The final blow came on the February 17th and it is every bit as devastating to the shipping industry as anticipated last year. A South Korean Court read the last rights on Hanjin Shipping Co. Ltd (117930. KS) on Friday. This follows a ruling earlier this month which indicated its liquidation value was in excess of the value as a going concern. Thus ended the story of what was once the world’s 7th largest container shipper.
The first indicators of trouble in paradise came in August 2016 when Hanjin applied for court receivership. This followed a decision by all its major creditors to stop propping Hanjin up. The ruling from the Seoul Central District Court indicated that a bankruptcy administrator had been appointed and all creditors should make claims by the 1st of May 2017. After that, there will be an initial meeting of creditors on the 1st of June this year.
A Troubled Icon of the Shipping Industry
The court had been exploring the possibilities of getting a creditor to allow the application for receivership to proceed. By the 2nd of February 2017, it became clear that no such creditor was forthcoming. Thereafter, bankruptcy proceedings commenced. Industry experts were at pains to explain what had happened to Hanjin. Some blamed the firm’s demise on the general malaise within the industry which was characterized by overcapacity in the face of declining global demand. Indeed, Hanjin has been used as a test case on what was happening to the industry in the wake of a number of globalized challenges.
The crisis of Hanjin was not its own alone. Instead, there was a kind of contagion across the industry; with port delays and stranded cargo. Long Beach and Los Angeles were two of the most affected ports. Many watched helplessly as various cargo ships idled off the docks. Speculation was rife that the creditors might seize the vessels if they ever got to land. Meanwhile, the court process was moving ahead full steam, with Hanjin obtaining approval to sell its majority stake in Total Terminals International Inc., a container terminal operator that is based in Long Beach. This was just one of the many divestitures by a company that had struggled under the stifling weight of massive debt for years.
By the time Hanjin applied for bankruptcy protection, its debts amounted to $5.37 billion. Creditors were not budging and its ships were refused entry to many international ports. A forensic accounting exercise showed that there was little hope for recovery. Its 1500-strong staff team is facing an uncertain future after the vast majority of Hanjin assets have been liquidated. Many are still worried despite the sober reassurance from the court that “the bankruptcy process would enable the firm to pay off debts to all debt-holders in a fair and proper fashion”. Since Friday, Hanjin’s Seoul-listed shares are no longer on the market. Its fleet of 141 ships was already facing punitive bans from docking in USA and China as well as in many important trading nations.
To some commentators, the story of Hanjin was a slow car crash scene. This family-run business had been holding on to the top positions until a huge crisis hit the shipping industry. It became the unwitting victim of global forces, mainly beyond its control. China is a major shipping conurbation and it was suffering a trade slump. It is widely acknowledged that the slump represented the worst crisis to hit the industry in over 50 years. Other post-mortem notes blame the demise of Hanjin on executive mismanagement, particularly under the helm of the widow of a former owner.
Some Practical Measures
Many ports and retailers are still absorbing the implications of the bankruptcy. There has been some confusion as to what happens with those marooned container ships and it is not yet clear that cargo will get to the destinations. Hanjin stopped accepting new cargo sometime back but there is still a backlog. In any case there will be no comeback for Hanjin, certainly that is the opinion of Rahul Kapoor of Drewry Financial Research Services. He argues that because “shipping is all about marketing and service reliability”; the collapse of such an iconic firm in the industry is likely to be final. With this comes the loss or disruption of about 8% of trans-Pacific trade volume for the US market. As rival shipping lines take over the Hanjin traffic, prices have risen by as much as 50%