complex,” explained an MOF official. “We’re going to make a priority of dealing with the shipping havoc in that area over [the first] two or three months.”

Measures are also expected for exporting businesses. North American routes in particular depend heavily on Hanjin Shipping. Last year, the company was used for 56% of exports to North America by Samsung Electronics, 53.8% by LG Chemical, 24.9% by Nexen Tire, and 23.2% by LG Electronics. The South Korean government is planning to offer support so exporting businesses can use other vessels in South Korea or overseas.

“If the court receivership happens, we’re losing the biggest shipping company domestically. The impact on the shipping industry will be huge,” said an MOF official. “Right now, we’re working on how to establish a distribution base so the remaining shipping companies can compete globally.”

“There are also need to be measures for the potential blow to transshipment volumes at the Port of Busan,” the official added.

By Kim Kyu-won and Kim So-youn, staff reporters

Please direct questions or comments to [english@hani.co.kr]