Hanjin collapse sets alarm bells ringing

The high profile collapse of South Korea’s Hanjin Shipping is one of those rare shipping industry stories, other than disasters, that is deemed important enough to be reported far more widely than in maritime trade journals. That prominence is fully justified by the wider implications of the company’s problems that has brought the ongoing dire conditions in the container market, and the possible long-term impact, to a much wider audience, most of whom are recipients of goods carried in containers.

In late August Hanjin’s creditors withdrew their support and the company was forced to file for receivership. This followed several years of losses as the container market continued its slump due to a deadly combination of overcapacity and lacklustre demand. Efforts are being made for some form of rescue plan that would involve a big reduction in the size of its fleet, but if this is unsuccessful the outcome is likely to be liquidation.

Hanjin operated a fleet of 98 container ships, including 39 owned ships, and had a global market share of almost 3 per cent. The knock-on effects are likely to be long-lasting. The impact of Hanjin’s impending bankruptcy is expected to hit all sectors of the supply chain, spanning shipowners, ports, container lessors, shippers, freight forwarders and others.

South Korea’s Financial Services Commission said another South Korean container ship operator Hyundai Merchant Marine (HMM) may consider taking over some of Hanjin Shipping’s assets, including vessels, network and staff. But HMM has also recently secured financial restucturing and is now owned by its creditors, with state-owned Korea Development Bank becoming the biggest shareholder.

Hanjin’s plight rang alarm bells indicating the container shipping industry is in deep trouble and major structural changes are needed. It has been described as shipping’s Lehman Brothers moment. Most likely it will lead to the long-awaited consolidation among container ship operators that had been resisted for too long. In fact, moves in that direction by some leading operators had already started before Hanjin’s demise demonstrated the urgency of making changes.

Singapore-based Neptune Orient Lines, operating as APL, had already agreed to be acquired by French operator CMA CGM last year, having incurred significant losses and realised the impossibility of making the necessary investments to keep up with global rivals. Middle East carrier United Arab Shipping Co is to merge with Germany’s Hapag-Lloyd. The two Chinese giants, Cosco and China Shipping Group, have also merged.

The tectonic plates are finally moving. The resulting tremors are unlikely to be the end of such consolidation as container ship operators of all sizes struggle to cope with mounting losses. Some companies are better able to survive the downturn than others, particularly those that are part of large diversified groups. Medium-sized operators could be particularly vulnerable. Container ship charter owners are feeling the effects of charter rates that barely, if at all, cover vessel operating costs. They will not be helped by Hanjin redelivering its chartered tonnage.

Of course, whatever corporate ownership juggling takes place the ships are still there, at least in the short-term, despite increased scrapping. Keeping these balls in the air will continue to prove a mighty challenge for whoever is in control. There is no sign of any imminent market recovery, so there will be more pain to come. Further realignments and consolidation, along with possible company failures to follow Hanjin, are almost certain. There could be more stories in the wider media about this beleaguered market.

Mon 19 Sep 2016 by Steve Matthews
Editorial Director
Riviera Maritime Media Ltd

2016-09-22T10:01:09+00:00 September 22nd, 2016|Industry News|