"It's Bordering Chaos": $14 Billion In Cargo Stranded At Sea, Crews "Go Crazy" On Hanjin Ghost Ships

Tyler Durden's picture

The fallout from last week's historic bankruptcy of one of the world's biggest shipping lines, Hanjin Shipping, continued with little resolution with as much as $14 billion worth of cargo stranded at sea according to the WSJ, sending cargo owners scurrying to try to recover their goods and get them to customers. Since Hanjin's bankruptcy protection filing, dozens of ships carrying more than half a million cargo containers have been denied access to ports around the world because of uncertainty about who would pay docking fees, container-storage and unloading bills. Some of those ships have been seized by the company’s creditors.

As Bloomberg adds, 85 Hanjin ships that have been effectively marooned offshore as ports in the U.S., Asia and Europe have turned the company’s ships away. The worry is that Hanjin ships won’t be able to pay port fees or their contents might be seized by creditors, which would disrupt port operations. The global shipping disruption comes just as companies are shipping merchandise to fill shelves and warehouses for the end-of-year holiday season.

Earlier this week, South Korean authorities rushed to piece together a capital injection. Hanjin Group will provide 100 billion won ($90 million), including 40 billion won from Chairman Cho Yang Ho, to help contain disruptions in the supply chain. At the same time, South Korea’s ruling Saenuri Party asked the government to offer about 100 billion won in low-interest loans to the shipping line if Hanjin Group provides collateral, in what is effectively a government funded DIP loan.

Some have calculated that the funding package won't be enough: South Korea’s Ministry of Oceans and Fisheries estimates Hanjin Shipping needs more than 600 billion won to cover unpaid costs like fuel, including about 100 billion won immediately for payments such as to port operators to unload cargo from stranded ships. 

Meanwhile, in addition to the stranded cargo, there are other more pressing problems: "Our ships can become ghost ships,” said Kim Ho Kyung, a manager at Hanjin Shipping’s labor union.

"Food and water are running down in those ships floating in international waters.”  As a result, The company has started providing food, water and daily necessities to crews on six Hanjin ships anchored at ports including Rotterdam and Singapore. About 70 container movers and 15 bulk ships are stranded at 50 ports in 26 countries, according to Hanjin. One Hanjin captain operating a ship in international waters near Japan said his vessel has been given permission to enter a Japanese port Wednesday to unload cargo, but will be required to head back out soon after.

However the biggest threat is that being faced by Hanjin's clients, who now find themselves with no products, and recourse.

About 95% of the world’s manufactured goods—from dresses to televisions—are transported in shipping containers. Though Hanjin accounts for only about 3.2% of global container capacity, the disruption, which comes as retailers prepare to stock their shelves for the holiday season, is expected to be costly, as companies scramble to book their goods on other carriers.

 

Analysts don’t expect the snarl to leave U.S. retailers with inventory shortfalls for the holidays, but the longer the logjam drags on, the greater the risk.

Some of those most reliant on Hanjin, such as Samsung Electronics, which has said it has cargo valued at about $38 million stranded on Hanjin ships in international waters, are taking alternative measures:  the company said it is considering chartering 16 cargo planes to fulfill its shipment contracts, mostly to the U.S. “We’re passengers on a bus, and we’re being told we can’t get off,” Evan Jones, a lawyer for the company, said Tuesday.

For now US retailers aren't feeling too much pain, as Nate Herman, a senior vice president for the American Apparel & Footwear Association, said: “This is not impacting store shelves now,” however he added that “It will impact store shelves if the situation isn’t resolved.” On Tuesday, the association, which represents manufacturers and retailers, held a conference call with 150 members. “People are still trying to figure out how to get their boxes off the boat and move them,” Mr. Herman said

The problem retailers face is that there is little precedent how to deal with the fallout. While Hanjin was granted protection by bankruptcy courts in Korea and the U.S., conditions are “bordering chaos,” said Lars Jensen, chief executive of SeaIntelligence Consulting in Copenhagen.

With so many Hanjin ships barred from entering ports, shippers have no idea when their cargo will be unloaded.” Jensen added that 43 Hanjin ships are en route to scheduled destinations with no guarantees that they will be allowed to unload. An additional 39 are circling or anchored outside ports. Eight ships have been seized by creditors.

While the courts’ creditor protection permits Hanjin ships to move in and out of certain terminals in those countries without fear of asset seizures, shippers and brokers say the rulings don’t solve the shipping line’s problems in the U.S., as it is unclear whether Hanjin will be able to afford to have the ships unloaded once they dock. Moreover, the courts’ rulings don’t necessarily apply to ports in Asia and Europe.

But while manufactured cargo can survive indefinitely, crews on ships can not, and as Hanjin ships drift at sea, their crews face increasing uncertainties and diminishing supplies. “We usually have food and water for about two weeks,” said the captain of a Hanjin-operated ship speaking by satellite phone from the South China Sea. But, after 12 days at sea, “everything is getting tight—food, water and fuel,” he said.The captain added that he is rationing water and cutting back air conditioning to save energy.

“The heat is driving the crew crazy,” he said. His ship was carrying lubricants and home appliances from South Asia to a Chinese port, but last Thursday, he was told to stop, as the ship could be seized at its destination.

Adding to the confusion, the WSJ adds that shippers and brokers said the Korean government has designated only three so-called base ports—Los Angeles, Singapore and Hamburg—where Hanjin vessels can unload shipments without risk of being seized by creditors.

“Even in those ports, we don’t know who is going to be paying unloading and docking fees,” a broker in Singapore said. “Korea says it will be Hanjin, but Hanjin is telling us it has no money. It’s a total mess.”

It gets worse.

The Korean Shippers Council, which represents more than 60,000 trading companies, said Wednesday  its members “have not been able to figure out the whereabouts of their freight.”

And even those who do know where their ships are, will soon find a dramatic surge in costs.  Brokers said the problems extend to carriers with vessel-sharing deals with Hanjin. They include China’s Cosco Group, Japan’s Kawasaki Kisen Kaisha Ltd., and Taiwan’s  Evergreen Marine Corp. and Yang Ming Marine Transport Corp., which typically move thousands of Hanjin containers daily. Sanne Manders, chief operating officer at California-based freight forwarder Flexport Inc., said rates on Asia-U.S. cargo have risen 40% to 50% since Monday on all sea lanes—not just those operated by Hanjin.

“That amounts to easily $600 to $700 per container,“ Mr. Manders said. ”We think this period of high prices will be 30 to 45 days," through the initial peak for Thanksgiving-season shipping, he said. Freightos, an online marketplace for booking freight shipments, said the average price per container on Asia-U. S. routes rose 56% to $4,423 on Tuesday from $2,835 a week earlier.

The surging costs are a problem as the global shipping industry has been operating at a loss since the end of 2015, and it’s set to lose about $5 billion this year amid an oversupply of vessels, according Drewry Maritime Research.

The financial woes have made terminal operators and marine service suppliers wary of working with Hanjin’s vessels. Typically, port fees for a ship that can carry 8,000 boxes would be about $35,000 per call.

“Getting ships arrested or stranded would minimize debt exposure for vendors, but it will also get the court to quickly take steps to normalize the company and start making payments,” said Rahul Kapoor, a Singapore-based director at ship consultancy Drewry.

* * *

Meanwhile, executives with freight-booking platform Shippabo warned that companies should expect delays as many cargo containers have been rerouted on different vessels. “For the top 25 importers, this is a blip,” said Frank Layo, a retail strategist at consulting firm Kurt Salmon. “They’re diversified, they’re not shipping it all on one line.” But for smaller retailers with less sophistication, “this could be devastating,” he said.

Another word for devastating? A "justification" to miss earnings for yet one more quarter.

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SomethingSomethingDarkSide's picture

They're gonna need a bigger bailout!

Less than $100 mil?  What is this, The Little Leagues?

abyssinian's picture

boat loads of crap no one can afford to buy anyways. just dump them all in the ocean.

VD's picture

nothing says Recovery Party like a ghost ship gala event straight out of hell...

cheka's picture

more to come.  what obomba did to coal, trump is going to do to container shipping  ;)

tariff or continue to get bled out by nyc.dc

espirit's picture

Looks like the kiddies won't be getting a flaming iThingy for Christmas,

probably just a lump of coal.

 

Oh, Wait...

847328_3527's picture

Retailers already taking a bloodbath in this "robust recovery" so if they don't get restocked for the holidays --- Halloween, Thanksgiving and Christmas ---  the employees better start looking for one of those Barrista jobs.

Gaius Frakkin' Baltar's picture

Stop peddling fiction, everything is aweome... the stawk market proves it! Buy of the century baby!

Manthong's picture

For some reason, Captain Jack Sparrow going up against a ghastly container ship doesn’t seem right to me.

boattrash's picture

Pirates, hell! It sounds to me like I could haul one of these ships a boatload of water and a box of groceries in trade for a few containers of new merchandise...

bleu's picture
bleu (not verified) boattrash Sep 8, 2016 10:27 PM

The world is PAYING for the Greatest Injustice of the 20th Century that is still ongoing.
http://wp.me/p4OZ4v-19

PT's picture

Can't sort out crews sitting on a ship becoz the company is bankrupt and that would be wrong.  But have to bail out the banksters becoz TBTF.

Hint for Skippers:  When you're down to your last "few" litres of fuel, just dock that fucker wherever you can and let the crew get off.  You'll regret it if you don't.  Or maybe hit the lifeboats and leave the ship to drift ... if you're happy with early retirement.

Gaius Frakkin' Baltar's picture

Never! A cargo captain goes down with his iShit!

PT's picture

"Safety is our number one priority" ... he he he ... and now we find out.

CheapBastard's picture

Someone needs to stand up and create "social justice ships" for these folks.

researchfix's picture

They should go to Mexico and make an auction from the deck.

ACES FULL's picture

14 billion in cargo. Is that "street value"

slammin_dude's picture

Sell for cash, bullion and arms out the back....why should bankers be the only ones fleecing the gov?

Antifaschistische's picture

Sounds like an opportunity for Team Trump to negote a deal allowing a few of these ships docked and unloaded.

VD's picture

they got EBT cards to pay for it, and maxed out credit cards.....no need to dump into ocean, dump into debt-slaves bottomless pit of needs

onewayticket2's picture

That's the keynesian "dig a hole" dream!  Surprised Krugman hasnt offered that up.

Theosebes Goodfellow's picture

South Korea has not seen a kimchee disaster of this scale since the Korean war. I think a telethon is in order to get emergency rations airlifted to the stranded crews asap. What happens when the crews start thowing containers overboard to get attention to their plight? If they had enough fuel I would think they would head to a South Korean port.

espirit's picture

...or run them aground.

Let the creditors worry about the cleanup.

HedgeJunkie's picture

And, thus, the whole notion of "Just In Time" is scrapped.

auricle's picture

More loans that will not be repaid by an already bankrupt company. Container ships carry more than durables, they carry non-durables like food. So how much price inflation will we see as a result of this debacle? 

Gaius Frakkin' Baltar's picture

Like everything else in the fragile world we've created, it works great unti it doesn't... then Oh Shit...

Refuse-Resist's picture

We can use them to help repatriate some of our unwanted visitors.

No need to waste good seaworthy ships. The crap onboard though, yeah.

When you say 'dump' I don't think it was what the Chinese thought it meant.

 

FUCK YEAH!

Kirk2NCC1701's picture

These ships will come in handy when TSHTF and can be used as floating cities -- like in a scene from Resident Evil.

Who's to say that some aren't used for nefarious bio programs already?

walküre's picture

you're talking Waterworld style endgame scenario... sure looks like it

massive earthquakes and global warming will create tsunami floods

Trump win = TEOTWAYKI 102%

OpTwoMistic's picture

Bankrupt, stopped. What happens to US troops when the dollar fails and the troops are stranded in shit holes around the world?

Troops,  it is time to just say NO. 

vollderlerby's picture

"just dump them all in the ocean."

Economic Stimulus!!

lima44's picture

"in the ocean" ??? In Abyssinia man !!!

junction's picture

Getting back to Hillary:

"She's dead, Jim."

pods's picture

Boat load of sweaty guys with nothing to do on a ship carrying lubricants?

You can't make that shit up.

pods

King Tut's picture
King Tut (not verified) pods Sep 8, 2016 11:06 AM

think about all of those poor flatscreen TVs that aren't getting delivered and  put up on doublewide trailer walls- THE HUMANITY!

PTR's picture

Rub-a-dub-dub. Thirty men in a tub...

Idaho potato head's picture

Shades of captain pissgums and his pervert pirates...

Katos's picture

HAHAHAHAHANHAJA! THE GLOBALIST MORONS HAVE SPENT TRILLIONS OF DOLLARS TO BUILD AN INFRASTRUCTURE SO THEY COULD SHIP A COUNTRIES JOBS TO CHEAP LABOR COUNTRIES AND SAVE ON MANUFACTURING! NOW THE PEOPLE IN SAID COUNTRY CAN NO LONGER AFFORD THE "CHEAP SHIT" COMING INTO THEM FROM FAR AWAY LANDS.  SO SAID INFRASTRUCTURE OF BILLIONS DOLLAR SHIPS, BURNING CAUSTICICALLY NASTY TAR LIKE PETROLEUM THAT IS POLLUTING THE SHITTER OUT OF THE OCEANS, HAS NO WHERE TO SHIP THEIR "CHEAP SHIT"- BECAUSE NO ONE IN THE SHIPPED TO COUNTRY ANY LONGER HAS A JOB TO BUY "CHEAP SHIT" WITH! IT WILL BE A HAPPY DAY TO SEE THE GLOBALIST IDIOTS BANKRUPTED INTO OBLIVION AS THEIR RUSH TO CASH IN ON CHEAP LABOR , BLOWS UP IN THEIR UGLY FACES. I CSN SEE THE CEO'S OF HANJINI NOW WITH HIS HARI KARI KNIFE , READY TO FILET HIS GUTT, HAHAHAHAHANHAJA 

toady's picture

Exactly. Millions, billions, trillions.... pfft! 

Talk to me when they start saying quadrillions. That's real money! 

UnschooledAustrianEconomist's picture

But only for a year or so..

souljaboy's picture

Expect a huge spike in negative feedback on eBay.

RaceToTheBottom's picture

"This is Wendy (Sanjay) from Cleveland, may I help you?"

83_vf_1100_c's picture

Good one. If I were crew I would be creating an ebay acct and having a firesale on whatever cargo was on the ship. They could quickly fund their retirements, jump ship in LA , and become just another (rich) undocumenetd immigrant.

nightwish's picture

If im one of them captains in gook lines, im filling every dingy i get my hands on with goodies

SilverSphinx's picture

Now that leads to an idea.

Can they make it off the coast of Somalia?