Learn About the Insolvency of Hanjin Shipping

Learn About the Insolvency of Hanjin Shipping

21-Sep-2016

It has been a tense time for many around the world. While on September 13, the chairman of Hanjin Group transferred 40 billion won ($36 million) to Hanjin Shipping to enable cargo stranded on the troubled shipper’s vessels to be unloaded, securing additional funds could take “considerable time”, according to a company spokesman.

The looming dissolution of Hanjin Shipping would be the largest and most substantial bankruptcy in the container transport industry. It is the cause of worldwide disruption in shipping with every component of the supply chain affected by this collapse.

The Heydays

With its fleet of some 200 containerships, bulk and LNG carriers transporting over 100 million tons of cargo annually, Hanjin Shipping Co. Ltd is South Korea's largest and one of the world's top ten container carriers in terms of capacity.

The Collapse

Hanjin Shipping attributes its financial struggles on a continuing downturn in the container shipping industry which has affected the majority of the top twenty ocean carriers. The reasons have been listed as:

  • A weak global GDP,
  • overcapacity on container vessels,
  • "bloated" US retail inventories,
  • changing consumer spending patterns,
  • Chinese economic slowdown, and
  • muted demand for container shipping

The Timeline

April 2016

to avoid formal insolvency proceedings, Hanjin applied to its creditors for debt restructuring.

August, 31 2016

Hanjin filed for bankruptcy protection at the Seoul Central District Court and requested the court to freeze its assets, after losing support from its banks the previous day. This lead to the operational issues described above.

September 2016

Hanjin Shipping Co. filed papers in U.S. Bankruptcy court that would allow its vessels to dock without its ships, cargo, or equipment being seized by creditors.

The scramble to secure funding to bail the company out reaches fever pitch.

 

The Numbers

$14 billion

the estimated value of cargo tied up globally as Hanjin ships idle outside ports that won’t let them in.

400,000

the estimated number of containers stranded on Hanjin ships.

$38 million

the value of goods, mostly TVs and appliances, that Samsung alone has said it has stuck aboard two Hanjin ships.

141

the number of ships Hanjin has (97 container ships, 44 bulk carriers). More than half are blocked from docking, and four have been seized as of Sept 11.

$226 million

Hanjin’s operating loss in April-June, on revenue of $1.3 billion

 

The Fallout

The insolvency of Hanjin shipping has caused a world-wide impact. Ports, tugboat operators, and cargo handling firms are apprehensive about being paid, and have refused to work for Hanjin. In a world of “just-in-time” deliveries, stationary cargo ships have repercussions throughout the entire supply chain.

Customers of Hanjin Shipping are experiencing delays in the order of weeks or even months if vessels are arrested or unwilling to berth which leads to downstream contractual issues of breach and/or late delivery.

Cargo owners may be able to claim for late delivery, however with Hanjin’s dismal debt to equity ratio, it will be difficult to enforce such claims.

Clause 4.6 of the ICC(A) stipulates that in no case shall the insurance cover “loss, damage or expense arising from insolvency or financial default of the owners, managers, charterers or operators of the vessel”.

Banks holding bills of lading as security for trade finance arrangements may find that security to be worth less than the original value of the cargo (if a long delay impacts adversely on the price); or if the goods are perishable they may be left with a claim as an ordinary unsecured creditor against Hanjin.




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