Home / Industry News / Hanjiin bankruptcy – Lessons for Shippers

 

The bankruptcy filing by Hanjin Shipping on August 31st saw 66 ships with cargo worth US$14.5bn denied access to ports around the world due to concerns about whether docking costs would be paid.

Hanjin was the world’s seventh biggest container line with a fleet of more than 90 vessels. Its collapse is the largest shipping bankruptcy in history – and commentators believe that in the current shipping climate the risk that there will be another bankruptcy cannot be discounted.

The number one lesson to be learned is that “too big to fail” thinking is no longer valid; Hanjin should be a wake-up call for all shippers that even the largest carriers are not immune to failure.

The Hanjin collapse has exposed the high level of financial risks that exist in today’s shipping world, and the prolonged fallout has exposed the fragility and deeply interwoven connections of the supply chain. These characteristics make it extremely difficult for a shipper to protect against the risk of a carrier failure. 

Alongside ensuring adequate insurance cover, shippers need to pay attention not just to the financial health of the carriers they contract with, but also to their partners. A shipper can unwittingly end up with significant exposure to higher risk carriers through the alliance structure that now prevails.  

The fact is the shipping world is moving in the direction of being dependent on a relatively small number of container lines. This year we have already seen three major container lines merge, get acquired or collapse – some commentators believe that when the shakeout is over, there will only be six to 10 major carriers left.

The recent announcement that Japan’s big three shipping groups – K-Line, MOL, and NYK will merge their liner shipping businesses is a further case in point. The Japanese lines will merge their container units and launch a new joint venture carrier from April 1, 2018.

It’s the latest example of industry measures to create scale in an effort to adapt to a world in which freight rates have been under pressure for many years.

With tough market conditions continuing, more consolidation is on the cards.

Fewer carriers mean less competition and more stable players. From a risk standpoint this is a good thing – but shippers need to be aware that the price of lower risk is likely to be higher rates.

 
 
 
 
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