How the path to recovery may start with failure

How the path to recovery may start with failure

 

Officials from port-related organizations rallied in Busan Aug. 31 to plead with the government and creditors to map out measures to save financially strapped Hanjin Shipping. The pleas fell on deaf ears as creditors declined to provide additional support, sending the South Korean carrier into bankruptcy.

Photo credit: Yonhan News/YNA/Newscon

Sometimes a picture, a caption and a headline can tell the story. And sometimes they just plead for context that opens the door to deeper questions.

So it is here, where hundreds of shipping interests rallied to the defense of beleaguered Hanjin Shipping on Aug. 31, a day after the Korean ocean carrier filed for court receivership when its creditors pulled the plug on additional financial support — in essence recognizing what many saw as inevitable long before.

One can’t help but wonder about the makeup of those rushing to Hanjin’s defense — those with a vested interest, of course: port and terminal operators, and others to whom the carrier owed money, including, perhaps, some of Hanjin’s partners in the CKYHE Alliance and those in other slot-sharing arrangements.

But where, other than those creditors who repeatedly extended funding to prop up a company whose financial losses since 2011 measured in the billions, was that support before Aug. 31? In hindsight, there was little or none, because cargo interests had largely distanced themselves from any long-term relationship with Hanjin, according to sources who, as far back as last spring, said few, if any, BCOs were signing service contracts with the Korean carrier because of the very risk a potential collapse posed.

Unfortunately, that offered no protection for those BCOs who signed with other carriers in the CKYHE Alliance — Cosco, “K” Line, Yang Ming, and Evergreen — and whose cargo moved on Hanjin ships that are now hamstrung in legal limbo.

For other ocean carriers, Hanjin’s demise might just be the event that tilts the playing field back in their favor for the first time since 2010. The response was immediate and stark: a September general rate increase in the eastbound trans-Pacific not only held, but took the spot market up by nearly 45 percent to the East Coast and more than 50 percent to the West Coast — and other GRIs and surcharges stand a better chance of holding up than any in recent memory.

For shippers, however, the timing couldn’t be worse, coming as the peak shipping season gets rolling and as holiday goods leave Asia for the United States, Europe, and elsewhere. Perhaps in time, the space crunch BCOs are feeling now will ease as ocean carriers redeploy some of the 1 million TEUs in estimated idle capacity.

Until then — and maybe beyond, if carriers manage this situation to their maximum benefit — shippers have lost the advantage they’ve had for so long. Ironically, it took a carrier collapse for that to happen. For carriers, then, the path to recovery actually may start with failure.

Contact Chris Brooks at chris.brooks@ihsmarkit.com and follow him on Twitter: @cbrooks_joc.