N e w s A na l y s i s
Riding the shock waves
It’s being called the shipping industry’s Lehman Brothers moment and has sent shock waves across the manufacturing and shipping industries. Logistics News ME examines the facts around the bankruptcy of Hanjin Shipping Co.
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t was called the Lehman Brothers moment of the shipping world by Seaspan CEO Gerry Wang and the “tip of the iceberg for flailing shippers” by the LA Times. Quoting Alphaliner, the Financial Times concluded that in terms of the container numbers involved, Hanjin’s bankruptcy is more than six times larger than any previous shipping collapse. Firms around the world have felt the fall-out from the news that Hanjin Shipping Co – the world’s seventh largest container carrier – filed for bankruptcy protection on 31 August, triggering a domino effect throughout the global supply chain and leaving major manufacturers in chaos as they scramble to find alternative carriers ahead of the retail industry’s busiest season. Recent events aren’t a complete shock. Hanjin’s Q1 financial results reflected the strain of global factors such as falling freight rates and low demand for iron ore and coal, to produce an operating loss of $97m and a net loss of $221m; on which disposal of old vessels, interest expense and foreign currency translation loss/gain are reflected. Over H1, total sales reached $1.3bn with the container division recording sales of $1.23bn and an operating loss of $74m. The bulk division recorded total sales of $78m and an operating loss of $30m. In a statement the company explained Hanjin Shipping’s operating profit for the container division
14 | Logistics News ME | October 2016
You’re talking about $120bn of goods on those ships that are stuck before delivery to major retailers. There is a material impact to the supply chain and people are suffering from the consequences of this decreased as to the decline of total sales caused by a record breaking low level of freight and increased gap between the supply and demand within the market. Its bulk business also suffered from its lowest ever freight level triggered by low iron ore and coal demand during the first quarter. But while for some these may be extenuating circumstances, driven by external factors and beyond the control or foresight of even the most experienced business leaders, for others it is the outcome of irresponsible business practices. The company spent too much during the latest boom time and failed to prepare for a drop in demand for shipping certain goods. Speaking to Bloomberg last month, Wang said: “The industry has been money losing for some time. In the long term it is not sustainable. The fallout from Hanjin Shipping is a huge nuclear
bomb that shakes up the supply chain. You’re talking about $120bn of goods on those ships that are stuck before delivery to major retailers. There is a material impact to the supply chain and people are suffering from the consequences of this.” However, when asked if recent events are merely the inevitable consequence of how the shipping industry is set up, he responded that in fact this is a process of “self-adjustment”. With specific reference to the three ships Seaspan has on lease to Hanjin, he added: “You deal with cycles. We lease those ships on a long term basis to ride over the waves until hopefully we get stability in the core process. That’s our business model. The whole supply chain has been shaken up. Over the long term we don’t know what will happen. Freight rates have doubled in Asia to North America and to Europe they are up 30 – 40%.” Immediate fallout As manufactures find alternate ways to transport their goods, Hanjin’s competitors are enjoying a boost to business. Maersk has opened a new trans-Pacific route to absorb the demand and Hyundai Merchant Marine Co., South Korea’s second-largest container line, plans to deploy 13 more vessels to the U.S. and Europe to help ease cargo disruptions. China Cosco, CMA CGM, and others were offering additional capacity for trans-Pacific importers, but the Journal of Commerce reported Hong Kong to LA spot rates spiked 40% mid-