Global Shipping Effects of the Hanjin Bankruptcy
Hanjin Shipping, a South Korean company and the seventh largest container shipper in the world, filed for bankruptcy on Wednesday, August 31, 2016, which has prompted significant questions and confusion around the world as to how this will affect global shipping. The company represents almost 8% of trans-Pacific trade shipments for the United States market, and now they have stopped accepting new cargo. Filing for bankruptcy protection means that Hanjin’s assets have been frozen, and because of that, many ships around the world found themselves unable to transfer cargo, because it was uncertain whether tugboat pilots or stevedores could get paid.
So how will this affect the global shipping and trade markets?
1. Trucking companies may be seriously impacted by this announcement
Many workers and businesses, including trucking firms, railroad companies and port terminal operators, contract with Hanjin to transport and deliver cargo containers, and now they are in serious danger of not getting paid. For many trucking firms in particular, Hanjin has been their biggest client, so their suspension of operations could be enough to shutter the companies permanently.
2. Shipping prices have jumped — though it is likely temporary
Immediately following the announcement, the price to ship a 40-foot container from China to the US increased by up to 50% in one day. This includes both shipments to the East Coast and to the West Coast.
However, Nerijus Poskus, director of pricing and procurement for the freight forwarder and customs broker Flexport, predicts that this spike won’t last longer than one or two months. Plus, the Hanjin bankruptcy wasn’t the only factor in the jump; there was already an increase expected due to the upcoming Chinese National Day holiday and the closures that would entail. But as for the effect of Hanjin, Poskus says that since about 5% of global trading fleet sit idle, they are able to pick up much of the slack left behind by Hanjin shipping. In fact, carriers are already talking about adding more ships to their fleets, which will certainly lower the price of shipments.
3. The price of retailer goods may rise, which could affect the holiday season
The recent decision of a US judge has allowed Hanjin to be included in US bankruptcy protection, meaning that ships are able to dock stateside without their assets being seized. However, many consumer goods that were destined for retailers may never actually make it to stores. This is because of the issues discussed earlier surrounding land transportation companies like truckers and railroaders, who don’t want to transport these goods without the guarantee that they will get paid. For this reason, supply is likely to decrease, which could lead to increased prices of goods in stores. Since September is a crucial shipping month for retailers preparing for the holiday season, this does have the potential to have a ripple effect. But retailers are pulling out all the stops to ensure they don’t have empty shelves come November and December.
What is the larger picture here?
While the announcement surrounding the Hanjin bankruptcy is certainly huge for global markets, there is something else at play here: the biggest issue plaguing the global shipping industry right now is actually overcapacity. There are an increasing number of ships, with still larger vessels being ordered, despite a low demand for goods that need transporting.
This phenomenon is being caused in part by optimistic trade forecasts that were made towards the end of the recession, which did not take China’s recent economic slump into account. In addition, the recent expansion of the Panama Canal has led companies to build larger, newer ships.
But now, hundreds of these ships sit empty and idle. Interestingly, it is this larger issue of overcapacity which is plaguing the shipping industry — it is now softening the blow of the Hanjin bankruptcy by taking over some of the trade routes and shipments where the South Korean giant has left a vacuum.
So while there may be short-term fluctuations in prices of shipping and retail goods — potentially impacting the holiday shopping season — this bankruptcy doesn’t actually signal huge, lasting changes in the long run. And, perhaps more importantly, it doesn’t get at the real issue in today’s shipping industry, which is overcapacity.
If your cargo is stuck due to the Hanjin Shipping Bankruptcy, send us an email or give us a call, and we will help you get it moving again. 800-653-8267.