Global Supply Chains Paralyzed After World's 7th Largest Container Shipper Files Bankruptcy, Assets Frozen

Tyler Durden's picture

After years of relentless decline in the Baltic Dry index...

 

... today the largest casualty finally emerged on Wednesday when South Korea's Hanjin Shipping, the country's largest shipping firm and the world's seventh-biggest container carrier, filed for court receivership after losing the support of its banks, leaving its assets frozen as ports from China to Spain denied access to its vessels.


For those unfamiliar with the company, here is a brief overview from its website:

Hanjin Shipping is Korea's largest and one of the world’s top ten container carriers that operates some 70 liner and tramper services around the globe transporting over 100 million tons of cargo annually. Its fleet consists of some 150 containerships and bulk carriers.

 

 

With 4 regional headquarters in the U.S., Europe, Asia and South East & West Asia, approximately 5,000 global staffs as well as container terminals in world’s major ports contribute to Hanjin Shipping’s world-class logistics network around the world.

As Reuters reports, banks led by state-run Korea Development Bank withdrew backing for the world's seventh-largest container carrier on Tuesday, saying a funding plan by its parent group was inadequate to tackle debt that stood at 5.6 trillion won ($5 billion) at the end of 2015.

Suk Tai-soo, president and chief executive officer of Hanjin Shipping Co, arrives
at a court in Seoul, South Korea, August 31, 2016.

South Korea's biggest shipping firm, announced the filing for receivership and a request to the court to freeze its assets, which the Seoul Central District Court planned to grant, a judge told Reuters.

As part of the company's insolvency process, the court will now decide whether Hanjin Shipping should remain as a going concern or be dissolved, a process that usually takes one or two months but is expected to be accelerated in Hanjin's case, the judge said. A bankruptcy for Hanjin Shipping would be the largest ever for a container shipper in terms of capacity, according to consultancy Alphaliner, exceeding the 1986 collapse of United States Lines.

Coming as no surprise to anyone who has followed the persistent decline in worldside trade, global shipping firms have been swamped by overcapacity and sluggish demand, with Hanjin booking a net loss of 473 billion won in the first half of the year. 

South Korea's ailing shipbuilders and shipping firms, which for decades were engines of its export-driven economy, are in the midst of a wrenching restructuring. According to Reuters, KDB's decision to stop backing Hanjin Shipping shows the government is taking a tougher stance with troubled corporate groups.

The fallout from the country's unprecedented bankruptcy invoked a statement from South Korea's Finance Minister Yoo Il-ho, who said that "the government will swiftly push forth corporate restructuring following the rule that companies must figure out how to survive and find competitiveness on their own while taking responsibility."

To be sure, this decision is a fresh breath of air in a world in which mega-corprations across the globe have become "too big to fail" by default, and in many cases anticipate a government bail-out.

According to South Korea's Financial Services Commission, Hyundai Merchant Marine, the country's second-largest shipping line, will look to acquire its rival's healthy assets, including profit-making vessels, overseas business networks and key personnel,  A Hyundai Merchant Marine spokesman told Reuters nothing had been decided about the potential acquisition of Hanjin assets and that the firm will hold talks with KDB. Hyundai Merchant Marine is also in the process of a voluntary debt restructuring.

The question now is whether as a result of the bankruptcy process there will be an unexpected failure in the global supply-chain: South Korea's oceans ministry estimates a two- to three-month delay in the shipping of some Korean goods that were to be transported by Hanjin Shipping, and plans to announce in September cargo-handling measures which could include Hyundai Merchant Marine taking over some routes, a ministry spokesman said on Wednesday.

Making matters worse, Reuters adds that KDB's move to pull the plug was already having an impact on Hanjin's operations, with the company's various shipping assets already frozen. Ports including those in Shanghai and Xiamen in China, Valencia, Spain, and Savannah in the U.S. state of Georgia had blocked access to Hanjin ships on concerns they would not be able to pay fees, a company spokeswoman told Reuters.

Another vessel, the Hanjin Rome, was seized in Singapore late on Monday by a creditor, according to court information. "Now Hanjin must do everything it can to protect its clients' cargoes and make sure they are not delayed to their destination, by filing injunctions to block seizures in all the countries where its ships are located," said Bongiee Joh, managing director of the Korea Shipowners' Association.

Finally, while jarring Hanjin's bankrtupcy was inevitable: shipping industry economics have deteriorated. Charter rates for medium-sized container ships have dropped from around $26,000 a day in 2010 to $13,000 per day now.  Container rates from Shanghai to the U.S west coast have more than halved since then, from around $2,000 per 40-foot container in January 2010 to $596 per 40-foot box last week, data from the Shanghai Shipping Exchange shows.

Shares in Hanjin Shipping have been suspended after plunging 24% on Tuesday.

The global implications from the bankruptcy are unknown: if, as expected, the company's ships remain "frozen" and inaccessible for weeks if not months, the impact on global supply chains will be devastating, potentially resulting in a cascading waterfall effect, whose impact on global economies could be severe as a result of the worldwide logistics chaos. The good news is that both economists and corporations around the globe, both those impacted and others, will now have yet another excuse on which to blame the "unexpected" slowdown in both profits and economic growth in the third quarter.

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NotApplicable's picture

Wait a minute... a state-owned bank wouldn't extend credit????

They should make a deal with Japan, as I'm sure Kuroda and Abe would be happy to find another outlet for their printing presses gone wild.

Just think of the fun that would ensue with that relationship...

knukles's picture

Now I'm never gonna get my Korean banana hanger or pectoral implants with matching 6 individual saline pack inserts.

Oh Rennnnn... What am I gonna do?  Bawwwwwwllllllllllll

Deathrips's picture

They are killing private industry and production to isolate their serfs.

 

Best not to be dependent on them when you can aviod it.

 

RIPS

Gold...Bitches's picture

This must be what the FED meant when they keep saying that everything is great and we are ready for a rate rise in Sept and Dec again per Fischers comments

Robert Trip's picture

Fischer is a money changer.

Pay him no heed.

He does not have our best interests at heart.

 

Son of Loki's picture

 

"No one saw this coming!"

 

We don't need moar stuff to clutter the aisles anyway. The only thing selling at my local sporting goods stores are ammo and guns anyway. Maybe a crossbow or two now and then. Cheaper Clothes are the LAST thing anyone needs moar of.

jeff montanye's picture

i could be wrong but i think the thread on the dhs taking over the election is being attacked now. see below.

http://www.zerohedge.com/news/2016-08-31/obama-planning-seize-control-st...

particularly note the audio snippets.

jeff montanye's picture

this is ongoing.  doesn't give a good vibe to a fight club.  

tyler?

 

CheapBastard's picture

Every second college kid I meet these days says he's/she's majoring in "Supply Chain" whatever that is.

Looks like they'll be looking for Soweto's shovel ready jobs along side the hundreds of thousands of energy sector jobless folks Barry put out of work. Oh yeah, these applicants better be able to speak espanol cause there's lots of competition from the wide open borders also.

Doom Porn Star's picture

"Every second college kid I meet these days says he's/she's majoring in "Supply Chain" whatever that is. "

 

ALL aspire to be managers, clipboard holders, interview conductors, and form filers.

Translation: I'm paying for acreditation so I can be a bureaucrat or middleman and don't actually have to 'work' to get paid.

jerry_theking_lawler's picture

Socialism...aka government work....is coming full-bore to the USsA soon. Why? Because the kids want it..bad. They just want a new phone and food to eat and to be able to play on social media all day. Most do not want to succeed at all....just live and the .gov will provide this to them....for awhile anyways.

jeff montanye's picture

so i assume trump.  

what? food to eat?

trump 2016

SokPOTUS's picture

Supply Chain....used to be 'Logistics'. Sort of like Human Resources used to be Personnel.

In either case, it's where the C/D grade business students end up when they are too socially inept to be in Sales, too dumb to be in Accounting, and not ambitious enough to do post-graduate work to get into Management.

new game's picture

this supply chain started with central banks QE and the resultant oversupply of xyz. oil patch coming soon.

thank the mutherf's at the top of the money pyramid for this casualty. china? lol,haha, every fucking industry running on qe fumes.

crash this muther fucker

lol. scrap metal. lol- send it to china to be melt and made into a container ship-stimulas, baby stimulate it(baby)...

847328_3527's picture

I'm glad all of you expalined what he said. I thought for a second it was a variant of the "Daisy Chain" type of thing that's common in places like LA.

 

HenryKissingerChurchill's picture

it is "the managerial revolution"

piliage's picture

the "unexpected" slowdown

The Baltic Dry Goods Index has been at its lowest levels since the dot com bubble, and the slowdown is unexpected? Market Analysts are the most useless assholes on the planet.

RAT005's picture

I knew before ZH.  This morning we got a message that our first couple pallets we have spent more than 1 year preparing won't be loaded and shipped tomorrow :-(

gonetogalt's picture

I'm very sorry to hear that.

There will be a lot of tears as this thing progress.

Best of luck...

RAT005's picture

In the theme of "and now it's gone....."  Friday evening our Chinese partners were in a race to load the pallets for Wednesday midnight loading deadline on the ship.  USA law requires 48 hrs notice prior to the ship leaving of your cargo destination to USA.  I couldn't get the Chinese logistics crew to answer my last 2 questions to finish the 48hr notice form and was really worried what kind of trouble they were going to get me in.  Then Monday morning Chinese time I got my 2 answers, and the Seattle import middleman started shortly after that Monday morning USA time.  The good new was that while midnight Wednesday (China time) was the loading deadline, the ship was not actually scheduled to leave the wall until 10am Thursday China time (8pm Wednesday USA) so there was comfortably a little more than 48 hrs available to file the USA form.

As of Tuesday night, there were no problems, nobody knew anything. Wednesday morning we got messages of Hanjin stopping all operations and the shipment will have to be rescheduled some how.

The day before it happened, nobody in the auxillary shipping business that works with Hanjin everyday, knew what was happening.  That is how fast, with no notice, these black swan things can happen.  Don't think you can manage your exit when they come for you.....

Librarian's picture

Hyundai Merchant Marine shipping has also been running on financial fumes.
They were hoping that they could pull off a merger with Maersk before the "sheeba" hits the fan.
I dodged a bullet in 2008 when a former colleague was pressuring me to join him in buying a position in the Baltic dry index. Since then he's had to sell all his recreational toys and started working part time again. He doesn't stop by anymore. It's probably just as well.

wildbad's picture

yeah, shippiung sucks but the industry was way overbought and ripe fpr consolidation.  cheap inventory for the top 6 competitors.

ship building is crashing too.

these ships will be cheap to buy.  not the black swan yet though

rosiescenario's picture

Bankers with loans to other shipping companies may need to mark to market some of their collateral.....

Winston Churchill's picture

Most people don't know that the containers themselves are securities, owned by dark

pools of shadow banking capital.Totally separate from the ships,and shipping lines.

Its so murky, it makes the RMBS scam look transparent.

SokPOTUS's picture

Soon, they'll all be repurposed as single family dwellings and saddled with 50-year mortgages that will be sliced, diced and the resulting vomit will be sold to yield starved pension plans as Triple-A rated bond tranches.

CuttingEdge's picture

What do you mean "soon"?

They are way ahead of you.

PTR's picture

It would suck if any of those boats had people being smuggled on them.

 

deimos178's picture

we just rented a small container for storage for about a month. It hit 94 for a most of the month and the first time I went into the box that's what I thought. It would really suck sitting in one with a bucket to crap in and eat at the other end. The smell must be enough to gag a maggot.

Librarian's picture

Time now to go long kimchi chutney?

Slomotrainwreck's picture

What am I gonna do?

I WANT MY MAYPO!

Bush Baby's picture

Coming up - name change to Korean National Shipping Lines

Scuba Steve's picture

Exactly.

And if that is the end game around the globe and the Rothschilds has last say ... you gotta believe that some of these bigger fish meg-million-billionaires that are on the outside looking in, are not just goingto sit idle and not fund the hit squad.

I see bad things happening from all corners of the earth, from all dregs of society if the trajectory keeps going.

HowdyDoody's picture

A loss of 473 billion won? How much is that in real fiat?

Mentaliusanything's picture

divide x a C@#T that has a bad hairdresser

SokPOTUS's picture

Hard to say. Even Monopoly Money drew the line at the $500 denomination...

fockewulf190's picture

No wonder the billionaires are buying up land in Idaho and New Zealand.  The Zombie pandemic is spreading, and they want the bunker life once the hoads get a taste for rich brains.

Son of Loki's picture

Gangham style!

 

Whoop ... Whoopping up some bankruptcies ......

 

Gangham style!

Infocat's picture

DOW 30Miliion!!! Soon!!! get ready for the new BULL!!! http://www.truthjustice.net/

shamus001's picture

There will be no scary implications, the crash in the index is the root cause of the bankruptcy. THERE IS NO DEMAND, thus no profit, and too much infrastructure. The dissapearance of this line will be nearly unnoticed....jusy that fewer ships cloggung up the port of shanghai with no work.

Scrap the ships for the steel, it will be 40 years, post ww before the REAL econimy picks up again. We must desyroy buildings dont you know, then rebuild them, its the FIAT way!

847328_3527's picture

This will backup like a plugged sewer system and cause havoc at the source. Lots moar pain coming soon for these $1/hour employees in Asia as well as for their nations when a few hundred million are layed off.