Retailers scramble as shipper bankruptcy puts goods in limbo

A bankruptcy filing by South Korea’s Hanjin Shipping Co.is rippling through the global supply chain, stalling the delivery of goods as the firm’s ships sit anchored off ports across the world.

Now that Hanjin is under court receivership in South Korea, the process of getting creditors to accept new financing simply to pay docking fees could be hard, while moving through the bankruptcy process might take weeks or months. Additionally, because each entity along its logistics chain – from tugboats to truckers moving containers – is anxious about getting paid, the company’s ships that are already loaded and crossing the ocean will face difficulties as they reach their destinations. One vessel has also been seized by a creditor in Singapore while firms in the US have launched legal action against Hanjin to seize vessels and other assets over unpaid bills.

To many South Koreans, Hanjin’s troubles are typical of the difficulties the country’s large family-owned business conglomerates – known as Chaebol – are undergoing as offspring of the founding generation struggle to effectively and efficiently run the business empires they inherited.

“Unlike dry cargo, liner shipping is all about marketing and service reliability – we haven’t seen any large carriers come back from collapse”, said Rahul Kapoor, a director at maritime consultancy Drewry Financial Research Services.

The National Retail Federation wrote to U.S. Secretary of Commerce Penny Pritzker and Federal Maritime Commission Chairman Mario Cordero on Thursday, urging them to work with the South Korean government, ports and others to prevent disruptions.

Hanjin, the world’s seventh-largest container shipper, represents almost 8 percent of the trans-Pacific trade volume for the US market.

Hanjin is the seventh-largest cargo container carrier in the world, owning or chartering 98 ships and handling about 3 percent of global container shipping, according to shipping data tracker Alphaliner.

The Hanjin Scarlet became one of dozens of Hanjin ships left in limbo at ports around the world as terminals refused to handle their cargoes over the risk the company wouldn’t be able to pay for services.

“Retailers’ main concern is that there (are) millions of dollars’ worth of merchandise that needs to be on store shelves that could be impacted by this”, said Jonathan Gold, the group’s vice president for supply chain and customs policy.

The confusion might also sink some trucking firms that contract with Hanjin to deliver cargo containers from ports to company loading bays. It said 540,000 TEU of cargo already loaded on Hanjin vessels would face delays. “They’ve got bills to pay – they could literally close their doors over this”, said Peter Schneider, Fresno-based vice president of T.G.S. Transportation Inc.

Meanwhile, other shipping lines were moving to take over some of the Hanjin traffic but at a price, with vessels already are operating at high capacity because of the season. The cost for the journey from Busan, South Korea, to Los Angeles, for example, jumped 55 percent, and rates for East Coast destinations have risen by 50 percent.

Global demand and trade have suffered since the 2008 recession, while steamship lines continued to build more and larger vessels – huge ships that were conceived as cost-effective when freight costs were higher several years ago.

Even the biggest ocean shipping company, A.P. Moller-Maersk, is seeing its profits fall, and scrambling to cut costs.

Hanjin’s shares, suspended since plunging 24 percent on Tuesday, will resume trading on September 5, the stock exchange said.