More news from the shipping lanes.
Here at Royal Coffee, we are in the business not only of selling coffee, but making sure coffee gets to where it needs to be, when it needs to be there. To that end we work with a number of shipping companies, and lately some of these companies have been in dire straits.
Hanjin Shipping, the world’s 7th largest steamship line, filed for bankruptcy on August 31st. Founded in 1977, the company transports around 3.7 million TEU per year using 104 container ships. Hanjin carries about 8% of all trans-Pacific trade for the U.S. market, and though they aren’t the leading steamship line, this is the largest bankruptcy in the history of the container shipping industry. With this year’s growth in international trade stagnating, a glut of containerized shipping supply, and oil prices still at low levels, many shipping lines are posting losses this year. Unfortunately, Hanjin was not prepared to handle this downturn.
As I wrote in previous articles, there are many factors that have led to the current shipping situation, with its congestion at ports and various other troubles. These problems in shipping affect the coffee supply chain directly, since the vast majority of coffee is not grown in major consuming countries.
South Korea is the world’s leading shipbuilding country, and Hanjin Shipping is (or was) South Korea’s largest shipping company. The failure came after Hanjin Shipping’s creditors (led by Korea Development Bank) lost confidence in the company after the recent funding plan by the parent company (Hanjin Group) was essentially considered “throwing good money after bad.” Generating far more debt than revenue, by a ratio of over 850%, Hanjin Shipping then filed for court receivership. Passing the cost of their failure to those in the supply chain with lower legal claims was the result; shipowners, ports in foreign countries, and Hanjin’s employees could not be paid for their work. The effects of this collapse will be felt far and wide, from a bailout by another Hanjin Group subsidiary, Korean Air, to delayed mail shipments (since Hanjin was the primary carrier for Korea Post). The fallout that probably won’t reach the headlines is the fate of the employees at 230 branch offices in 60 different countries.
Many of the boats which are currently stranded on the water are not Hanjin’s own, but rather chartered boats owned by third parties. Hanjin only owns 38 of the 70+ container ships and 15 bulk ships still stranded. Ports will not take in these ships, as they aren’t guaranteed payment by the shipping line for taking on the cargo or the ship itself (which, in a worst-case scenario, may be abandoned by its crew in the harbor; after all, the crew aren’t getting paid, either).
Complicating matters is the fact that Hanjin Shipping is unlikely to pay its debts. Selling off assets would barely make a dent in the operating costs of the vessels they had chartered, let alone emergency supplies for stranded ships, or even port fees. To this end, the restructuring (or simply the cleanup) of Hanjin is now taking place, bankrolled by its creditors, the other subsidiaries of Hanjin Group’s chaebol (or conglomerate). Needless to say, if Hanjin Shipping survives this ordeal, it won’t look much like it did at its peak.
Hanjin is (was?) a major carrier for trans-Pacific trade routes, and its absence will leave many gaps to be filled – most likely by other major carriers like Evergreen and Maersk. Many countries throughout the Asia Pacific region depended on the shipping routes and times that Hanjin offered, but there are other shippers waiting in the wings to take these routes and their associated demand. Some routes are being served by Hyundai Merchant Marine in the interim, but in this period of oversupply, any opportunity for business is bound to be snapped up quickly. Too many cooks in this kitchen, and only one sink.
Naturally, it can be assumed that the person who filled the sink with dishes should clean them up, but as anyone who has had roommates knows, this doesn’t always happen. Hanjin is that terrible roommate who ended up moving out instead of doing its dishes; now we’re stuck with them. That’s a good way to lose friends, and a good way to lose your deposit as well.
Luckily, Royal Coffee only had one container aboard a Hanjin Shipping vessel. We are expecting that container to come into port very shortly, as Hanjin’s creditors have guaranteed payment to various ports. Just recently, Hanjin Group transferred $36 million to facilitate the unloading process. Funds from Korean Air are still forthcoming. There are still the sheer numbers to reckon with: Hanjin owes $5.5 billion, while only being worth $293 million.