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  September 8th, 2016 | Written by

Hanjin Blues: A Different Ocean Freight Market Now?

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  • Reduced Christmas inventories means less retail sales hiring and lower corporate profits.
  • No one knows when Hanjin boxes might be released to consignees.
  • In today's world economy, the consequences of Hanjin's collapse have the potential to be catastrophic.

We’re a few business days past the Hanjin bankruptcy and the shipping market has changed 180 degrees. The ramifications extend far beyond the dry legal negotiations of the courtroom; we’re now looking at drastically reduced retail inventories for the Christmas season which affect the amount of retail sales hiring, and subsequent corporate profits. South Korea is equally affected, as the thousands of containers carrying (not now!) electronic products from Samsung and LG will affect the country’s trade balance and foreign exchange reserves.

Three Hanjin ships are reported arrested (in Long Beach, Shanghai and Singapore), with another 44 of their 98 vessels refused entry at ports worldwide (including such major ports as Shanghai, Hamburg, Long Beach, and Sydney), putting forwarders, manufacturers, and traders at risk for their cargoes, while 36 percent to 51 percent spikes in ocean freight rates promise record losses once their containers are located, released, and eventually re-shipped.

These are serious issues. With 540,000+ TEU’s worth of cargo either shipped or loaded-to-be-shipped for the upcoming Christmas holiday season, no retailer who stocks Korean, Chinese, or products of any country serviced by the CKHYE alliance, of which Hanjin was a member and who might be carrying Hanjin boxes, knows when these boxes might be released to the consignees. However, it seems that Hanjin’s parent company is looking to step in and remedy any way possible to unload these containers to minimize the damage to exporters and importers. That said, no one knows when these boxes might be released to the consignees and what will be the extra costs for companies of getting Christmas-oriented items delivered during the February-March-April time period.

Not a Surprising Demise

The demise of a major carrier was no surprise. Three years of dropping ocean freight rates resulted in losses estimated in the $16 billion range. With the majority of the carriers except Maersk and Hapag-Lloyd not regularly offering financial results, one must look at the forced Cosco-CSCL merger, the Zim restructuring, or the rapidly-arranged Hapag-UASC merger to understand the severity of the bleeding.

The carriers also bear some responsibility for Hanjin’s demise. While Maersk’s Triple was an important step in the evolution of container ships, Maersk had both the customers and the financing to make them financially viable. However with UASC and others quickly engaging to also follow suit, there are now 104 megaships in-service or due to be delivered in the next 18 months—and the Chinese economy collapsed in 2014 to 2015.

Let’s not forget Hanjin leased the majority of their containers. As Hanjin defaulted on its vessel contracts ($18.6 million to Seaspan), the likelihood is the debt for these containers will be litigated before the containers—and their cargoes—are released.

For all this to happen in a world economy as thinly-balanced as today’s, these consequences have the potential to be catastrophic. Let’s see how things unfold.

Patrik Berglund is CEO of Xeneta, a company which provides a database of ocean freight rates.