Half of Hanjin container fleet denied port access; US firms take legal action

Hanjin Shipping Co President and Chief Executive Officer Suk Tai-soo arrives at a court in Seoul, South Korea, 31 August – REUTERS

SEOUL/SINGAPORE (Reuters): Roughly half of Hanjin Shipping Co. Ltd.’s container vessels have been blocked from ports since the South Korean firm’s collapse, putting manufacturers and their customers increasingly on edge about the fate of cargo and spikes in freight costs.

Woes for world’s seventh-largest container shipper have only deepened since its banks withdrew support and it filed for court receivership this week. One vessel has also been seized by a creditor in Singapore while firms in the US have launched legal action against Hanjin to seize vessels and other assets over unpaid bills.

The potential for cargo to be stranded, perhaps indefinitely, is unnerving for many – particularly as industry insiders and analysts believe that Hanjin has little chance of being rehabilitated and its assets will eventually be liquidated.

“The biggest problem is what is going to happen to cargos at sea. We are just praying that our cargos are not seized,” said Ra Kyung-moon, executive vice president at Forman Shipping, a freight-forwarding firm in Seoul.

Freight-forwarding firms, which organise shipments, may be held liable for customer cargo that doesn’t arrive and are also worried about the recovery of funds paid to Hanjin in advance for services promised.

Some manufacturers are drawing up contingency plans while the US Retail Industry Leaders Association has called on Department of Commerce and the Federal Maritime Commission to take action to minimise disruption.

A Hanjin spokeswoman told Reuters that 44 of its 98 container ships had been denied access to ports including Shanghai, Sydney, Hamburg, and Long Beach, California.

These include instances where lashing firms have refused service, or where port authorities have blocked entry.

But service for Hanjin ships resumed at South Korea’s main ports of Busan and Incheon on Friday after the government said port authorities would guarantee payments for service providers.

On Thursday, a Korean trade group said about 10 Hanjin ships were effectively seized in China. Hanjin said on Friday that number was incorrect.

Shipping costs soar

Freight rates have also surged. Hanjin’s collapse has come during the shipping industry’s busiest season ahead of the year-end holidays.

“The cost of shipping is now jumping through the roof and carriers are filing requests for a full increase in rates from 1 September,” said Paul Tsui, managing director of the Janel Group in Hong Kong, a freight forwarding and logistics firm.

He added that air freight volumes would probably rise to replace urgent orders stranded in ports or at sea.

Hanjin accounts for 7.8% of trans-Pacific trade volume for the US market and has a global client base. Of 8,281 owners of goods to be transported as of late August, 847 were South Korean firms, according to government data. This week, a judge in California ordered the arrest of the Hanjin Montevideo container ship in Long Beach over unpaid fuel bills totalling $ 488,750 owed to World Fuel Services, according to court documents seen by Reuters.

Lawyers acting for two other firms, Hastay Marine and Montemp Marine, applied on 31 August to a court in California to have Hanjin’s assets in the US including cash and property totalling more than $ 3 million seized to pay outstanding rental payments on two Hanjin ships, court documents showed.

Adding insult to injury, Hanjin has also been suspended from the CKYHE shipping alliance, which includes China COSCO, and Evergreen Marine Corp Taiwan Ltd.

A South Korean court has ordered the start of rehabilitation proceedings and set a 25 November deadline for the carrier to submit a plan, appointing Hanjin Shipping CEO Suk Tai-soo as trustee. Hanjin’s shares, suspended since plunging 24% on Tuesday, will resume trading on 5 September, the stock exchange said.

Ripple effects of Hanjin shipping collapse: Shippers’ Academy Colombo

Hanjin Shipping Co. Ltd., South Korea’s largest and one of the world’s top 10 container carriers in terms of capacity and transporting over 100 million tons of cargo annually has filed for bankruptcy protection on Wednesday and in an immediate reaction US ports began turning away its ships from ports. With a fleet of some 200 containerships, bulk and LNG carriers the company has a debt of over $ 5 billion when credit agencies decided to withdraw support and the line collapsed.

US ports began turning away its ships and Wall Street Journal reported that, port terminals from New York to Georgia to California would turn away outbound containers destined for Hanjin ships, sending US exporters scrambling to rebook, truck, reload and repack their cargo into other carriers’ containers.

The collapse is blamed on bad management and planning and due to the global economic conditions as well. We don’t know what will happen to ships with cargo on board as some of them have been seized. There will be delays, legal implications, and confusion and further uncertainty in the shipping industry over the next few weeks said Shippers’ Academy Colombo CEO Rohan Masakorala.

This collapse have sent sudden ripple effects to the maritime industry and shippers as the freight rates out of Korea to US jumped by 50%  as the manufacturers scrambled for alternatives for space in a season where demand was gradually picking up for Christmas. Asia-based freight brokers estimate about 25,000 containers are crossing the Pacific each day on Hanjin ships.   

The Sri Lankan market too will feel this market volatility but at lower impact immediately, as its exporters are less dependent and exposed to Hanjin and bookings to US are made mostly through other carriers, but in the medium term this will have an impact on the current low freight market and other carriers may enjoy a rate rise. It is has certainly not helped the troubled shipping industry and the volatility and more liner consolidation will happen Masakorala further observed.