The Downfall of Hanjin Shipping Co.MEDIA ROOM
Hanjin Shipping, one of South Korea’s biggest shipping companies has filed for bankruptcy protection leaving its vessels, sailors and cargo stranded at sea.
Hanjin Shipping, the world’s seventh largest container line, has been unprofitable for four of the past five years and whose debt has hit more than $5 billion.
Ships owned, leased and chartered by Hanjin Shipping are being refused docking and unloading in ports as the port authorities fear that they will not get paid. This means that the ships are forced to wait for Hanjin Shipping, its creditors or partners to find a solution. In this regard, not only are ships not allowed to dock and unload their containers, but containers waiting to be collected are also being held back by port authorities as collateral over unpaid dues.
Beyond the ships and containers, there is also the cargo within the containers, which amount to approximately $14 billion worth of merchandise, which in many cases are part of a tight chain of supply and delivery, especially at this time of year when businesses are gearing up for the busy Christmas season. Any disruption will be a major headache for the companies that have entrusted their products into the hauls of the Hanjin Shipping freights.
Moreover, each ship that is stranded at sea, and it is calculated that there are around 85 ships, has about 15 to 20 crew members each on board. These crew members are unable to call at any port, and will thus have to depend on the supplies they have with them until the situation may be resolved. Aside from the prospect of being stuck for weeks at sea, the crew members will also face uncertainty over their wages. Most of the individuals are not directly hired by Hanjin Shipping but by crewing agencies. These agencies are unlikely to get paid by Hanjin Shipping and therefore will not be able to pay the crews their due wages.
At the end of August, Hanjin Shipping has filed for bankruptcy in South Korea, after attempts to raise fresh funding for the indebted company failed. Under bankruptcy protection Hanjin Shipping can reorganise its debts and stop assets from being seized.
After Hanjin Shipping filed for bankruptcy, South Korea’s government announced that it could give €91 million and long-term funding to Hanjin Shipping at low interest rates if Hanjin Shipping provided the necessary collateral.
Hanjin Shipping’s shares rose more than 20% on the news of a lifeline being granted to the company. The parent company and other collaborators of Hanjin Shipping, have also claimed that they will be providing the company with funds to resolve the disruptions to the cargo transport which is currently at sea.
Hanjin Shipping’s bankruptcy is the largest to ever hit the shipping industry, so there is no roadmap as to what will happen as there is no precedent of comparable scale. The question now is whether the South Korean government is prepared to bail out a company which will otherwise find it hard to survive.