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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JRobby's picture

Well, large cap heaven anyway? Or is everything already too over valued already that the slow collapse of competitors and the big getting bigger is already "priced in"????

As the slow decline marches forward the big will get bigger and bigger. All by design.

gonetogalt's picture

In other news, Iron Planet was just acquired by Richie Bros.

2nd biggest used equip dealer in the US.

Mentaliusanything's picture

Richie bros need buyers to you know. They are very scarce at auctions these days

Overfed's picture

I don't know about that. Last RB auction I went to, late this July last, broken inoperable grey market mini excavators were going for $5500 to $10K.

stocks up everything else down's picture

somebody is peddling fiction, no way a company can go out of business, the e"con"omy is just to good.

SomethingSomethingDarkSide's picture

Bullish!  Fucking BUY!

ObamasYoYo's picture

who need product shipped? you in US have new economy, no need for actual product.  just made up numbers and politic lies to keep youselves alive.  we no ship you no more stuff.  bank and government give all you need. 

Hanjin

SomethingSomethingDarkSide's picture

This is starting to make entirely too much sense

JuliaS's picture

Doesn't take much effort to ship an empty promise.

fockewulf190's picture

"We no ship you no more stuff."

Looks like Trump wants to build things again back in North America according to his Mexico speech.  Your wish may come true soon enough.

crossroaddemon's picture

Even if he's sincere and that is a big if, it won't employ American laborers. Them factories is gonna be automated, baby. Only employees will be a handful of techs. Think about it... you try manufacturing consumer goods in a factory that pays the grunts enough to cover US living expenses and all you are doing is making shit no one can afford to buy. There's no way back from where we are.

StychoKiller's picture

Whoa, lucky thing I know how to build robots!

buzzsaw99's picture

don't worry about Suk Tai-soo, he got plenty.

MASTER OF UNIVERSE's picture

Welcome to the New World Disorder.

 

Would you like fries with that?

peddling-fiction's picture

Order out of chaos. All according to plan.

cheech_wizard's picture

http://www.bbc.com/news/business-37235402

The Canadian government said gross domestic product (GDP) in the second quarter shrank by 1.6%, its largest loss since 2009.

Standard Disclaimer: Would you like poutine with that?

Mentaliusanything's picture

Quote "The Canadian economy slipped into recession late 2015 but has since MOSTLY recovered" unquote - See the ever Jubilant Press has it covered, it's all good. go about your business, nothing to see here, move along.

Look!!! over here.......

Countrybunkererd's picture

Once upon a time we used to pick on anyone who chooseed the same major (that we did) if they went to any colluddg other than that scool i wented toos.

basically any interaction with these other people would begin with them saying "you want fries with that?"

Now I think 90% who go to colluddg will be saying that, very soon, to everyone.

Scool just aint'nt what it used to be having at.

but i digress... what were we discussing?

 

Zeusky Babarusky's picture

Just one of the first dominos to fall in the many that will soon follow. The ship is going down! Pun intended.

redc1c4's picture

well, that's ONE way to drive up shipping rates...

not sure how well it's gonna w*rk though, long term.

SERReal1's picture

That must mean GDP will be revised UP!

espirit's picture

Just think of all those new home shipping container condos.

NAR is adjusting the stats pronto.

buzzsaw99's picture

park the whole damn container ship on the back 40 and live in that.

BarkingCat's picture

that's similar to what I was thinking.

Anchor it somewhere away from civilization.

Basically it could become a floating private island.

 

centerline's picture

Waterworld, here we come!

CuttingEdge's picture

Can't we have Dennis Hopper at least?

 

 

GeezerGeek's picture

Or turn the shipping containers into staterooms and convert to a cruise line.

J Jason Djfmam's picture

It would make one hell of a dive site.

ParkAveFlasher's picture

This article gave me the Jim Willies!

Winston Churchill's picture

Just in Time bitchez.

All those LoCs fpr the cargo's.The income streams on the container partnerships.

Black swan oriental cuisine.

ejmoosa's picture

Had they been in the top five, they would have been TBTF.

Peacefulwarrior's picture

Is this where the Banks begin to Collateralize Lama Dung to Instill confidence?

ParkAveFlasher's picture

Llama dung is quite rare in the dry Andes, bucko!

just the tip's picture

Ho Lee Fuk

sorry wrong country.

Ho Fuk Lee

Doom Porn Star's picture

Overcapacity eventually results in debt load failures, bankruptcies, and consolidations.

 

This will also bankrupt inporters/exporters, banks, dock and rail/trucking/transp., wholesalers and retailers, etc..

The ports probably cannot send the ships back out to sea; -so the loading docks are essentially filled with vehicles that have been 'booted'.   -No one else can come into the loading dock until the 'boots' are legally removed and the vehicles towed or driven away to a proper impound..

Force Majeur.   You're goods are trapped on the boats so you can't sell and unwind your bills or stock the shelves....

researchfix's picture

Buy computer parts now. Be double price next week.

Dragon HAwk's picture

FOB or stuck on Board.. be careful with that letter of credit.

greenskeeper carl's picture

I don't see why. There may be some stuck on board those ships, so there might be some short term delays, but as long as the computer parts are being made, shipping won't be disrupted for long. There is an overcapacity for shipping, which means there are plenty of ships sitting around ready to pick up the slack.

rosiescenario's picture

Based on today's market action, obviosly DB is not affected by any of this.....

LadiesLoveCoolJames's picture

Bullish! Dirt cheap shipping means we can send the last scraps of our industrial base to the yellow man.

Peacefulwarrior's picture

You said "Dirt cheap shipping means we can send the last scraps of our industrial base to the yellow man. "

 

Doesn't OUR Present U.S. Industrial base consist predominantly of Bartendars? Now we're really fucked!

LadiesLoveCoolJames's picture

Never again will proud Americans need to sink low enough to assemble airplanes, cruise missiles or furniture. We will all be free to play Pokemon Go and jerk off to granny porn all day and night!

Peacefulwarrior's picture

So then we Go LONG Japanese Virtual Reality and Male Testosterone enhancement to keep up with this rate of Jerking off.. Got It

imbrbing's picture

Ruh Roh! Abandon ship!

researchfix's picture

Why that? The ship´s band is playing.