As Hanjin’s Chaos Rages On, File Your Claims NOW

Suk Tai-soo, president and chief executive officer of Hanjin Shipping Co, arrives at a court in Seoul, South Korea, August 31, 2016. REUTERS/Kim Hong-Ji

Suk Tai-Soo, president and chief executive officer of Hanjin Shipping Co., arriving at court in Seoul, South Korea on August 31st, 2016

Source: http://www.reuters.com/

 

Exceeding the 1986 collapse of United States Lines, consultancy Alphaliner has declared that Hanjin Shipping’s bankruptcy is now officially the largest ever for a container shipper in terms of capacity. With so much press coverage regarding Hanjin’s bankruptcy, very little is given regarding how to proceed – leaving many people frustrated, confused, and angry as they try to sort out this Hanjin debacle during prime peak shipping season, a time where many are gearing up for holiday sales. An October 21st, 2016 screenshot of Hanjin’s website landing page now displays a series of floating windows with hot links directing visitors easier access to what they are trying to accomplish:

2016-10-21-hanjin-landing-page

Perhaps the most interesting side note slipped into this bankruptcy flurry though, is the little known fact that if you believe you have a claim against Hanjin, you need to file that claim in the Korean bankruptcy proceeding between October 11th through the 25th, 2016, with reports that if you miss that claim deadline, you will be out of luck. With a handful of Korean lawyers representing the interests of cargo owners and other potential claimants, they should be contacted immediately if you believe you need to file a claim.

As Hanjin containers pile up and cause a delay in the entire freight forwarding industry, Hanjin Shipping Co. has asked its customers to pay more than usual to bring freight into U.S. ports, creating a backlog that could keep goods off the shelves during the holiday shopping season. With everyone along the supply chain now demanding higher fees to unload and deliver cargo that was stranded abroad the South Korean shipper’s vessels, logistical problems have persisted and economic repercussions are still yet to be seen. “I don’t see a scenario where there isn’t a minimally shortened holiday retail season, and I see the potential for a very shortened retail season.” Said attorney James Van Horn, a restructuring specialist at McGuireWoods LLP, a representative of Eastman Chemical Co., whom is a Hanjin client.

With huge name companies like Wal-Mart Stores Inc., Kroger Co., Eastman Chemical, and Forever 21 Inc. all filing notices to appear in the U.S. bankruptcy case for their claims, many lawyers feel that the fee increases that have exponentially grew since Hanjin’s filing has made it wildly difficult to predict the costs of bringing in stranded ships into U.S. ports. “I’m not sure estimates will hold.” States Ilana Volkov, a lawyer for Seoul-based Hanjin, continuing on that her best guess would be anywhere from $1 to $2 million more per ship due to all the raising fees charged to customers with cargo on its vessels. As Hanjin has approached railways, marine terminals, and container supplies regarding alleged price-gouging, they have also notified the Federal Maritime Commission, but there’s little else it can do, with many troubled by the complaints of profiteering by people in the supply chain.

Nonetheless, lawyers for railways and other service providers have strongly objected to the term “price-gouging” and have simply stated that their clients were only trying to get Hanjin to cover the losses they were incurring because of these delays. As untended shipping containers gather on the docks, some still filled with holiday goods, many terminals and yards are now at full capacity during precious peak season when space is prized at a premium. Fed up with paying again and again for the same containers as prices have risen to double or more the original container prices since the bankruptcy, Ashley Furniture Industries filed papers October 4th asking the court to allow an “administrative freeze” on payments owed to Hanjin for services that were only partially provided as a result of the carrier’s failure to fulfill contractual obligations, stating that they’ve already accrued damages of almost $1 million USD since Hanjin’s collapse. Ashley Furniture asked for permission to set up an escrow fund for freight payments owned to Hanjin, estimating it will amount to about $986.41 per container.

With Hanjin ships now playing a childish last ditch effort of “Run-and-Hide” in international waters to avoid ship seizure and arrests, the shipping industry worldwide is slowly realizing two things (the TL;DR version):

    1. This overcapacity problem isn’t going to end anytime soon, and many ships will have to be scrapped prior to “supply and demand” righting itself to sustainable (and profitable) levels again.
    2. If you feel like you have a Hanjin claim, make it NOW before the Tuesday, October 25th, 2016 deadline. 

 

 

Additional Information:

Hanjin Shipping Files for Receivership, as Ports Turn Away its Vessels (Reuters)

Hanjin Clients Report Price-Gouging (Gulf-Times)

Make Your Hanjin Bankruptcy Claims Now! (JdSupra)

For Bankrupt Hanjin, Costs and Containers Pile up in U.S. Ports (Workboat)

Hanjin Rejects Shipper Effort to Freeze Owed Freight Payments (JOC)

US Forwarders, NVO Urged to File Hanjin Claims Immediately (JOC)

Hanjin Ordered by US Judge to Release Cargo if Freight Cost Paid (JOC)

Hanjin Accused of Deception in Avoiding US Ship Seizure (JOC)

Wild Ride for Hyundai Merchant Marine

Source: http://worldmaritimenews.com/

 

After the world’s biggest container capacity operator, Danish conglomerate A.P. Moller-Maersk, announced in late September that they were planning to break up their company into Transportation and Energy units, there has been intense speculations on Maersk’s takeover capacity of financially ailing Hyundai Merchant Marine (HMM), or of Hanjin Shipping after they filed for bankruptcy protection. On September 22nd, 2016, an executive container operator of Maersk Line mentioned that they were on the lookout for new acquisitions. The week following that statement, Hanjin’s shares rose more than 40% after the Maersk executive mentioned that acquisitions would be Maersk Line’s preferred growth option. “Buying Hanjin or HMM are rumors invested out of thin air. Maersk isn’t really interested in the Korean operators.” Said a source involved in the matter.

The Korea Development Bank, who is the largest creditor of the highly indebted HMM company, is currently working on a restructuring program for stabilization of the carrier and helping HMM improve their finances. From the looks of it, it seems that Korea Development Bank will be highly unlikely to sell HMM to a foreign buyer, since “The Korea government will fight tooth and nail to keep at least one national carrier. It’s a matter of principle to have a flag carrier moving Korean exports around the world.” Said another source that declined to be identified. Shipping industry analysts have stated that it makes no sense for Maersk to make a move on HMM while they are negotiating a place in the 2M shipping alliance made up of Maersk and Mediterranean Shipping Co., a Geneva-based company. If Hanjin is able to avoid liquidation, it is expected to emerge from bankruptcy protection as a much smaller regional Asian ship operator. “If Maersk swallows up Hyundai, customer retention comes into play. Cargo owners want to have a choice of carriers to spread their risk.” Says Lars Jenson, chief executive of Copenhagen-based SeaIntelligence Consulting. If HMM becomes a part of Maersk, customers will look elsewhere for a carrier to be able to shop for better rates. History shows, when Maersk bought Royal P&O Nedloyd, another container shipping company in 2005, it initially lost all of the latter’s trans-Pacific market share while trying to consolidate before finally gaining some market share back again after the dust settled.

Because of a delay in the Asian economy, overcapacity in the container shipping market, and jaw dropping low freight rates, HMM fell into serious debt and creditors took over control in June, 2016. HMM started restructuring the month after due to decreasing liquidity, low cash flows, and suffering from a large amount of debt. A few days after rumors started spreading that Maersk Line would acquire HMM and Hanjin Shipping, Korea Development Bank Chairman, Lee Dong-Geol stated, “We are working over the restructuring of the company, which could help the state-run bank to improve its financial health; but selling the firm to foreign buyer needs a cautious approach. We need to see a bigger picture like fostering Hyundai Merchant Marine into the nation’s flagship shipper.” Another source involved in the matter added, “Buying Hanjin or HMM are rumors invented out of thin air. Maersk isn’t really interested in Korean operators.”

With decreasing demand, overcapacity, and a continuing cycle of price wars that have slashed freight rates to well below break-even levels over the past two years, all carriers have suffered huge losses, and smaller carriers like Hanjin and HMM are struggling to survive. HMM is South Korea’s integrated logistics and containerized freight Transport Company with over 50 sea routes and more than 100 ports of call. HMM operates almost 140 vessels and is the world’s 15th largest container line in terms of vessel capacity, and together with Hanjin Shipping, moves almost 100% of all of South Korea’s exports. “The talk among top industry executives is that Maersk will wait for creditors of small carriers going bankrupt to knock on its door and discuss buyout deals at very low prices.” Mentioned a close source that asked not to be identified. Out of the top 20 carriers currently in play right now, executives with a long history in this industry expect less than half of the carriers to still be operating 10 years from now, and estimate collective losses to reach up to $10 billion this year.

 

Additional Information:

Maersk Unlikely to Buy Troubled Korean Shipping Lines (The Australian)

Korea Development Bank Unlikely to Sell Indebted Hyundai Merchant Marine to Foreign Buyer (Maritime Herald)

Maersk Unlikely to Buy Troubled Korean Container Ship Operators (Wall Street Journal)

Verified Gross Mass = Huge Headaches

2016-10-05-sinking-ship

Source: http://www.seaspace-int.com/

 

In January 2015, the International Maritime Organization (IMO), a sub division of the United Nations, amended the Safety of Life at Sea Convention (SOLAS) to require that the shipper is responsible for each packed container to be loaded onto a ship for export must first have a verified weight. This rule was brought on by the IMO since there were carrier concerns over mis-declared container weights and overstuffed containers contributing to accidents on sea and shore. This requirement became legally effective on July 1st, 2016, causing a slight ripple and annoyance within the shipping industry.

With some shippers accusing container lines of putting the cart ahead of the horse in implementation, there was still great uncertainty over how to define the proper container weight and how to transmit data to carriers. Many have also complained about a lack of global standardization and global enforcement protocols, while carriers and marine terminals are criticized on being free to set their own rules for transmission methods, timeframes, and consequences for incomplete or untimely data. Many also say it’s unfair to hold the shipper accountable for the accuracy of the container’s tare weight when the equipment may possibly belong to the carrier, or to a third-part leasing company.

Now that the trial period of adopting a “practical and pragmatic” approach to VGM regulations has ended October 1st, Risk Management Director Peregrine Storrs-Fox said that the high rate of compliance is “encouraging” – however “it remains to be seen whether the declared VGMs are accurate, representing the result of an actual weighing process.” Since anecdotal evidence suggests that many shippers are simply adding the tare mass of the container to the previously declared weight of the cargo in order to calculate GVM, according to many in the industry. VGM seems to add more problems than it solves, with significant IT communication challenges, and questionable accuracies on full VGM compliance, or how VGM is calculated. With many terminals yet to implement the recommended BAPLIE 2.2 EDIFACT message format, many wonder how these terminals will be able to communicate VGMs to carriers.

With the three month grace period for enforcement now officially ended, the need for regulators to continue their work in a uniform standard of enforcement, including a consistency in the degree of latitude given to non-compliant shippers and industry guidelines for VGM rules. These rules are still something that is highly lacking, full of red tape, causing massive backlogs, and imposing heavy costs on exporters – causing headaches for many in the shipping industry. “Everybody wants to avoid disruption and congestion. The best way to do that is to have a common process where the inputs in the system are always the same.” says John Butler, president of the World Shipping Council. He adds, “In terms of your documentation system and compliance system, you try and build it so it works everywhere because that makes it more efficient.”

 

Additional Information:

The SOLAS Container Weight Verification Requirement (World Shipping)

Shippers Petition U.S. for Relief from Container Weight Rule (American Shipper)

Shippers Slam Forwarders and Carriers ‘Exploiting’ VGM Rule to Add Fees (GCaptain)

Money Makes the World Go Round

2016-09-28-pricing

Source: http://www.flexport.com/

 

 

Over the years, freight forwarding costs have steadily declined as shippers continuously undercut each other in attempts to win and keep business from multiple clients. In 2014, containers were still shipping in a solidly four digit range on the left side of the decimal point, a healthy range that sustained and paid everyone for the job. As of 2016, it is almost like a rare Mew Pokémon sighting to see anything more than three digits on the left side of the decimal point. As of March 2016, a 40’ container from Shenzhen to Rotterdam cost less than a car payment for most people at $400 – which barely covers the cost of fuel, handling, and fees. In fact, prices have gone so low, that it would be cheaper to put your personal belongings in a shipping container as it sales around the world than to keep it in a local mini-storage facility.

As Hanjin’s impact is still developing and slowly trickling out, railways, terminal operators, and container lessors are price gouging the South Korean Line’s shippers by asking cargo owners to pay more than usual to bring freight into US ports after Hanjin filed for bankruptcy. Others are feeling the burn as many transportation providers have refused to touch the South Korean carrier’s assets and unpaid fees are piling up. “If you think about it, these were normal prices back two, three years ago. $1,200, $1,500, $1,800, this was all standard pricing. You have to understand, we WANT the shipping lines to stay open so they can move our cargo, because without them, we would all be screwed. The market is trying to right itself again right now.” said a senior executive of an US based NVOCC who declined to be identified.

With this crisis looking like it will be going on for a while, complaints of inappropriate pricing practices related to Hanjin’s cargo are starting to bubble up. With trucking companies that regularly haul Hanjin cargo at the brink of losing thousands of dollars since a normal billing payment cycle for goods hauled averages 60 days after goods are received. With no formal channels in the United States other than bankruptcy proceedings to pursue their claims, it seems like everyone in getting the short end of the stick as various companies keep a tight hold on all current Hanjin containers in hand and refuse to release unless steep prices are first paid up front. “Based on past experience during tumultuous times, we know that ocean carriers and marine terminal operators begin charging detention and demurrage charges that become extremely expensive in short order.” FMC Commissioner William P. Doyle says. “Although Hanjin believes such price gouging is wholly inappropriate and has tried to intervene (including notifying the Federal Maritime Commission), there is nothing more Hanjin or the Foreign Administrator can do,” Hanjin said in a court filing last Thursday.

Shippers are being pushed and encouraged to take a good look at the financial health of their carriers prior to committing their cargo, which proves to be more complicated than it seems at first glance. Even if a shipper were to select a healthy carrier, there are a few members in each of the three alliances, 2M, Ocean, and THE Alliance, that are fiscally unsound, and there is never a guarantee that a shipper’s cargo will travel on any particular carrier. “Many shippers are having to reassess their tactics. Do we go by carrier or by alliance? That is important so we can keep a balance of the service requirements we need and the ships that are going to deliver our products. There is sufficient competition between carriers to ensure we have enough choice. We look at the financial strength of an organization, their ability to invest, the quality of customer service. Price shouldn’t be the sole determinant.” Says John McCauley, Vice President of transportation and logistics at Cargill. However, this peak season, it looks like money, and how much money a company is willing to part with, will be the sole factor of whether large Hanjin shippers such as LG and Samsung will be getting their Thanksgiving, Black Friday, and Christmas shipments in before the holidays.

 

Additional Information:

Leaky Ships: Ocean Carriers in the Age of Profitless Shipping (Flexport)

Hanjin: Rails, Terminals, and Container Lessors Gouging US Shippers (JOC)

Hanjin Could Cost US Truckers Thousands of Dollars (JOC)

Shippers Struggle to Gauge Financial Health of Alliance Partners (JOC)

Industry Leaders Flounder during Shipping Business Crisis

 

ships

Source: http://www.bloomberg.com/

 

The bankruptcy of the 7th largest shipping container line, Hanjin Shipping, has highlighted the underlying struggle that the entire shipping industry has been leading up to. With 11 of the largest shipping companies around the world publishing results in the red for this past quarter, all firms – both big and small are in danger of going under.

Ever since the financial crisis happened, world trade has slowed down to a trickle, with companies finding ways to cut costs on shipping – like General Electric making engine parts where they are needed rather than shipping them from America. The second factor has been gluttony on the shipping firms’ part, starting around 2011, shipping firms started ordering oversized new ships and creating more supply than demand in the global economy – effectively slashing shipping costs by 50%. So far, shipping companies have favored the cost-cutting strategies of forming alliances, revamping all alliances in the shipping world mid-2015 to 2016. With 3 alliance groups now accounting for close to 75% of the global market share, these partnerships have helped companies share vessel space, but has done little to solve the problem of overcapacity and freight rates from falling.

Now, shipping firms are looking at new ways to inject funds back into their industry. As the rest of the world has kept up with digitization, shipping has always lagged well behind. While modern jetliners can create several terabytes of data per day, cargo ships average about 50 days to produce a single terabyte of information. With poor data communication currently in place that doesn’t even have sensors to ensure that all hatches are closed prior to leaving port, the shipping industry can no longer ignore up to 30% cost reductions in systems that offer better coordination between ships and shores.

“I don’t think we are out of trouble here. I really feel this situation with Hanjin is such a game changer. We have had companies go out of business before. But not to this extent.” says Howard Finkel, executive vice president of China Cosco Shipping Americas. Hanjins collapse is a potential “wake-up call for the industry”,  but Finkel still feels that carriers still won’t be making money for at least another year, despite the “realities of the market” and the impact of the Hanjin collapse injecting change into the shipping industry. Finkel adds, “But I think it’s going in the right direction. Shippers, I think, are going to get the message that we cannot continue to operate at non-compensatory levels.” Peter Schaerf, vice chairman of Seaspan – an owner and manager of container ships states, “I would argue that Hanjin is only a game changer if (their) ships become scrapped, because they are not taking supply out of the market. But rates have to come up to allow volumes to sustain themselves, and carriers have to stop ordering new ships.”

With vessel overcapacity now becoming a chronic disease, and even more on the order books to come, there doesn’t seem to be a quick fix to bring the market back to any sort of short term equilibrium. With players now disappearing from the market and overall concentration increasing, there is now a set number of players controlling the lion’s share of the market – which can help the world move away from having little or no pricing power. The reshaping and reduction of alliances from 4 to 3 would make it easier to manage capacity, as well as support the development for a better balanced industry. Rolf Habben Janson, CEO of Hapag-Lloyd states that the industry needs to shift its focus from reducing costs to increasing efficiency, including addressing issues such as the high level of no shows and low booking discipline. “It is simply not possible to take much more cost out of the system. Freight rates normally go up and down, so after seven consecutive quarters of decline, I think we will start to see the curve move in the opposite direction.”

 

Additional Information:

Profits Overboard (Economist)

Others Could Follow Hanjin Before Container Shipping Rebound (JOC)

Hapag-Lloyd CEO: Container Shipping Set to Recover in One to Two Years (JOC)