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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E.F. Mutton's picture

Dude, like who needs ships when Amazon delivers in two days?

Son of Loki's picture

Two days? You must be out in the boonies:

 

https://www.amazon.com/b?node=8729023011

 

Same-day deliveries for many cities now.

E.F. Mutton's picture

I am in the boonies.  FedEx had to call to for directions when I first moved here.  I like it that way.

Kprime's picture

they'll just replace the ships with drones, trans Atlantic drones.

buzzsaw99's picture

I felt a great disturbance in the Force, as if millions of Samsungs cried out in terror and were suddenly silenced.

espirit's picture

That is actually quite good. +1

Baby Eating Dingo22's picture

They should have placed better bids on the growing fiat delivery business

Barnaby's picture

Better buy your memory and SSDs while they're still affordable. Methinks this might cramp some styles, especially if new tech is being embargoed...

IS BE's picture

Laugh clowns.

blown income's picture

Cost me 265 bucks to have a small truck shipped from San Antonio to lake Charles 

 

Did I get ripped cause according to those global rates should cost me like 3 bucks

Vendrell's picture

road trucking has an entirely different cost structure and spot rate system and does not scale anywhere close to the way ocean container shipping does. 

Countrybunkererd's picture

start with costs where the truck gets 6.5 mpg if you get the right truck pre-reg's grandfathered in, likely 5 mpg.

so a hundred mile trip (one way) uses 20 gallons of fuel.

anything outside of that (they say) has a 150,000-200,000+ dollar price tag

RawPawg's picture

holla when any in the top 3 file for B'ruptcy

until then..Keep Stacking

might wanna check pantry for refill though

ShrNfr's picture

In other news, it is reported that one of their vessels may have sunk after a catastrophic chain reaction of glass Kimchi bottles exploded in its hold.

Grimaldus's picture

Kimchi is nasty stuff. Throw some out in the back yard and watch. No animal on the planet will eat it. True.

Makes ya wonder about Koreans.

 

 

 

 

 

 

Grimaldus

Falconsixone's picture

I bet they dont ship weapons.

Kirk2NCC1701's picture

For every 'Bankrupt seller', there is a "Gleeful Buyer", licking his chops at the Seller's self-inflicted or externally-inflicted misfortune.

Alternatively, given how Bankruptcy law works these days (at least in the US), it IS a great way to get rid of reckless Debt, stick it to the previous Lenders and start all over.

MCDirtMigger's picture

If you are dumb enough to loan them money, you deserve to get humped doggies style.

Cloud9.5's picture

Your pension fund may have bought that debt.

tarabel's picture

 

 

I hope everybody's pension fund bought that debt.

This won't even begin to end until the self-satisfied members of the I-Got-Mine tribe discover that somebody else got it out from under their asses.

Peacefulwarrior's picture

+1 BUT You Forgot "While Sticking the Cattle Prod to the Common Shareholder"

MCDirtMigger's picture

Dey rack disciprine.

buzzsaw99's picture

nuh uh, i don't rack disciprine.

Overflow-admin's picture

Not Too Big To Fail.

TOO BIG TO SAIL.

Too big to bail.

the.ghost.of.22wmr's picture
the.ghost.of.22wmr (not verified) Aug 31, 2016 3:01 PM

More green shoots!

agNau's picture

Why stop at a quarter, why not a full point Janet?

Chicken, McFly?

TheABaum's picture

We need more stimulus. Maybe we can pay the ships to transport nothing or move things back and forth. I think Krugman would approve of back and forth.

ZeroPoint's picture

Port fees = rentier B.S.

bluskyes's picture

"collateral chain", "counter-party risk"

fatlibertarian's picture

It'll be somewhat comical, as the real world deteriorates while stocks remain high because central banks won't let them fall.

Jethro's picture

I see we share a similar sense of humor.

Cloud9.5's picture

Think about it, Zimbabwe had the best performing stock market in the world.  Put a dollar in in 2007 get fifty trillion back in 2008.

83_vf_1100_c's picture

  I guess I will be sitting on my scrap steel another few months, decades.

  They need better management. A few $mil to the Clinton Foundation could have won them many lucrative contracts hauling opium from Afghanistan and coke/meth from S. America. It might have carried them thro this temporary downturn in the world economy, hold out til hillary gets in and she will fix it. /s X2

MASTER OF UNIVERSE's picture

A rising tide floats all boats, eh?

sudzee's picture

I'm getting a whiff of Chinese blowback on decision to deploy US missle shield. 

Conax's picture

They can always sell the ships to the Chinese.

Fill the 150 container ships with gravel, sink them in the shallows and you have the foundation of yet another piece of sovereign territory for a new airbase.

Ah, so.

 

U4 eee aaa's picture

or just call them floating condos. They'll sell sight unseen

elmo jones's picture

ZH is Buying HANJIN bitches. Get your lawyers to put the paper together. I can get it cheap

Uranium Mountain's picture

They're just trying to figure out exactly which one of those cargo ships are transporting the big smuggled Gold shipments. Stop them all and start searching.  The first thief wins!

shovelhead's picture

Bank says:

Suk Mi Dik

steelhead23's picture

Once had an aquaintance who made a boatload buying distressed utility stocks.  His basic view of the risk was that no one in their right mind would liquidate an electrical utility - it would be restructured.  Given his success, my bet would be that Hanjin will be restructured - more owned by the big financiers than its prior investors.  They'd only scrap the boats if it made sense to Hanjin - the glut in carriage would continue.

robertocarlos's picture

Why would a state run bank pull the plug and harm a Korean company. Never mind, first by inflation and then by deflation they will own the world.

Paracelsus's picture

Wow,real competition and the system can't take it.Real capitalism with no props.Let's recap a little....

The Fed blows a huge bubble during the '90's,the share market tanks in 2001,DotCom crash,and the Fed starts shoving money out the door like crazy,which fuels a mortgage industry bubble.They give houses to unqualified people,and bundle the notes into layered securities (call it collateralized when it is not,because just go ahead and try and repossess your share).

Predictably this ends in a mess in 2008,and Wall Street screams for a bailout.The Fed throws money at technically insolvent institutions,and gives them bank holding company status.The Fed buys up all their crap mortgage backed securities at 100% on the dollar,because there is no market for crap with 90 day payment default status (and all the wiring and plumbing fixtures are being ripped out as we speak).

As everyone's credit is maxed out they no longer can buy the overseas crap,and as shipping volume does a Baumgartner,then they have empty ships and shipping rates seriously crater.Oh,I forgot to mention the 8 trillion dollar overseas war,10,000 US Forces dead and several hundred thousand wounded veterans who will need expensive rehab in the future.

I can't help thinking that if this Wall Street bunch had to work a real job they would starve.

 

Robert Trip's picture

Looks like I might be waiting awhile for that cheap 50" big screen.