"Tremendous Ripple Effects" - Retailers Demand Bailout After Hanjin Collapse Paralyzes Trade

Tyler Durden's picture

When we first reported about the imminent paralysis of an unknown number of global supply chains and a potential shock in worldwide trade as a result of the historic bankruptcy of Hanjing Shipping, one of the world's largest container shipping companies which handles 8% of Trans-Pacific trade volume for the US market, we concluded that "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."

However, not even this extreme forecast captured what would happen just 48 hours later, when as the WSJ reported overnight, retailers have gone far beyond simply blaming the Hanjing bankruptcy for their upcoming woes: they are petitioning for a government bailout, or as the WSJ put it, they are "bracing for a blow as they stock up for the crucial holiday sales season, asked the government to step in and help resolve a growing crisis."

Or, as America's banks would call it, "get bailed out." And, in taking a page right out of the 2008 bank bailout, the doom and gloom scenarios emerge:

While the situation is still developing, the prospect of harm is significant and apparent,” Sandra Kennedy, president of the Retail Industry Leaders Association, wrote in a letter to the Department of Commerce and the Federal Maritime Commission. Hanjin’s recent bankruptcy filing “presents an enormous challenge to U.S. shippers,” she said, and “could have a substantial impact on consumers and the economy at large.”

The trade group is urging the U.S. to work with ports, cargo handlers and the South Korean government to resolve the widespread disruption in freight shipments caused by the Hanjin bankrupcy filing. Futhermore, the spokesman for the Retail Industry Leaders Association said they’re hoping the South Korean government could help provide clarity and speed to the bankruptcy proceedings, which are being considered by courts there.

To an extent, the group has a point as the "clogged supply-chain" chaos unleashed by the Hanjing bankruptcy is rapidly spreading. As reported Wednesday, after the company's bankruptcy protection, on Wednesday, terminal operators, ports, cargo handlers, truckers and others have refused to handle its cargo, for fear they won’t get paid. That is causing turmoil at U.S. ports and beyond, said shippers, importers and freight forwarders. Then as we followed up yesterday, U.S.-bound cargo has been delayed at the point of origin, and cargo-laden Hanjin ships are unable to get into U.S. ports. Worse, already delivered cargo is sitting unhandled, clogging ports and occupying containers needed elsewhere. Several Hanjin ships have been seized by creditors or barred from shipping cargo from Busan, South Korea’s main port, and vessels have been turned away from ports in the U.S., China, Canada, Spain and elsewhere.

According to the WSJ, freight brokers in Asia said about 540,000 containers are expected to face delivery delays that one of them said could range from a few days to more than a month. Meanwhile, as we also reported yesterday, shipping rates have soared as freight capacity shrank overnight, and indicative rates from Busan, South Korea, to Los Angeles had risen to $2,300 a container by Thursday, up from $1,700 four days earlier. One U.S. importer said he was getting rate quotes of $2,000 a container, compared with $700 before the Hanjin news.

Meanwhile, the reason why we immediately speculated that retailers will immediately use (and abuse( the Hanjin bankruptcy as a scapegoat (and apparently, demand a government intervention) is because the turmoil will only aggravate problems for retailers grappling with the challenges and high costs of e-commerce and at a crucial time. Those most likely to be affected include Wal-Mart, Target, J.C. Penney and clothing retailers. As the WSJ adds, a target spokeswoman said the retailer is watching development closely and assessing the situation. Marilee McInnis, a spokeswoman for Wal-Mart, said, “Right now, we are waiting to hear the final determination on bankruptcy proceedings and the implications to their current assets before we will be able to assess any impact.”

The biggest hit may come for the $25 billion US toy industry, however, which has been sweating the Hanjin news, as it prepares for the holiday season, responsible for half its annual sales. Jeff Bergmann, managing director of the Toy Shippers Association, said his customers are fortunate that only about 20 containers are on Hanjin or affiliated vessels. They’ve been told their freight will be delivered to the ports, but from there, “nobody knows,” Mr. Bergmann said. Beyond that, the general concern is how long the turmoil will last. “The ripple effect could be tremendous,” he said.

Cited by the WSJ, Jessica Dankert, senior director at the Retail Industry Leaders Association, said the congestion is coming during one of the worse possible times for retailers as they stock up before the critical holiday-shopping season. “These concerns would be trouble at any time, but this is a particularly bad time for it to happen.” She said retailers are considering contingency plans that include using other carriers and working to get their cargo released.

Unfortunately, going the litigation route will be a disaster, as cargo reclamation would bottleneck the legal system and leave it stuck in limbo for years. Even without a lawsuit, cargo owners will have to wait for months to get their cargo off Hanjin ships, analysts said.

”In 2001, Cho Yang, a much smaller Korean carrier, went bust and it took six months before a mere 200 containers, handled by a single freight forwarder, could be taken off to ports,” said Lars Jensen of Copenhagen-based SeaIntelligence Consulting. “This is at a much bigger scale so I would not be surprised if scores of boxes on stranded Hanjin vessels ever actually make it to their destination.”

But forget the retailers, will someone please think of the ship crews? Hanjin ships carry crews of 15 to 25 sailors, and with the vessels unable to call at ports, the sailors could be stranded at sea for weeks or longer. “They have food and water for a couple of weeks,” said Basil Karatzas of New York-based Karatzas Marine Advisors & Co. “Beyond that, things may become very difficult because suppliers will no longer extend credit to Hanjin and everything must be paid in cash.”

Maybe instead of US retailers using debt to buyback their stocks and land their management teams record bonuses, it is the crews who should be petitioning for a government rescue.

Finally, anyone hoping for a quick resolution to chaos unleashed by the Hanjin bankruptcy, should not hold their breath. While Hanjin has obtained creditor protection in Korea, and secured an injunction protecting its ships against seizure domestically, it needs to quickly file for bankruptcy abroad, especially in Europe and the US, in order to keep its ships moving.

“They got the injunction in Korea, but most of their ships are out at sea or at foreign ports. Ship seizures will continue and increase around the world if there is no bankruptcy protection.” Jensen said. “But sorting out such legal matters at various jurisdictions is complicated, as Hanjin has no control on how fast foreign courts will examine its case.”

For now, the only thing certain is that chaos will grow exponentially courtesy of today's ultra sophisticated "just in time" supply chains which are amazingly efficient when they all work in sync, and just as easily lead to unprecedented problems (as we described several years ago in "Trade-Off": A Study In Global Systemic Collapse") when even the tiniest bottleneck emerges, quickly snowballing into a crisis of epic proportions.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
The Duke of New York A No.1's picture

Me want bailout too!!!!!!!!!!!!

Manthong's picture

Ah, grasshopper…

Wise man might let the decrepit sampan sink,

But the fool will try to make it float.

espirit's picture

Cash For Clunkers?

Ruh-Roh.

knukles's picture

So my Chinese saline pectoral and matching 6 pack ab implants might not make it for Christmas?

bamawatson's picture

the implant procedure is fully covered under Homobama Care

BaBaBouy's picture

Pity ~~~ All Those I-Phones Out There On The Sea ~~~ Can Anyone Hear Them Ring ~~~

Rockatanski's picture

those get flown in by fedex air.

Not My Real Name's picture

I wonder if Deutsche Bank will try using this as an excuse for why they can't deliver the gold.

JRobby's picture

Lots of funny comments as the chaos (finally) begins.

It's not like you weren't told it was coming.

Drink up sheeple. Get shit faced 3 days in a row because come Tuesday it will be worse.

Fisherman Blue's picture

Already came, no one listened, now waiting for the third.

Manthong's picture

Actually, Hanjin is South Korean but fake Chinese proverb is close enough.

Oh regional Indian's picture

The imminent failure of Supply sidism and Just in timism...it will be very ugly and very painful for most people...

Muddy1's picture

Just like the decline in oil prices with the negative fallout which nobody saw coming, nobady saw this coming and frankly it is pure speculation as to the consequences this shipping bebacle will cause.

jeff montanye's picture

indeed.  who could have foreseen that a weak economy could cause a shipping company to go bankrupt?

at least with the yuge contribution to gdp from the increased expense of obamacare, there may not be that much demand for toys at christmas.

zeronetwork's picture

How will America live with out dollar shops?

SilverSphinx's picture

finally!

My FINZ position has been eating my lunch.

knukles's picture

"If an iPhone rings in the middle of an ocean on an abandoned boat does anybody hear it?"
                                                        - Doan Remember

mkhs's picture

If you are an ATT subscriber, it sure as hell does.  And you are going to pay double for the added inconvinience. 

Glassport's picture

Dammit!  I clicked on it!

Bush Baby's picture

Supply and Demand in Action

booboo's picture

That much awaited melamine penis pump is stuck on the docks in Shanghai.

bamawatson's picture

you don't have one in hand ?

wareco's picture

Does the warranty begin when its shipped, or when you receive it?

Come On Puu See's picture

WHEN YOU RECEIVE AND REGISTER YOUR PRODUCT WITH THE MANUFACTURER.

Squid-puppets a-go-go's picture

if those ships start sinking they can use the penis pumps to bail out the liquidity

i think im in mixed metapor spaghetti junction here

Here2Go's picture
Here2Go (not verified) espirit Sep 2, 2016 3:27 PM

"Cash For Clunkers?"

 

CRASH 4 CRUNKERZ!

 

there, fixed it.

ShrNfr's picture

But wisest man sell sampam to sucker and make it his problem.

Dugald's picture

 

You all make much Ha Ha, but not ask who is the next ship owner to go sink sink...

jeff montanye's picture

broadly define ship and i'd watch sears, jc penney, sprint, office max, elizabeth arden and coty.

p.s. did you know that mr. peabody's coal train is already bankrupt?

CNONC's picture

Down by the Green river, where paradise lay.

Rainman's picture

What will Chrismas be like without tons of cheap worthless plastic crap ?

knukles's picture

You guys know why blacks have such big penises?
Because they never get any Christmas presents

(Kwanza joke)

espirit's picture

I've been waiting on the Friday Humor to ramp up.

Never One Roach's picture

Where's my hajib and burka? I probaly won't get them by Christmas now.

 

Aw schucks!

Come On Puu See's picture

TRY THE KKK. I HEAR THEY'RE HAVING A SALE ON THE WHITE ONES.

Fisherman Blue's picture

They sold them all to Clinton, Remove the hood  and they look like pant suits.

11b40's picture

Long weekends are usually the most humorous, and there is plenty of irony to be wrung out of this.

But, too bad for me, this one has a direct affect on my future cash flow.  As an agent/broker to retail chains for hard lines vendors, I live on commissions.  This is like the autumn harvest time for me, and I have invested heavily in travel and trade shows and long office hours to round up purchase orders from these retail accounts.  Now, I'll spend the weekend wondering how many of my goods are on distressed ships, or will be delayed/canceled.  Plus, dealing with all the #$%^%^%!!@*^!!! problems over the coming weeks will be a killer.....a major distraction from current business, which is rounding up the orders for 2017 deliveries. Not good.  Many of us are still trying to recover from 2008/09, along with adjusting to an ever-changing retail landscape.  

This business used to be fun, believe it or not.

fockewulf190's picture

Isn´t the Baltic Dry Index screaming at you to find a new line of work?  

11b40's picture

If I were 30 years old, maybe it would.  Next month, I will be 69, and I've been in this game for 40 years.  If you have any suggestions about how to make a nice 6 figure income from my home office in rural SC, I will be glad to listen.  

But seriously, I'll be fine, and your concern is appreciated.  Others will not be so fortunate, and there will be considerable losses.  

The real wake-up call was sounded in the run-up to 2008/09, but I was already in my 60's then, and trapped, like many of my contemporaries.  I was just lucky that I worked for myself and could tough out the worst of it & re-build (which is an ongoing process).  The corporate world freaked out in 2008 as stock prices tanked and it looked like the world was coming to an end.  As costs were being cut to the bone, companies were desperate to preserve cash flow (and save corporate jobs).  Independent agent commissions were a target, as companies sought to bring all of the 'bread & butter' accounts that they could in-house to eliminate the commissioned agents....who had opened and developed those businesses.  We lost factories we had represented for as long as 30 years.

Such is life, and I am blessed to be healthy, independent, and actually enjoy what I do.  The increasing challenges and complexity of business are stimulating, and contribute to mental sharpness and alacrity.  I can run this business as long as I am physically & mentally able.  My semi-retired partner works about 2 days a week, and he will soon be 76.......but the Hanjin bankruptcy is probably going to be a royal pain in the ass for us both

fockewulf190's picture

I understand, and admire, your drive to make things work for you despite massive challenges.  Owning your own business, your often confronted with "failure is not an option" circumstances.  Getting past them...and surviving...can be stimulating, as you have said.  For me, it´s like boot camp.  You learn a lot, feel good you made it, but never want to do that ever again.  Good luck to you.

Uncertain T's picture

The Good News is..... American Toy and Clothing makers remain unaffected.

Make America Great Again!

11b40's picture

Wrong......virtually everyone dependent on the supply chain will be affected in some way, directly or indirectly.  Freight rates will go up for all, and that part you needed to fix that thing that broke, well you may have to wait for it, regardless of how badly you need it.  Millions of little things will be affected, including you & me.