The recent failure of Hanjin Shipping, one of the world’s largest movers of shipping containers, is having some dire consequences. In recent years, the Korean company has shipped somewhere in the neighborhood of 100 million tons of cargo every year. Unfortunately for the once strong Hanjin Shipping, however, several international elements have formed a maelstrom of trouble for the container shipping industry. Its creditors abandoning it and its government refusing to help, the dissolution of Hanjin Shipping looks to be imminent. And that just might spell a big problem for international trade and the global economy.
1. The Entire World Has Conspired to Kill Hanjin Shipping
There a variety of smaller reasons that Hanjin Shipping is currently being taken apart piece by piece. The world is moving away from container shipping, for example. There’s too much inventory in US stores to really merit a lot of need for it. That excess inventory, however, is indicative of a larger, objectively scarier reason for the failure of Hanjin Shipping, and that’s the weakened Global GDP. According to the International Monetary Fund, the world’s economy is in real danger of stalling if the economy’s growth doesn’t pick up.
2. Hanjin Shipping Has Been in Trouble For a Long While
In April, Hanjin Shipping attempted to get its creditors to restructure its debt on the promise that they’d immediately undergo a financial overhaul designed to make the company profitable again. In June, Hanjin Shipping received a warning from its creditors. The banks supporting the company claimed that even after it’s multi-million dollar bailout, Hanjin Shipping was still in need of 1 trillion won (or about $900 million dollars) in order to get right again. What’s more, the company apparently made little effort to restructure.
3. Banks and a Country Tanked Hanjin Shipping
On August 30, Hanjin Shipping’s creditors — of which the state-run Korean Development Bank was the primary lender — all pulled their commitment to the shipping company. According to those lenders, Hanjin Shipping was more than 6 trillion won (or $5.4 billion) in debt. Even if the company went forward with its liquidation plan to sell off more than $500 million won ($450,000 ish) in company assets, they’d still be close to $900 billion US away from meeting their loan requirements. In other words, Hanjin dug itself into a hole from which it will be impossible to emerge.
4. A Gaping Lack of 1080p Resolution
As soon as the shipping firm announced its end, people immediately began to seize vessels belonging to the defunct company. In China, Hanjin Shipping vessels were taken, their cargo stranded in a foreign port. Among the big names who relied on the South Korean company for cargo shipping was electronics giant LG, which has seen several of its shipments fail to get to their ports on time. This is just one of the companies that previously relied on Hanjin to get their goods where they’re going. The new quest to find a solution to this shipping problem means a temporary lull (at best) in the world’s cargo delivery dates.
5. A Prolonged Incident
Unfortunately, it’s not simply a matter of Hanjin Shipping’s competitors simply stepping in and taking over. The collapse of Hanjin Shipping has incited a ripple of disquiet among the companies that rely on these kinds of shipping firms to keep their own international businesses in tact. “This will have an impact on the entire industry,” said Cho Kyung-kyu, a director at The Korea International Freight Forwarders Association. The debacle could take two to three months to sort out; along the way, millions of pounds of cargo could be delayed.
6. Hanjin Cannot Do Business In a Lot of Big Places
In Busan (SK’s main port), as well as ports in the United States, China, Canada, and Spain, to name a few, Hanjin Shipping vessels have actually been refused entry. In other places, vessels have been refused the right to depart. Other cargo is sitting on docks, unable to move while the company crumbles. This has caused a huge inconvenience for other shipping companies who are unable to move their own cargo onto docks occupied by frozen Janjin Shipping content.
7. Retailers and Manufacturers Across the Globe Can’t Get Their Goods
In some instances, as in the case of a stranded Hanjin vessel anchored, but unloaded, in a Canadian harbor, Canadian importers and exporters have seen their own businesses stalled because their goods can’t get delivered as they were promised. With Hanjin Shipping executives telling their creditors not to even ask about having their debts paid back, those retailers who used the company have become unable to get the items they’ve already paid for.
8. The First Sign of a Weakening Global Economy
The failure of Hanjin Shipping has caused tremors of uncertainty throughout the shipping industry. One Australian firm, ANL, said Hanjin’s collapse, “gives a very bad indication of the state of the shipping industry.” In other words, the resulting chaos from Hanjin’s failure may cause a rift of distrust between manufacturers and shippers, which could result in higher prices at retail outlets.
9. Hanjin Attempts to Protect Its Merchandise
As of September 5, Hanjin had seen 79 of its ships denied port access and one has been taken by a creditor. According to Forbes, “Hanjin vessels are currently carrying cargo worth 16 trillion won ($14.5 billion) belonging to some 8,300 cargo owners.” The company has also sought legal protection in about 10 countries in the hopes of protecting its ships. Whether this will help stymie the impending global trade disruptions or only enhance them remains to be seen.
10. An Industry in Flux
According to experts, the troubles with Hanjin are only the first in potential worldwide reorganization of the shipping industry. Said Espen L. Fjermestad, an analyst at Fearnley Securities AS in Oslo, “We have been seeing some reorganization in the container industry and hopefully it can lead to fewer container lines with healthier balance sheets. It could be healthy for the industry as a lot of companies have been stimulated with outside money for a long time to still exist despite heavy losses.”