Nicole Encalada, International Business Writer
Earlier this week, South Korea’s largest cargo shipping business, Hanjin Shipping Company, filed for bankruptcy protection in more than 40 countries, including Canada, the U.S., and the U.K., to protect its cargo.
While Hanjin is one of the largest container lines in the world, and the largest in South Korea, it has not turned a profit in the last 5 years.
Hanjin’s struggles are just one example of the ailing maritime shipping industry that has seen margins squeezed amidst a slowdown in global trade which can be partly attributed to the slowdown in Chinese growth.
A rebalancing of the industry is occurring as there is an excess capacity of ships relative to containers. Hanjin, the 7th largest shipping company in the world, is facing $5.3 billion in liabilities and is currently unable to come up with the cash to pay ports around the world to offload their cargo.
According to the company, Hanjin runs 60 shipping lines around the world and transport over 100 million tons of cargo in a year.
The company’s financial health was such a cause for concern that ports would not accept Hanjin’s ships for fears that they would not be compensated.
This marks a daunting event for the company, as more than half of its ships and cargo, as well as the crew members aboard the ships, have been stranded at various ports around the world.
To make matters worse, some ships have already been seized by creditors, according to the Wall Street Journal.
A shipping consultant at IHS Market Maritime & Trade, Greg Knowler commented on the matter, “No one is booking anything on Hanjin’s ships, and the ships aren’t moving. The cargo on them are stuck. It’s just a complete mess, and I think it’s going to take a long time to sort that out, even to just to get the cargo released,” as quoted by the Journal.
In order to improve the situation, the South Korean company’s parent firm announced plans to raise 100 billion won or $90 million to fund the unloading of all stranded ships and its billions worth in cargo.
The South Korean government, however, would match funds at a low interest rate if the parent firm, Hanjin Group, would provide collateral. Chairman of the Hanjin Group, Cho Yang-Ho, would also provide 40 billion won from private funds.
One of Hanjin’s top competitors, Hyundai Merchant Marine Co., also said that it would use supplementary funds from its budget to pay Hanjin’s local contractors, as reported by the Wall Street Journal.
Hyundai Merchant also has plans to take over Hanjin’s routes in Europe and the U.S. to assist with cargo delays. The government of South Korea has even called on Hyundai Merchant to buy Hanjin’s assets.
This does not come as a surprise to experts, as both companies make up a large portion of South Korea’s $1.4 trillion GDP.
According to the BBC, the company’s stock rose 20 percent once news broke of this potential life-saving loan after having fallen 14 percent initially.
Although the company is working to get itself back on track with funding from various sources, observers continue to worry about the impending humanitarian crisis of employees being stuck out at sea with dwindling supplies.
There is only a limited amount of food and fuel for the crew to live off of for several weeks, and if they aren’t allowed access into ports because of their inability to pay, the crew will eventually run out of supplies. However, following recent announcements regarding potential funding, the situation is being viewed as less extreme
According to Wall Street Journal, this event could be considered the largest failure in the history of the shipping industry history in terms of its bankruptcy.
A version of this article appeared in the Tuesday, September 13th print edition.
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