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Fallout begins from Hanjin bankruptcy

01/09/2016

Cargo customers of Hanjin Shipping have begun dealing with the widespread fallout from the carrier’s collapse yesterday in what is said to be the largest ever bankruptcy of a global container line, with significant delays to some cargo expected and the potential need to arrange replacement shipments.

South Korea’s largest container shipping group and the world’s seventh-largest box line yesterday filed for court receivership after losing the support of its banks, raising the prospect of its assets being seized around the world. And ports across Asia, Europe, and the US have already begun denying access to its vessels, according to various reports.

Hanjin announced the filing for receivership yesterday and a request to the court to freeze its assets, which the Seoul Central District Court planned to grant, a judge told Reuters. The court will now decide whether Hanjin Shipping should remain as a going concern or be dissolved, a process that usually takes one or two months but is expected to be accelerated in Hanjin's case, the judge said.

It has also applied to the court for a property preservative measure and a comprehensive injunction order, essentially bankruptcy protection.

Banks led by state-run Korea Development Bank (KDB) withdrew backing for the world’s seventh-largest container carrier on Tuesday, saying a funding plan by its parent group was inadequate to tackle debt that stood at 5.6 trillion won (US$5 billion) at the end of 2015.

According to analysis by Alphaliner, the failure of Hanjin Shipping dwarfs all previous liner shipping bankruptcies. It said the largest carrier bankruptcy previously was that of US Lines in 1986, which operated a fleet of only 93,000 teu at its peak; Hanjin currently operates a total of 98 containerships at 609,500 teu.

CNBC reported today that in order to contain the fallout, a South Korean court had said it would soon begin proceedings to rehabilitate the carrier - which would allow Hanjin to take legal action in other countries to keep its ships and other assets from being seized. Rival Hyundai Merchant Marine will also reportedly deploy at least 13 of its ships to two routes exclusively serviced by Hanjin, while the South Korean government also plans to reach out to overseas carriers for help.

The court's move to rehabilitate the world's seventh-largest container shipper is seen as mainly procedural, and an eventual liquidation of assets is likely, analysts and industry officials said.

South Korea's Financial Supervisory Commission stated yesterday that to alleviate concerns over any fallout for the shipping industry, fellow shipping line Hyundai Merchant Marine would acquire Hanjin Shipping’s key assets such as its vessels, overseas sales network, and core workforce to help Hanjin maintain its global competitiveness. South Korea's government would also try to minimise the impact on the shipping sectors through measures such as to “encourage the KDB and Hanjin Shipping to arrange additional ships to ensure cargoes are shipped on schedule”.

In a note yesterday to its freight forwarding member companies, the British International Freight Association (BIFA) explained that the appointment of a ‘Receiver’ would follow and everything would be handled by that party from now on. Inevitably, once the withdrawal occurred, the directors were unable to trade and boxes have begun to be held. 

BIFA said freight forwarders should advise their customers of the position and seek instructions as soon as possible, adding: “It is likely to take time for the Receiver to come in and manage the situation and start the laborious process of managing the containers held by the company. Those with substantial claims against the company may begin the process of arresting Hanjin ships to cover any expected losses. This may cause unloading delays.”

In situations such as these, management of customer expectation is paramount, BIFA noted, adding: “They need to be advised of the situation and how it may develop and that there is likely to a delay - which may be difficult to quantify, although once contact is made with the Receiver, BIFA Members will be able to keep customers informed of the latest information being provided by the Receiver as to timing and release of boxes.”

BIFA noted that if the contract made with the shipping line was door to door, it may be necessary to pay some charges again to facilitate delivery.

“Your customers may need to decide whether or not to arrange a replacement shipment for their customers and take the current container loads back into stock as far as their own customers are concerned,” the association advised. 

“Members may have contracts with lines and credit facilities. Pressure may have to be applied against the Receiver to facilitate release in such circumstances and early payment again may facilitate earlier release.”

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