HANJIN SHIPPING : EFFECTS OF BANKRUPTCY

Members:Chica AnaidFlores AnnelysPetroche Brigitte

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EFFECTS Freight

cost

 The suspension of payments of the shipping company Hanjin causes prices of shipments of containers increase because of the reduction of capacity of transport.

UnemploymentThere are 15,000 workers serving in the vessels operated by Hanjin and which at the moment are not working after the bankruptcy. 

MERCHANDISE

MerchandiseTheir vessels were rejected and as a guarantee of payment at various ports and is not allowed the load and unload of containers that is because of the insecurity that the company is able to pay.Even creditor in Singapore seized one of its ships as a form of payment due to the debt that had Hanjin.

Main Companies Affected

Samsung Electronics, which was more than 40% of their shipments through this operator

LG Electronics, it did in a 20%, are among the most affected manufacturers due to carrying high volumes of cargo.

Panama The Panama channel has been affected by the reduced movement of goods  Hanjin  represents 1.2% of the transit through the channel and the 2.7% of income it receives the ACP (The Panama Channel Authority) by tolls. 

Market of SeoulStocks of Hanjin Shipping in the Bank fell in a 13.70% in the price that is related with the financial problems that the company is experiencing.

Korea Development Bank (KDB), the public bank that led the negotiations decided not to support financially to Hanjin Shipping from 4 September. 

The South Korean government announced that it would grant financial support with a fund to support the banks exposed, the 457 contractors of the company to which Hanjin owe 57 million

Hanjin owned 37 containerships and chartered 62 others,

making it the world´s seventh largest container shipping line, which represents about 3.2% the global container shipping

capacity.

The 37 containerships directly owned by Hanjin are subject to

the full asset seizure by creditors under bankruptcy protection, but the matter is

more complex for the 62 chartered ships.

Chartered ships fully belong to the leasing

company and are thus not subject to seizure, only to be declined services since a terminal operator may

not get paid the company under receivership

Many chartering agreements are under “bareboat” conditions where the owner gives

possession of a containership to the shipping line, who assumes all the

operational costs, including crew, fuel,

insurance and terminal charges

Such chartering arrangements can be used

as a form of shipping financing, which could lead

to legal complications in terms of if the ship was

truly leased or if the chartering arrangement is

a sale in disguise.

The first stage involves a “shock” for supply chains that were using Hanjin, since services are interrupted without prior notice. Cargo becomes stuck in transit as shippers (ports, transport companies) are refusing to handle Hanjin ships since they would likely

not get paid for that service. In the second stage, the increase in rates and the

capacity demand on routes and ports that were serviced

by Hanjin will incite competitors to quickly offer

additional services and capture such low hanging

fruits.

The last stage concerns the allocation of Hanjin’s assets. With liquidation, most of its assets will be captured at discount prices,

giving opportunities to established actors and even new entrants.

Hanjin has stakes in 20 container terminals, totaling and annual capacity of 22,4 million TEU. Korea has the most significant potential terminal capacity disruptions, including Busan which is an important transshipment hub for the china trade.

It remains uncertain about under what conditions operations will continue in terminals where Hanjin has a majority stake, but for terminals where Hanjin has a minority stake, disruptions are unlikely since terminal operating company is a separate entity.

The main issue is that most these terminals will lose ship calls from Hanjin, which could impair their profitability and force some to restructure.

IMPACT The impact of the current situation hits a wide number of parties – not just those with

cargoes stuck on the vessels. The impact is likely to be far-reaching. These include charter parties, ports and terminals, freight forwarders, alliance parties, as well as cargo owners.

The current situation will also knock through to other parts of the supply and production chain. “It is clear that end users of goods or components could suffer delay or a loss of supplies. In either case, the disruption could be significant and have knock-on effects as facilities become clogged and competition for alternative capacity intensifies”

IMPACT Even once Hanjin’s vessels have been unloaded what

happens to the ships next remains open to question. While the 65 chartered in vessels will over time be returned their owners, three of which have discharged their cargoes having done so already, what happens to Hanjin’s own tonnage is not clear. The company clearly does not have money to operate the vessels and there have been reports of crews running low on basic supplies such as food and water.

Over time the vessels will presumably be sold, but this will no be that easy in a market already suffering from overcapacity, even if the ships put on the block at fire sale prices. Hyundai Merchant Marine has been put up as a possible buyer of some of the assets but it is worth remembering it is undergoing its own restructuring having narrowly avoided receivership in July this year.

Although the bankruptcy of Hanjin is a significant event in global container shipping, the situation of overcapacity ensures that the shock will be short lived and quickly absorbed. While competitors may rejoice, this reflects an enduring weakness of the shipping market.

CONCLUSION

BIBLIOGRAPHICAL SOURCES

http://www.eleconomista.es/empresas-finanzas/noticias/7794888/08/16/El-armador-surcoreano-Hanjin-quiebra-y-expone-la-crisis-de-la-industria-naviera.html

http://www.expansion.com/empresas/2016/09/17/57dd809b268e3ee0768b4650.html http://www.prensa.com/in_english/efectos-quiebra-Hanjin-Shipping_21_4569503006.html http://economia.elpais.com/economia/2016/09/09/actualidad/1473435543_108090.html