
Why billions of dollars of goods are stuck at sea - situationista
http://www.economist.com/blogs/economist-explains/2016/09/economist-explains-14?cid1=cust/ddnew/n/n/n/20160922n/owned/n/n/nwl/n/n/NA/email&etear=dailydispatch
======
Animats
This is a mess because Hanjin's top management was in denial about the
possibility of bankruptcy. Just like the typical startup. They've been trying
for months to get a bailout deal from somebody, anybody - a merger, loans,
their parent chaebol, their stockholders (Korean Air is the largest), or the
S. Korean government. Everybody turned them down. There's too much container
ship capacity right now; nobody needed Hanjin's fleet.

Management didn't have a plan for an orderly shutdown, so when the company
went into receivership, everything just stopped. Just like many failing
startups, the web site continued to indicate nothing was wrong. They've now
put up a spreadsheet with current vessel status, but that took weeks. The
status has entries such as "Arrested", "Unpaid Canal Fee (Suez)", "Arrested by
Bunker Supply Co. (Panama Canal)", and "Port labor rejected" (they're way
behind on their payments)". There are about 500,000 containers stuck with
Hanjin.

Admiralty law is especially harsh on bankrupt shipowners. In many
jurisdictions, ships can be seized regardless of bankruptcy status. Some
Hanjin ships have been seized. Some are waiting offshore until somebody puts
up the money for unloading and refueling. There were four stuck off the coast
of California. Hanjin has come up with enough money to get two of them into
the port of Los Angeles and unloaded. Those appear to be ships Hanjin leased,
rather than owned, and a court in Korea has told them to unload and return all
their leased ships ASAP. Courts in about 15 countries are involved, trying to
untangle this mess. The US Maritime Commission is trying to get cargoes
unloaded, but they don't have much authority. Ports are unwilling to let
Hanjin ships in unless they have enough money to fuel up, pay a crew, and
leave - they don't want them stuck at their docks. Meanwhile, some of the
ships are running low on food and water.

Then there's the empty container mess. In the container business, you pay a
per-day fee when you hold someone else's container, so everyone tries to
return their borrowed empties quickly. But most of Hanjin's empty container
return points are shut down, and are not taking empties back. Many of those
empties are on trailer bodies, and are tying up trailers needed to move
freight. Truckers are angry about this. Shippers are having trouble getting
enough empty trailers.

This will all get unwound, but it's going to take weeks or months. There are
going to be really big post-Xmas sales as the delayed cargo is unloaded.

~~~
superuser2
What happens to the crews of these ships? Can they leave? How? Who pays to
transport them to shore? Under what authority are they permitted to walk on
shore?

Office and factory workers of a suddenly-derelict company can walk off the
premises and go home. Imagine finding out that not only will the paychecks
stop, you also can't leave your desk.

~~~
chiph
There is the occasional ship stranded in Charleston SC and there are local
church groups who will put together a food & supply boat to go out there for
the crews. They can't leave the ship as they don't have visas. USCIS doesn't
really want them to anyway, as there's no guarantee they'll return to the ship
or their home country.

~~~
amazon_not
> They can't leave the ship as they don't have visas. What's to stop them?
> Can't they take a life boat, head for shore, get arrested for illegal entry
> and get deported home?

Obviously not ideal, but at least you get fed and eventually get back home.

------
keebEz
Flexport did a great blog post on the situation:
[https://www.flexport.com/blog/on-hanjin/](https://www.flexport.com/blog/on-
hanjin/)

Also of interest, they also did a game theory analysis of ocean liners:
[https://www.flexport.com/blog/game-theory-ocean-carrier-
comp...](https://www.flexport.com/blog/game-theory-ocean-carrier-competition/)

~~~
Bluestrike2
Their analysis of the impact of recent increases in shipping capacity and the
impact on price today is also an interesting read:
[https://www.flexport.com/blog/why-are-ocean-freight-rates-
so...](https://www.flexport.com/blog/why-are-ocean-freight-rates-so-low/)

------
josscrowcroft
I'm curious - and surprised nobody seems to have mentioned or asked - what
happens to all the sailors working aboard the ships, which are now stranded
offshore?

Do they continue working aboard, knowing that they probably won't be paid
(because the company is bankrupt)?

What's morale like? Can they leave, and how would they logistically?

What kind of laws and rights (if any) apply to them in these circumstances?

It's funny to me to be thinking about how our Christmas may be "ruined",
meanwhile hundreds or thousands of workers may be out of jobs and effectively
indefinitely stranded at sea.

~~~
aquark
The BBC ran a story on a ship stuck off Singapore:
[http://www.bbc.co.uk/news/business-37335614](http://www.bbc.co.uk/news/business-37335614)

~~~
josscrowcroft
That's just the kind of coverage I hoped for, thank you.

------
slv77
This bankruptcy means that companies shipping goods are no longer going to be
able to treat shipping as a fungible commodity and instead are going to have
to price in a risk component as well. That suggests that the largest and best
financed players are likely to be able to command a premium which will
accelerate losses at smaller players. This would increase the spreads further
and create a viscous loop.

Does anybody have visibility into shipping rates to see if larger players are
getting a bigger premium?

~~~
shambala
They will just buy insurance, and the insurance companies will figure it out.

~~~
gumby
> They will just buy insurance, and the insurance companies will figure it
> out.

It's not that simple.

Yes, premiums will adjust depending on the finances of the carrier but the
cost of insuring the risk itself is quite variable and can be ruinous. The
value of a delayed shipment of iPads is much higher than a delayed shipment of
board games, yet Apple can tolerate the former while the latter could sink a
company. The board game company might not be able to afford to insure the
risk, even though the premium could be lower.

The fact is an Apple can manage the risk by spreading the load (they already
do it multi modally, and probably already do it for ships too). A small
company with one container or less of goods, cannot.

~~~
ghostly_s
Doesn't Apple famously use overnight air for all their shipping needs? Or is
that only for devices?

~~~
gumby
That's what I meant by "multi modal": they put most of it on ships but buy up
enough air capacity to make the early deliveries. Once the ships start
arriving they can abandon the air.

~~~
ghostly_s
Hmm, I've never heard this. All the coverage a few years back was that they
use air for _everything_ , so they can scale their production operations in
near-real-time as demand fluctuates. That was supposed to be Tim Cook's whole
crowning achievement when he was COO. Do you have a source that shows this has
changed?

------
x1798DE
You occasionally hear about immigrants being smuggled into (a) country in
shipping containers. Is that common enough that it's likely that one or more
of the stalled containers has a bunch of people stuck in it? That seems like a
really unfortunate scenario...

~~~
bkor
That doesn't happen on container vessels, but shipping containers on trucks.
On a container vessel you might have a stowaway. Meaning: someone sneaking
onboard. They usually run out of food and are then discovered.

Due to all the anti terrorist rules, it's not easy getting onboard of a
container vessel.

~~~
ceejayoz
It very much happens on ships.

[http://www.cnn.com/2014/08/16/world/europe/london-
shipyard-s...](http://www.cnn.com/2014/08/16/world/europe/london-shipyard-
stowaways/)

[http://www.bbc.com/news/uk-28827133](http://www.bbc.com/news/uk-28827133)

[http://www.nytimes.com/1994/09/02/nyregion/11-stowaways-
foun...](http://www.nytimes.com/1994/09/02/nyregion/11-stowaways-found-on-
ship-in-container.html)

[http://abcnews.go.com/US/story?id=93659](http://abcnews.go.com/US/story?id=93659)

[http://articles.latimes.com/2000/jan/12/news/mn-53272](http://articles.latimes.com/2000/jan/12/news/mn-53272)

------
AstroJetson
It's not just retail goods on those ships. There is also a great deal of parts
that are needed by US manufacturing lines. That creates a ripple effect down
the line as missed parts causes snags in the lines. Businesses have gotten
pretty good with Just In Time building, so the loss of a few containers will
put a snag into it. Some places may have predicted this and gotten alternative
parts flows, but that puts a strain on the people making the goods to go into
the containers to come here.

Third quarter reporting should be very interesting for the markets.

~~~
honkhonkpants
If someone needed those parts to keep their assembly lines running, why
wouldn't they just put up the money to have the ships unloaded? We're only
talking about a few million to move these goods.

~~~
cc439
A company that desperately needs parts stuck on one of these ships is only
going to have at most, a handful of containers onboard. Those containers might
be worth several million but then that one company would be shouldering 100%
of the unloading costs for a negligible portion of the ship's cargo. Nobody
wants to be the party that blinks first as the longer they wait, the greater
the likelihood of another party paying those fees becomes.

It's in every party's best interest to get these ships docked and unloaded but
no single party will own more than a fraction of the total cargo. Cooperation
is possible but it will take months for hundreds of primary owners to come to
an agreement. Before that happens, each one of those primary owners will need
to come to agreements on cost-sharing with all the party's downstream from
them in the supply chain first.

It's the very definition of "tragedy of the commons" played out in private
enterprise.

~~~
intrasight
Seems the very definition of "business opportunity" to me.

~~~
tehwebguy
Right? You can work out a fee with all of the recipients that covers maybe all
of your cost. Plus, free boat!

~~~
CamperBob2
_Plus, free boat!_

Nothing free about boats. Best two days of your life: the day you buy a boat,
and the day you sell it.

~~~
bbcbasic
If it flies or floats, better to rent it.

~~~
butbroski
You missed another f word in that list.

Paying a prostitute can be cheaper than marrying and then divorcing.

------
_rpd
> In late August, Hanjin Shipping, South Korea’s biggest container line and
> the world’s seventh-largest, filed for receivership. Some 66 of its ships,
> loaded with $14.5 billion of goods, including quantities of electronics
> heading for America, were left stranded at sea. Ports around the world did
> not want to let Hanjin’s vessels dock because the bankrupt line had no money
> to pay unloading fees.

------
mathgenius
Amazing that this happens on top of such low prices for crude oil. What's
going on?

EDIT: Yes I read the article. Seriously, oil is so cheap and this still
happened? It's just mind boggling to me.

~~~
frandroid
This has nothing to do with oil, it has to do with over-capacity in the
industry.

~~~
r00fus
Does over-capacity indicate a reduction in worldwide demand?

~~~
themaninthedark
Short answer yes.

Long answer, when the global financial crisis hit it lowered demand. But
shipbuilding has a long lead time and shipyards can't/won't stop
production(what do you with a half finished ship, you can't just put in
storage). So all the ships that were ordered get built. By now the economy is
starting to recover but your shipping capacity is greater than demand. So
prices fall and the least efficient companies go bankrupt.

[http://www.dailymail.co.uk/home/moslive/article-1212013/Reve...](http://www.dailymail.co.uk/home/moslive/article-1212013/Revealed-
The-ghost-fleet-recession-anchored-just-east-Singapore.html)

Shipyards are probably next.

------
yes_or_gnome
It'll be interesting to see this play out. If the bankrupt company is
unwilling or unable to unload their cargo, could another company start
repossessing the ships? I'd imagine it would have to on the behalf of several
companies; likely, the most heavily invested insurance companies act as a
group.

~~~
marme
yes but that is the major fear the docks have. No debt holder is going to
repossess a ship at sea they are going to wait for them to dock then file a
court order to prevent them from undocking until the repossession proceedings
finish. This means they are stuck at the dock taking up space the dock owners
want to use to unload other ships so they just ban these ships from their
docks letting another dock deal with it and basically every dock yard does the
same thing so there is no where for them to dock

~~~
wmil
I don't understand how they can legally do that. When you repossess a truck
you don't get to leave it at someone else's loading dock for free.

Wouldn't it be the creditor's obligation to pay the fees or move it somewhere
else to be moored?

~~~
dragonwriter
> When you repossess a truck you don't get to leave it at someone else's
> loading dock for free.

"Repossess" is an inaccurate term here. Arrest of a vessel is a different
(though conceptually related) process [0]. Notably, the creditor does not take
ownership or possession of the vessel, and so can't be responsible for fees;
the ship is taken over by the government and its operation restricted unless
it is either "bailed out" by the owner providing alternative security, the
underlying litigation resolved, or the ship ordered sold by the government
while the litigation proceeds.

If its sold, the costs incurred will be paid out of the sale proceeds, but
they may take some time.

[0]
[http://www.maritimelawcenter.com/html/arrest_of_vessel.html](http://www.maritimelawcenter.com/html/arrest_of_vessel.html)

------
Animats
Today's news: Hanjin has now raised enough money to unload their ships and
shut down properly.[1] But it may take until the end of October to unload 90%
of the ships.

[1] [http://fortune.com/2016/09/23/hanjin-shipping-cash-unload-
ca...](http://fortune.com/2016/09/23/hanjin-shipping-cash-unload-cargo/)

------
ThrustVectoring
Low interest rates definitely explains part of it. The one-year treasury bond
rate is at 0.6%, which means that unloading the goods now instead of next year
is worth only $87M if you assume no losses from business disruption.

~~~
vegabook
nitpick -> I see 0.006 * 14.5bn as 87m? Or am I doing something wrong? Also
you have to factor in that a large proportion of the goods might have sizable
negative time value, especially if they're perishable, but also if there is
any (highly likely) proportion of obsoletable tech in there. Perhaps that's
what you mean by business disruption?

~~~
ThrustVectoring
That was really fail mental math. Editing to fix.

And yeah, obsolete tech is a business disruption, as is perishable goods. I
wanted to also include things like having to pay a premium to expedite
replacement inventory so that your store or factory keeps working while the
goods are stuck on a ship.

------
vit05
We have overcapacity that could lead to the formation of cartels if profit
margins remain small. We need more companies in this game, not less, but with
overcapacity, who would like to join?

~~~
fennecfoxen
> We need more companies in this game, not less

Unsupported assertion. There are both positive and negative aspects to more
companies. Consolidation isn't just profitable because it turns an industry
into a cartel, but because there are real economies of scales in some
industries, especially logistics. This could go either way.

> with overcapacity, who would like to join?

No one needs to join until the overcapacity goes away, do they?

------
L_226
The Hanjin California was seized and moored down the road from my house in
Sydney. I was actually down at the water to see it before I knew about the
parent firm's collapse. It's pretty interesting seeing such a big ship in
what's otherwise (contemporarily) a small recreational/transport channel
(Glebe Island, Sydney).

------
honkhonkpants
What's the typical value of goods afloat?

------
rhaps0dy
They raced to the bottom for prices and number of ships, and now neither of
them is profitable.

Moloch who kills shipping companies!

------
ninja-wannabe-7
Paging Mark Cuban or Mr. Jack Ma ... complete some deliveries and liquidate
assets at the right time for a good price, either when the economy picks up or
steel prices climb.

------
seanmcdirmid
I shipped my stuff from Beijing to LA a month and a half ago, without seeing
it on this side yet (takes 1-2 months). Hoping it is not stuck on one of these
boats!

~~~
contingencies
Hrrm, best of luck with that. Are you finally bailing on China, Sean?

~~~
seanmcdirmid
Bailed out awhile ago. Still waiting for my stuff though!

~~~
contingencies
Enjoy LA. I really miss LACMA!

Still enjoying peaceful Yunnan.

------
yrro
Even the Economist are not immune to the temptation of clickbait headlines...

------
themoogle
So these ships are just sitting there off shore?

What stops pirates from taking over the ships? What about the crews just
taking what they want and leaving?

~~~
astrodust
What are you going to steal from these ships? Everything's in containers and
those are packed really tightly together, there's no accommodation for opening
these doors while the ship is loaded.

If you have another self-loading container ship you might be able to pull off
a big heist, but who has one of those just kicking around?

~~~
ethanbond
As a thought experiment... let's say your pirate crew has an unloading port
someplace. Why not take the ship and get going to said port? Would the crew
alert the navy/coast guard? Probably.

But then what?

The navy kills the pirates and liberates the vessel... And Hanjin refuses to
take it back? The navy now has the responsibility of getting it to port and
unloading it, despite ports not wanting to do that?

~~~
nols
Pirates do hit container ships, actually some even hire hackers to locate the
high value cargo to steal. A bankrupt shipping company doesn't really change
much, since the ship is still worth millions. If pirates stole and abandoned
the ship then at worst salvage laws apply, and a salvage company would go out
and take over. The ships aren't worthless because the company is bankrupt,
there's just an issue with operating costs and companies not wanting to
shoulder them.

~~~
astrodust
There's been cases, but those are almost always inside jobs where they need
help positioning and/or locating the containers they want to loot.

These are just random ships at sea. No such advantage here. It's truly a
needle in a haystack problem.

If you want to steal the ship, a more practical plan would be to convince the
crew to abandon ship (bribes?) and then claim it as salvage.

------
grapehut
FWIW the person you're replying to represents everything that is bad about HN.
If you read his post history you'd be lead to believe he's an industry insider
in: Shipping, Irrigation, Crypto Currencies, Genetics, Nano Technology,
Manufacturing, Microkernels and a lot more if you keep going back.

There was a time I believed his posts, until I read one of his mini-essays on
a topic I happened to know about (cryptography) and it was painful obvious
that it was someone who spent 10 minutes googling the topic and took it upon
themselves to give a dangerously incorrect "authoritative" lay of the land.
Since then I've tagged those people as "faux experts". I don't blame him, I
did the same thing for high-school essays, albeit with a more jilted writing
style. Just be careful who and what you believe

~~~
Animats
I think he's annoyed because I criticized the poor auditability of Bitcoin.
Yes, you can tell if someone received Bitcoins at some address. What you can't
tell is whether they still have exclusive control of them. If someone else has
a copy of the private key, the coins can disappear at any time. This happens
in practice all too often.

(Yeah, multi-sig, etc.. Not that it helped Bitfinex.)

~~~
grapehut
That wasn't what I was referring to, and although I hold very little interest
in bitcoin, I do know enough that "[...] you can't count it without access to
the keys that let you spend it." is fundamentally wrong. However, I'm glad you
have since refined your stance to something more tenable, but anyway, let's
not get too off topic.

As I know absolutely nothing about the shipping industry or Hanjin, what is
your background or interest in it?

~~~
notyourwork
I appreciate your first comment calling out that people should check sources
on their own and verify claims made in discussions. I do not feel that you and
Animats are adding value by furthering the discussion here.

------
squozzer
Huh. For some reason I thought cargoes had bonds that would allow them to make
port and unload.

OTOH, some enterprising sailors could make some money relieving stranded ships
of their contents.

~~~
nickff
These ships would be incredibly expensive and slow to unload at sea. Container
shipping is very dependent on dock-side infrastructure.

One of the reasons why shipping switched to containers (and away from break-
bulk) is precisely because it is difficult to steal from containers.

~~~
sandworm101
Expensive, slow and dangerous. Not all containers will be accessible at sea.
Getting to some of them may require removal of cables used to steady tall
stacks. And unloading any containers haphazardly risks unbalancing the ship.

------
wehadfun
Could they just have an "accident" and get insurance money?

~~~
simonh
I'm sure the insurance companies would be fine with that......

------
erikpukinskis
This seems like a really good sign. We can only hope global shipping continues
to shrink until we can get down to a level of consumer purchasing that is
sustainable for the ecology of the planet.

~~~
the_watcher
So your solution to sustainability is for everyone to just accept a lower
quality of life? Yea, good luck with that.

~~~
icantdrive55
I'll get hammered for this, and I know it would take some time to tool up, but
were the 50's through the 70,s that much of a lower quality of life? (Relied a
lot less on overseas shipping--for a few reasons.)

Oh, yea, we would have to get used to paying more for some things, get used to
paying Americans a decent wage, get used not being able to manufacture in the
cheapest countries, get used to the poor having better opportunities to join
the middle class, and probally a lot of more get's.

And yes--I know--our reliance on manufacturing in the cheapest country helps
those poor people live better lives. Those people at Foxcon, and other
Chinese/whatever countries workers seem like they are treated so well. These
foreign countries care so much about the enviorment. Some of these countries
have become so rich they built up their military--like China. Some foreign
enterprising individuals become rich, and buy American houses, even though
they don't live here. That last one is great.

At one time, we got along fine without the cheap goods from other countries--
with the exception of one commodity--oil. Oh yea, the cheap cost of goods at
Apple don't seem to be passed on to consumers?

~~~
hx87
> but were the 50's through the 70,s that much of a lower quality of life

For the vast majority of the people who don't live in the USA or Europe, life
was certainly much worse back then. Foxconn might not be the best place in the
world to work, but it beats the hell out of living in a small town under a
Maoist government.

> even though they don't live here

We could have made a crapload of money off their insecurity by taxing non-
occupied housing, perhaps even building ghost cities/property tax farms from
scratch. We could have used the revenue on infrastructure or social services.
But no, we didn't have the political will to do that.

------
gbin
What about this idea of a business plan ? buy 5 of those ships very cheap, get
rid of/deliver the goods, merge them in international waters nearby San
Francisco, make a top notch/self sustaining mix of offices and Corp housing on
top of them. Anybody could work there waiting for their H1B or just simply
contracting or bootstrapping their companies.

~~~
fennecfoxen
You know what would probably be both cheaper (in terms of capex and opex) and
also more convenient than welding a few old cargo boats together? Building
this office park on land, in Gilroy. There's a train line down there and
everything - bet it'd be cheaper to bribe Caltrain to beef up the service than
to set up transportation to the open ocean.

