By now most in the airfreight industry are well-aware of the sudden demise of Hanjin, which was the world’s seventh-largest ocean container line.
With approximately US$12 billion in cargo still at sea, airfreight forwarders and carriers alike are poised and ready to act should modal shift be required to make on-time peak season deliveries. So far, most shippers and forwarders seem to be playing a waiting game – hoping for a resolution that will allow them to get their cargoes to the intended destinations in time for the holiday season without having to make the costly move to air. But there is a limit to how long they can wait, and unless that resolution comes soon, some modal shift is almost inevitable. The real question is: how much? Much has happened since our original report, “Hanjin Collapse” was published back on 1 September, and with less than 100 shopping days remaining until Christmas, it’s time to revisit the state of the stranded ships and struggling shipper.
Starting with a quick look at Hanjin’s financials, the bottom had been soggy, and ready to drop out for quite some time. By the end of 2015, the company had debts of US$5.9 billion, and a debt-to-equity ratio of nearly 850%. When the Korean Development bank decided it could no longer directly inject capital into the company, and no other investors came to its rescue, Hanjin was forced to file for court receivership in its home country, South Korea, on 31 August. Soon after, the shipper began taking similar action in other countries around the world. Lawyers arrived at a New Jersey US Bankruptcy Court on 2 September, and filed for bankruptcy protection under chapter 15. Like receivership in South Korea, the intent of a chapter 15 filing is to block creditors from seizing assets or taking other forms of legal action against the carrier while it is engaged in the bankruptcy process.
Fast-forwarding to the present, of the 97 container ships in operation as of early September, 28 vessels have been able to unload goods; the remaining two-thirds of Hanjin’s ships however, remain in various stages of limbo. Despite having bankruptcy protection in multiple countries, Hanjin has discovered this does not guarantee dockworkers and truckers will actually unload or move the cargo without pre-payment. A spokeswoman for the company said that a few more ports could start unloading ships as soon as this week in Manzanillo, Mexico, New York, and Singapore. But the fate of the remaining ships meanwhile, remains in nebulous territory.
A ruling this week from a South Korean judge that Hanjin must return all chartered ships to their owners once cargo has been unloaded and cancel any remaining charters makes the shipper’s future look bleaker. This will leave Hanjin with only 30 ships given at least 60 are chartered. Four have already been returned, with another 14 in the process of being returned, according to an update released by Hanjin on the operating status of its vessels. In addition, 11 ships have been embargoed or arrested, and 42 waiting in open sea with cargo onboard.
Most successive moves seem to hinge on whether or not the shipper’s largest shareholder, Korean Air decides to extend a lifeline. The airline’s board of directors purportedly met on Sunday to discuss a $53.70 million loan, which would help prompt port workers to unload and deliver cargo stranded on Hanjin ships.
In the meantime, ocean rates remain elevated. Reuters reports Capesize benchmark rates have returned to above September 2015 ($10,606 per day on 16 September) after bottoming out at $2,000 in March 2016. Spot market ocean rates on transpacific routes are also more than double what they were during 1Q16. Although most analysts agree that the market can handle a reduction in capacity, this sudden snafu going to peak season could make for a very interesting year for airfreight. For now, we wait.
We will update this post as we learn more about the impact of the Hanjin collapse on the air freight industry. And, of course, it will be discussed in detail at the Cargo Facts Symposium in Miami, 10 – 12 October. To register, or for more information, go to CargoFactsSymposium.com.