[Analysis] More Hanjin ships stuck at foreign ports as shipping crisis worsens

Posted on : 2016-09-05 16:31 KST Modified on : 2019-10-19 20:29 KST
Export companies feel strain with deadlines looming; inadequate gov’t measures adding to problem
With Hanjin Shipping currently under court receivership
With Hanjin Shipping currently under court receivership

The Hanjin Shipping global logistics crisis is racing out of control, with shipping around the world hamstrung in the wake of the company’s placement under court receivership on Aug. 31. With Hanjin’s restructuring focused on the tug-of-war between management and creditors, critics are saying the South Korean government has not done enough with its measures to address the industry crisis.

On the morning of Sept. 4, Minister of Oceans and Fisheries Kim Young-suk presided over discussions on countermeasures at the Central Government Complex in Seoul, with representatives attending from the Ministry of Strategy and Finance, Ministry of Foreign Affairs and seven other agencies. Seoul also agreed to expand the current emergency response team under the Ministry of Oceans and Fisheries into a joint task force for relevant agencies.

68 ships stuck worldwide

According to accounts from the Ministry of Oceans and Fisheries and Hanjin Shipping, a total of 68 ships are currently stuck at 44 ports in 19 countries. The crisis involving Hanjin ships has been rapidly escalating, with the number jumping by another 14 in a single day, up from 44 on Sept. 2 and 53 on Sept. 3. Sri Lanka and Vietnam joined the list of countries where the ships can neither put in nor leave port. The list already included the US, China, Japan and Spain. In those countries, entries and exits are being blocked by port authorities, and handling companies are refusing to unload cargo until back payments are made.

The most pressing issue at the moment concerns the export cargo on Hanjin’s ships. It needs to arrive according to deadline, but the shipping crisis has resulted in continued delays. The Korea Shipowners’ Association assessed the total cargo on Hanjin ships at the moment at around 410,000 20-foot equivalent units (TEUs). In all, 8,281 shippers have entrusted freight worth at an estimated 15.6 trillion won (US$14 billion) in cargo value alone. It is a situation that has many concerned Hanjin Shipping could face legal action for up to US$14 billion. Twenty-five reports were also received on Sept. 1 and 2 by an export cargo trade complaint center set up within the Korea International Trade Association (KITA) to support companies facing export problems due to the Hanjin situation. Total losses have amounted to around 5 billion won (US$4.5 million).

Route charges have also skyrocketed. Containership charges for Hanjin’s main route between Busan and Los Angeles leapt from around US$1,100 to US$1,700 per 40-foot equivalent unit (FEU) – a jump of 55% – in a single day. Another 50% increase occurred for the container route between South Korea, Panama and the US’s East Coast.

The situation has created an emergency for US retailers and distribution businesses. According to a MarketWatch report on Sept. 3, Sandra Kennedy, president of the Retail Industry Leaders Association – a group that includes large distributors such as Walmart – sent a letter to the US Department of Commerce and Federal Maritime Commission (FMC) asking them to work with the South Korean government and other stakeholders to minimize Hanjin’s shipping difficulties and the resulting losses.

Inadequate preparations by South Korean government

Critics are pointing to incomplete preparations from the South Korean government as a factor in the growing losses from Hanjin Shipping’s court receivership. Ten months after a restructuring plan was first considered to address the shipping industry slump, the main concern had remained whether to keep Hanjin afloat or not. As the presiding agency, the Ministry of Oceans and Fisheries leaned heavily toward a rescue – with the result that not enough detailed government measures were in place to deal with the aftermath of court receivership.

Indeed, Seoul has yet to offer any real measures to deal with the dozens of Hanjin ships that currently find themselves stuck. The company’s back payments alone, including charterage, loading and transport costs, and equipment rentals, amount to around 65 billion won (US$58.2 million). Making progress would require either Hanjin to repay them itself or creditors to offer support. Export businesses have been growing itchy.

“The government should have granted a deferment period to prevent this kind of thing from happening, or warned the companies using Hanjin Shipping ahead of time,” grumbled a source at one company that reported losses to KITA.

Further complicating matters is the fact that September and October are high season for the shipping industry. They are months of major shipping of items for Thanksgiving and Christmas, with containerships barely available for reservations even a month in advance. The argument from critics is that the government’s plan to assist domestic shippers in using other vessels in South Korea or overseas is unrealistic. Even a plan to use vessels from Hyundai Merchant Marine could be executed no earlier than Sept. 8 for North American routes, and the second week of September (beginning on the 12th) for European ones.

It is a frustrating situation for export companies, which depend on meeting their deadlines. Another government plan to request shipping support from the other companies in Hanjin’s shipping alliance has been rendered useless, with the CKYHE Alliance effectively evicting Hanjin with its announcement that it would not be carrying its cargo.

By Kim So-youn, staff reporter, and Yi Yong-in, Washington correspondent

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

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