
South Korea’s biggest shipping line has filed for bankruptcy protection - cossatot
http://www.wsj.com/articles/troubled-hanjin-shipping-to-sell-healthy-assets-to-rival-1472611190
======
Animats
This is not "bankruptcy protection". The WSJ writer is thinking of the US's
lenient Chapter 11 bankruptcy procedures. Hanjin is going into receivership,
with a court in charge. Ships and loaded containers are stranded all over the
world.[1] Two Hanjin ships are anchored off Los Angeles, unable to unload
because there's no one to pay the port fees. Railroads and ports are sending
unshippable containers back to the shipper.

This isn't a big deal for trade generally, because there's huge overcapacity
in shipping right now. Hanjin is only 7% of Korea's export shipping. But it's
a huge deal for businesses with product stuck on Hanjin ships.[2] It's also a
big deal as US retailers stock up for the Xmas shopping season. Spot container
shipping prices just shot up. That won't last, but it may last through the
Xmas runup.

The court in Korea will probably authorize funds to get the ships unloaded and
get them to some storage location, but it's not clear when. That's the biggest
headache. The shutdown is not being handled well.

Historically, big firms in Korea were protected by the government, and
bailouts were common. That's declined, and attempts to put together some kind
of rescue deal for Hanjin have already failed. There's no big reason to rescue
Hanjin; Korea alone has excess shipping capacity.

[1] [http://www.seatrade-maritime.com/news/americas/hanjin-
shippi...](http://www.seatrade-maritime.com/news/americas/hanjin-shipping-
vessels-and-containers-left-stranded.html) [2]
[https://theloadstar.co.uk/forwarders-dangerously-exposed-
by-...](https://theloadstar.co.uk/forwarders-dangerously-exposed-by-hanjin-
bankruptcy-as-scramble-for-unpaid-debts-and-fresh-capacity-begins/)

~~~
Animats
Hanjin has obtained an injunction in Korea against seizure of its assets, says
Lloyds List.[1] Right now, Hanjin ships have been ordered to stay offshore to
prevent seizure for unpaid claims until the legal situation stabilizes. It
looks like Hanjin is going to file for Chapter 15 bankruptcy in the US, which
means US creditors get Chapter 11-like treatment: old claims are stalled and
new bills can be paid. Claims have to be resolved in the primary bankruptcy
court in Korea. Then the ships may be able to unload and head back to Korea,
pending further court action to unwind Hanjin.

BIFA info on What to Do if Your Container is Stuck on Hanjin: [2]

Big mess for shippers. Especially Samsung, which used Hanjin heavily.

[1]
[https://www.lloydslist.com/ll/sector/containers/article53534...](https://www.lloydslist.com/ll/sector/containers/article535342.ece)
[2] [http://www.bifa.org/news/articles/2016/aug/bifa-
information-...](http://www.bifa.org/news/articles/2016/aug/bifa-information-
regarding-hanjin)

~~~
mmanfrin
I imagine it'll hurt Samsung even further, considering they build freighters.

~~~
sanxiyn
In terms of revenue, Samsung Heavy Industries is like 5% of Samsung
Electronics.

------
macmac
Fun fact: The top 3 largest container shipping lines are all family controlled
companies and are all European based (Denmark, Switzerland and France)

~~~
tener
Even funnier: Switzerland is landlocked.

~~~
labster
Bring it up with the Nebraska Admiralty.[1]

[1]:
[https://en.wikipedia.org/wiki/Nebraska_Admiral](https://en.wikipedia.org/wiki/Nebraska_Admiral)

~~~
pandler
Ha that's great. It reminds me of the Wizard of New Zealand.[1]

> In 1982 the New Zealand Art Gallery Directors Association issued a statement
> that in their opinion the Wizard was an authentic living work of art and the
> City Council appointed him Wizard of Christchurch. In 1990 the Prime
> Minister of New Zealand, Mike Moore, an old friend, appointed him the
> official Wizard of New Zealand.

[1]:[https://en.wikipedia.org/wiki/Wizard_of_New_Zealand](https://en.wikipedia.org/wiki/Wizard_of_New_Zealand)

------
pcurve
I'm surprised there hasn't been more bankruptcy.

Baltic Dry Index crash has been spectacular, though it has recovered from its
lowest point of 300.

[http://www.zerohedge.com/sites/default/files/images/user5/im...](http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2016/01-overflow/20160118_bdiy.jpg)

~~~
macmac
There is a strong tradition of state intervention when bankruptcy in container
shipping is likely. Both German and French lines have been saved by their
respective governments.

~~~
MollyR
Do you think South Korea will intervene ?

~~~
bsder
I suspect they already are, just not on behalf of Hanjin.. Quoting:

"The Korean government said it wants Hanjin’s domestic rival, Hyundai Merchant
Marine Co. , to buy healthy assets from the troubled company. It rejected the
idea of a merger."

Translation: SK is going to shoot Hanjin in order to prop up Hyundai. I
suspect as part of any "deal", Hanjin is going to wind up saddled with a bunch
of bad contracts from Hyundai, too ...

~~~
kijin
That would be a smart move, at least politically if not economically.

People have been wary of large bailouts since 2008. The Chaebol family that
owns Hanjin is especially unpopular in Korea, due to a widely publicized
incident where one of their daughters threw a tantrum on board an
international flight and made it return to the gate.

The President of South Korea cannot afford to make any move that would hurt
her (already rather low) popularity rating. She needs to throw Hanjin under
the bus if she wants her party to have a chance in next year's election.

Besides, the government is too busy trying to rescue the _shipbuilding_
industry, which is worth much more to the Korean economy, to babysit a
_shipping_ company.

------
Animats
Update for today: big mess continues. Four Hanjin ships now off the coast of
California. They can't enter US waters without being seized.[1] Almost all of
their ships are at sea or at anchor, although a few in China were seized. Lots
of lawsuits filed. Hanjin hasn't been paying its bills since June, which is
why there are claims against their ships.

Freight forwarders (like Flexport) face big financial problems. They may have
paid Hanjin already, but still have the responsibility of getting the
containers to their destination at their expense. Maritime insurance won't pay
for this; it's a financial problem, not an accident. Lloyds List quotes a
freight forwarder in Australia: “There are bound (to) be freight forwarders
with cargo on these vessels. F+++. I haven’t had one (of) these since the
Nigerian crisis 40 years ago. F+++.”"

It's not clear if ship crews will ever be paid. There's concern about ships
running out of food and fuel.

The bankruptcy court in Seoul has given Hanjin until November 25th to come up
with a plan. Hanjin web site still says absolutely nothing about problems.

[1] [http://www.tradewindsnews.com/legal/775929/us-filing-
expecte...](http://www.tradewindsnews.com/legal/775929/us-filing-expected-as-
hanjin-ships-halted)

------
razster
Video by WSJ has some more information
[https://www.youtube.com/watch?v=PSLAzwobIAI](https://www.youtube.com/watch?v=PSLAzwobIAI)
[https://www.youtube.com/watch?v=5bzyTVK-
rD8](https://www.youtube.com/watch?v=5bzyTVK-rD8)

------
dmoy
The article was a bit scarce in some details, can anyone fill in? Is hanjin
doing 25k teu, or 50k (of double size)? What fraction of Pacific shipping is
that?

7% of US trade, but is it hitting intra Asia trade worse?

~~~
mhandley
This FT article has more details:
[http://www.ft.com/cms/s/0/205af87a-6fba-11e6-a0c9-1365ce54b9...](http://www.ft.com/cms/s/0/205af87a-6fba-11e6-a0c9-1365ce54b926.html)

It says Hanjin has 2.9% of the world market share for container shipping, but
among Korean exporters, it's a lot more. For example, Hanjin handles 40% of
Samsung's exports and 20% of LG's. Still they're fairly small compared to
Maersk, which has 15% market share.

~~~
velodrome
Container Freight Operators, Market Share:

[http://www.statista.com/graphic/5/198206/share-of-leading-
co...](http://www.statista.com/graphic/5/198206/share-of-leading-container-
ship-operators-on-the-world-liner-fleet.jpg)

China Containerized Freight Index:

[http://en.sse.net.cn/resource/img/update/ccfiallen.png](http://en.sse.net.cn/resource/img/update/ccfiallen.png)

------
MollyR
Wow, Does anyone know what this means for the dry baltic index. A bunch of
shipping companies look like they are pretty close themselves to bankruptcy.

~~~
macmac
Absolutely nothing. Baltic Dry only covers bulk carriers. Hanjin's fleet of
bulk carriers consists of only 22 vessels.

~~~
etimberg
Could look at HARPEX
[http://www.harperpetersen.com/harpex/harpexRH.do?timePeriod=...](http://www.harperpetersen.com/harpex/harpexRH.do?timePeriod=Total&&dataType=Harpex&floatLeft=None&floatRight=None)
which tracks container freight. It does not have as much historical data
though

------
abecode
who are the main creditors of a shipping company like Hanjin?

------
eschutte2
Where's Flexport? Seems like their PR should be all over this.

~~~
Animats
Probably having a really bad day. Flexport: "Our logistics managers and
licensed customs brokers work around the clock to make sure that your
shipments move smoothly." It's their job to deal with the problems created by
Hanjin for Flexport customers. The terms and conditions for international
freight forwarding are standardized [1], and while some events (wind, wave,
war, etc.) let them off the hook, bankruptcy of their subcontractor is their
problem.

[1] [https://www.flexport.com/terms-and-
conditions#InternationalO...](https://www.flexport.com/terms-and-
conditions#InternationalOceanTermsAndConditions)

~~~
thedogeye
Flexport managed this quite well actually. Here's our take:
[https://www.flexport.com/blog/on-hanjin/](https://www.flexport.com/blog/on-
hanjin/)

------
bkor
To add more details to this:

To get economies of scale, you want big container vessels. Customers usually
want a weekly vessel call to their port. It's impossible to fill the bigger
container vessels on your own. Therefore there are various alliances, whereby
multiple shipping companies combine their vessels and share their capacity.
The amount of containers you can put on a vessel is then determined by how
much of the capacity you bring in. Simple example: for a service with 7x
10.0000 TEU vessels, if Hanjin owns/supplies two of those 10.0000 TEU vessels,
it'll 28.6% of the capacity on each of the 7 vessels. Then you have another
benefit that by loading ("stowage") efficiently you might be able to fit more
containers than usual.

Hanjin is part of the CKYHE shipping alliance. As such, on various (not all!)
Hanjin vessels there's not just containers booked with Hanjin, but also from
the other shipping companies. According to
[http://www.hellenicshippingnews.com/ckyhe-alliance-
cooperati...](http://www.hellenicshippingnews.com/ckyhe-alliance-cooperation-
confirmed-until-end-march-2017/): "CKYHE alliance members Cosco and Evergeen
are set to move to the new Ocean Alliance with CMA CGM and Orient Overseas
Container Line (OOCL) in April next year leaving just K-Line, Yang Ming Line
and the financially struggling Hanjin Shipping."

After the financial crisis, it became really cheap to lend money. Various
banks noticed that a slight profit was being made in shipping. As a result
many new big container ships were built, mainly due to bad decisions within
banks. There's now (again) a huge oversupply of capacity vs demand. This has a
drastic effect on freight rates. E.g. [http://www.wsj.com/articles/maersk-
profit-drops-on-weak-frei...](http://www.wsj.com/articles/maersk-profit-drops-
on-weak-freight-rates-1470984856) has this bit: "Maersk said average container
freight rates for the second quarter were off 24% from a year earlier, while
the oil price was down 26%."

Container shipping companies are often bailed out by countries. E.g.
AlphaLiner had a bit (weekly newsletter, don't have a link) where COSCO got
huge amount of money (IIRC 200 MUSD) from the Chinese government in 2015 to
scrap vessels. This is the only reason they had a tiny profit in 2015. In 2016
the freight rates are drastically lower! Any company will need to do a crazy
amount of cost saving, even though a lot of the costs have already been
invested (if you bought containers & container vessels they're not suddenly
become cheaper to run or to write-off). COSTCO lost 1.1 billion in the first 6
months of 2016
([http://www.chinadaily.com.cn/business/2016-08/27/content_266...](http://www.chinadaily.com.cn/business/2016-08/27/content_26613536.htm)),
though they're likely also affected because they recently merged with another
shipping company. Way more capacity than demand. In news articles this is
often misinterpreted.

Future: If Hanjin goes bankrupt, their container vessels will still exist.
These vessels will likely being purchased at a much lower price. To fill them,
anyone purchasing these vessels will likely take advantage of the lower
purchase price and offer even lower freight rates. I don't expect the supply
and demand to change quickly.

~~~
desdiv
>To fill them, anyone purchasing these vessels will likely take advantage of
the lower purchase price and offer even lower freight rates. I don't expect
the supply and demand to change quickly.

The supply of shipping hasn't changed (still the same number of ships, just
different owners), and the demand of shipping hasn't changed, so wouldn't the
cost of shipping stay the same?

There's no incentive for the new owners to lower their prices just because
they got their hands on some cheap ships. They would probably rather just make
a higher profit instead.

~~~
bkor
Within any shipping company you usually have various container vessels which
you own, then various that you charter. This allows you to be flexible. So a
shipping company could hand back some chartered vessels, then buy Hanjin ones.
If they buy it cheaply, the average cost per day should be lower than the
charter rate.

Ideally they'd do this in a smart way. So same size vessels and just reduce
cost. In practice, they'll probably buy bigger vessels than they used to have
(bigger vessel has a lower cost per container, provided they're fully
utilized). Then lower the rates as they notice it is difficult to fill them
(no change supply/demand).

A few years ago the shipping companies idled vessels to reduce capacity
(instead of lowering prices). In 2016 it seems they do both (bit of idling,
but also compete on price).

Note that I didn't notice any shipping company making a profit in 2016.
Average is a -5% EBIT margin (
[http://www.alphaliner.com/get_public_newsletter.php?file=201...](http://www.alphaliner.com/get_public_newsletter.php?file=2016/no22/Alphaliner%20Newsletter%20no%2022%20-%202016.pdf)
); though this source is from May 2016.

