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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Radical Marijuana's picture

Anyone know of a commonly understood abbreviation to refer to news which confirms the tragic trajectory of things getting worse, faster, but which nevertheless still seems somewhat surprising when that happens ??? These days, I believe I could post that abbreviated comment under an increasing minority of articles published on Zero Hedge ... However, I supposed that by the time we approach the vast majority of articles being like that, we will no longer be able to access Zero Hedge, in order to once again confirm that things were still getting worse, faster ... yet while yet feeling somewhat surprised by the unprecedented degrees to which that was becoming the case!

While one may intellectually understand the mathematics of systems based upon enforcing frauds becoming exponentially more fraudulent ... from an emotional point of view, assimilating those actual events is still quite daunting. Therefore, while I expect the news to continue to play through in the ways that Zero Hedge articles have been predicting for many years, nevertheless, I continue to feel surprised when that happens.

To be frank, almost every conceivable cliche applies to the ways that things, which I might sort of intellectually be aware of, still do NOT emotionally register, but rather, are difficult to assimilate, even when they have finally actually happened ... Hence, for several years I have been following the predictions being made on the basis of the Baltic Dry Index, but yet, I still felt surprised when I read the article above.

DjangoCat's picture

Perhaps a bit less thinking might help.  Try to feel the bern.

Radical Marijuana's picture

LOL!

(At least many people now understand that convenient abbreviation.)

Pliskin's picture

Hey Radical, I know not of the abbreviation, but "...the tragic trajectory of things getting worse, faster..." this is known as 'Clintoned', as in 'My life has gone from bad to 'Clintoned', 'Things were going well, then suddenly everything just went 'Clintoned', 'He could see no way out of the mess he was in, everything was just 'Clintoned.'

 

Hope this helps!

 

ebear's picture

I think the word you're looking for is FUBAR.

MEAN BUSINESS's picture

Dead cat bounce. Death spiral. Whistlin' past the graveyard.

gosh, WHOCOULDAknOwed???

Goldilocks's picture

Next...

Alphaliner - TOP 100
Operated fleets as per 01 September 2016
http://www.alphaliner.com/top100/

the_narrator's picture

Who needs container shipping when you can now run a train from China to France in a short amount of time and oil arrives by pipeline from Russia instead of by ship from the gulf?  Baltic Dry is the harbinger of success of the Eurasian trade zone.

elmo jones's picture

There is lots of garbage in central Pacific. Why not put arc furnaces and exhaust filters on all these containers and clean up.  

Scoop it. Burn it down to recyclables

https://en.m.wikipedia.org/wiki/Great_Pacific_garbage_patch

redd_green's picture

I don't know man, they are recycling it already.   Ever wonder why McDonald's burgers taste so damn shitty the past 15 years?   They're mixing garbage in with the garbage, cooking it on a grill and serving it to us on a sesame seed bun.

TheAnswerIs42's picture

The plastic garbage patch in the ocean is a myth.

There's hardly any recognizable plastic in the oceans.

Most of it photo degrades to less than 1mm, then is eaten by bacteria.

There are several articles describing the phenomena:

   http://news.sciencemag.org/environment/2014/06/ninety-nine-percent-ocean...

   http://news.nationalgeographic.com/news/2010/08/100820-science-environme...

   https://wattsupwiththat.com/2015/12/17/an-ocean-of-plastic/

 

redd_green's picture

Nothing is frozen.  We still getting  billions of tons of shit made in China, flooding the damn country.  The stream of shitty products didn't even cool off.   All the CEO's of crooked US companies who shut down operations to buy their shit from China and Singapore and ... wherever still rest just fine.

redd_green's picture

On a separate note  if there really WAS a tea party in the USA, and there isn't there are just a bunch of people who get a free bus ride from some godawful place with lots of fluoride in the water,  to go to hold up a sign that they don't quite understand,   ...

 

then Americans would line up by the 10,000 at sea ports all over North America, to dump the foreign made shit into the ocean.    And do without  untilwe can again make it ourselves.  Factories would pop up overnight, there would be no shortage of good jobs OR money.

 

The crooks from Harvard and Yale and U Pell Wharton, who ran our industry into the ground, fired Americans and stole the loot, should be chopped up and fed to the camels.

honestann's picture

Perhaps a little baby black swan?  Or just a whiff of one?

Burticus's picture

Poor Suk, 5.6 trillion won in the hole and his banker buddies yank his loans.

Another “Oh, $#!+” moment following the sinking of the BDI below the depths of the 2008 bankingruptcy crisis.  Chart shows a textbook crash with “dead cat” bounces down to Davy Jones from 2009 through the present, portrayed as “the recovery” by the lamescream corporate media.

http://investmenttools.com/futures/bdi_baltic_dry_index.htm

NoYouAreAnAsshole's picture

Global Supply Chains are not paralyzed.  That's ridiculous. Stop the hyperbole, ZH.

Look what happened when Sport's Authority collapsed.  Dick's Sporting Goods' stock went up and their recent quarterly report indicates that they took customers from Sport's Authority and were that much more profitable.

The same will happen with the rest of the world-wide shipping industry' companies.  Paralyzed???  You mean paralyzed from celebrating themselves into a stupor, right? 

Either the ship building had to stop or one or more players in this industry had to get zapped.  That just happened.  And, if the turn down in world wide shipping continues, expect more to fall.  That's all that is happening here. 

Remember, it wasn't that long ago that foreign ship builders collasped our shipbuilding industry and then our shipping companies.  Our governmet, the unions, and are idiotic one-way trade agreements put the nails in the coffin of both industries.  Lost were high skilled American jobs that will never come back.  At least the way things stand now.

Oh and by the way - see "new Anopheles" above for the definition of Baltic Dry Index . . .

withglee's picture

Remember, it wasn't that long ago that foreign ship builders collasped our shipbuilding industry and then our shipping companies.  Our governmet, the unions, and are idiotic one-way trade agreements put the nails in the coffin of both industries.  Lost were high skilled American jobs that will never come back.  At least the way things stand now.

Right. They need to outlaw containerization to get back the job losses that caused too.

Atomizer's picture

Are you beginning to wonder why Pennsylvania Ave Nigger in the White House wants to pass TPP?

The man has zero accomplishments. Turn the clock back to 2009. 

The American Recovery and Reinvestment Act of 2009 (ARRA) (Pub.L. 111–5), commonly referred to as The Stimulus or The Recovery Act, was a stimulus package enacted by the 111th United States Congress in February 2009 and signed into law on February 17, 2009, by President Barack

 

This asshole couldn't run a franchisee drycleaning company. Another words, a company with defined rules and regulations. 

 

 

withglee's picture

If you think changing out the puppets has any effect, re-examine your premises. And for me to make this observation has nothing to do with the puppet currently basking before the teleprompter or those vying to be the next blessed puppet. Obama has no idea whatever about what is in TPP.

CHX's picture

Does that mean that the floating exchange rate is (has been) going down ?

Atomizer's picture

Depends on which floating exchange rate you're referring to. Please specify. 

Atomizer's picture

Breaking News, dry ice stawk has increased 700% over financial markets being iceboxed for new merger and acquisition negotiations. 

HenryKissingerChurchill's picture

perfect

another crisis near to end of shemitah

Woodrox's picture

OIL SUPPLIES ANYONE?

bankbob's picture

I wonder how much cargo is sitting on those ships?  Is it just a write off?  Will it ever get delivered?

INCOCHAIN's picture

INCOCHAIN is a project that is creating smart contracts for world trade. The combination of existing incoterms, or standardized international commercial terms, smart contracts and blockchain technology is where we are taking the industry, to completely paperless and mobile applications. We are starting from Seattle (United States), The Hague (Netherlands), and Zug (Switzerland).

We desire collaboration with industry experts from logistics and supply chain management as well as experts in contractual law and obligations of buyer and seller as they relate to breach of contract, and in exchange we wish to consult and collaborate with interested parties with regard to blockchain technology and smart contracts. Be it operations, accounting (chief financial officer), or industry specific, we are seeking collaborators that are interested in this project and the efficiencies and new business development we will bring and in return we need to break down some specific components into fine grain sand for the development that is taking place and we will value your participation.

With solid industry experience, we have a team that comes from working for some of the largest international freight forwarders in the world, experience for nearly 2 decades working for one of the world’s largest IT Consulting firms, and the experience of coding, smart contract writing, and systems management, including integration for the financial sectors including insurance, banking, and commodities trading. Combined, we are creating INCOCHAIN and taking world trade into the arena of blockchain technology.

Smart contract writing has begun for INCOCHAIN. While we work to complete a prototype for a short stack of incoterms, our team building efforts  will expand. We wish to establish contact with industry experts as they relate to international trade, both import and export (air, ocean, rail, and trucking), banking, cargo insurance, and maritime law and the legal aspects of smart contract writing.

While this is an enormous project, the efficiencies are cross industry and we have sparked interest for funding, thus we are working towards development of a prototype. We are seeking partnerships every step along the way as the world is vast;  there is enough international commerce that this project will amount to a great deal of new business development, job creation, economic development, and we desire the ability to improve standards of living on localized levels from that which we are building. At the end of the day INCOCHAIN will be available for third parties, yet between buyer and seller.

I am tasked with finding industry experts that wish to explore blockchain technology and are willing to explore the possibilities while we need help in breaking down and refining these smart contracts so they are completely automated and paperless. If you are interested in the discussion, I have come to World Trade Forums to kick off INCOCHAIN and bring you into the conversation and collaborative effort. We hope your company or business too can benefit from INCOCHAIN. If interested you may also contact us at INCOCHAIN@gmail .com

Thank you,

INCOCHAIN