Hanjin’s Bankruptcy

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Source: http://www.worldmaritimenews.com

 

 

Ever since Hanjin, one of the world’s biggest shipping lines owning 2.9% of total container capacity, file for bankruptcy protection August 31st, 2016 in Seoul, Hanjin’s ships halfway through their voyages have been tellingly “prohibited” from shores at ports around the world have turned the company’s ships away; from Europe to Asia to the USA in fear that the Hanjin ships won’t be able to pay port and docking fees, or the ship would be seized by creditors and agitate normal port operations.

Operating close to 100 container ships, Hanjin has been an integral part of global delivery, shipping everything from electronics to Christmas toys coming in from overseas for this 2016 season. This bankruptcy comes after months of weak attempts to infuse cash back into the company by operating below costs in order to raise their liquidity and help with their restructuring of debt. The bankruptcy announcement has now started a “free-for-all” struggle from shippers and cargo owners around the world to locate and regain control of their containers again. With multiple Hanjin vessels being arrested at ports from Singapore to Sydney, ports are refusing to work with Hanjin owned ships in fear that they will not be paid; forcing Hanjin to file for bankruptcy protection in jurisdictions around the world to allow their cargo laden ships to enter ports and discharge cargo owned by over 8,000 cargo owners and estimated to be valued at more than $14 billion.

“It is difficult to predict such company failures, especially with governments frequently asked to bail out failing firms, and they often do so.” Says H.J. Tan, a consultant at Alphaliner. However, “The shipping company’s plans fell short of the requirements for creditors to provide help.” Main lender, Korea Development Bank has said late August, as the bank and creditors have denied Hanjin further financial support. Lee Dong Geon, Korea Development Bank’s chairman further criticized, “While Hanjin Group has shown some efforts to turn around, the owner hasn’t shouldered enough responsibility as head of the company.” Hanjin Shipping held out till September 4th 2016, the last day of their voluntary debt-restructuring program – before filing for court receivership and then bankruptcy. This bankruptcy was announced at a particularly bad time, since the U.S. and Europe retail industries are currently in “peak shipping season”, getting their Asia made products shipped to them in time for Thanksgiving and Christmas sales.

 

Additional Information:

Hanjin Shipping Bankruptcy (JOC)

Another Hanjin Vessel Arrested, this one in Austrailia (JOC)

Hanjin Shipping: One company with 2.9% market share roils global trade (CNBC)

Hanjin Shipping Lenders Reject Revamp Plans as Insufficient (Bloomberg)

Hanjin Captains Ordered to Slow Steam or Drift to Avoid Arrest (gCaptain)

HMM Takes Advantage of Opportunity, Plans to Rescue Stranded Hanjin Cargo

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Source: http://www.marinelink.com

 

Over the past two weeks, the freight forwarding industry has gone on red alert since the media reports and official announcement of Hanjin Shipping’s filing for receivership. The Korea-based shipping company has been suffering from multiple quarters in the red the last few years and was handling an accumulated debt of $5 billion before filing the application to the South Korean government. This turn of events came as a surprise, as Hanjin reported successful negotiations prior to the investors’ rejection of their liquidity plan. As such, cargo handlers have been withholding cargo until guaranteed pay, shippers have been paying additional fees to have their cargo delivered, and opportunists are making the most of the situation by seeking to fill the void that Hanjin Shipping has left.

One such opportunist is Hanjin’s fellow Korea-based shipping company, Hyundai Merchant Marine (HMM). Despite undergoing their own financial troubles earlier in the year, the company has been somewhat successfully normalized and is working its way back into a profitable quarter. HMM has been holding emergency meetings to tackle the Hanjin debacle, and there are now plans set in place to send out ships to rescue these containers in limbo along the trans-Pacific route and Asia-Europe route.

This decision has been outlined by HMM and Korea Development Bank, the main creditor of both HMM and Hanjin. By doing so, they hope to mitigate any fallout from Hanjin’s financial woes. What is more interesting, however, is the national interest in having HMM absorb Hanjin Shipping in some sort of merger, which would essentially minimize the loss of Hanjin’s valuable assets. These two Korea-shipping giants are essential to South Korea’s import/export sector and it seems to be in the government’s interest to minimize the damage of Hanjin Shipping’s bankruptcy by advocating for this proposed merger. Regardless of result, there is no doubt that much more will occur between shippers and carrier prior the resolution of the Hanjin Shipping fallout.

 

Additional Information:

US Marine Terminals Take Varied Approach to Hanjin Fallout (JOC)

HMM Deploys Ships to Pick Up Stranded Hanjin Cargo (JOC)

Claims Against Hanjin Flood In as Customers Seek Their Cargo (JOC)

U.S. Firms Take Action Against Hanjin Shipping As Half Its Fleet Gets Blocked (Fortune)

Hanjin Shipping Remains Tight-Lipped Amidst Bankruptcy Talks in Media (and Updates)

Hanjin_container_ship

Source: http://www.wikipedia.org/

UPDATE (8/31/2016): Hanjin Shipping has officially filed for receivership and industry pundits are now speculating a Hanjin Shipping, Hyundai Merchant Marine (HMM) merger might be considered. The Korea Shipowners Association suggested that their has been national interest in this route.

As of now, the Korea Exchange has suspended the trading of Hanjin Shipping shares indefinitely after its stock price fell 24.16 percent and reached a 1,240 won ($1.11) low. This nadir resulted from the media reports of creditors pulling out of the company and that the company will be applying for receivership and court protection. Most experts in the industry are shocked by the revelation, as Hanjin Shipping themselves pointed out the progress they have made with partners in lowering charter rates and deferring loan payments to foreign banks, which eased many uneasy investors. Both the Korea Exchange and the government are now awaiting an official decision from the company on whether they will file for court protection or not.

It was just last week when Hanjin Shipping proposed a liquidation plan to their main creditor, the Korea Development Bank, which is also supporting Hyundai Merchant Marine. The plan included a capital increase from Korean Air Lines and other affiliated companies of 500 billion won, but it seems to have been rejected by the bank. The Hanjin Group continues to fully support its subsidiary, with all efforts now put into normalizing Hanjin Shipping. Despite their intention, it might be too late to revive the shipping company’s good standing. As of June 30, Hanjin Shipping had a working capital deficit of 3.38 trillion won and was looking a liquidity shortage of 1.2 trillion won over the next two years. No doubt the industry’s flopped quarter hastened this outcome, in which Hanjin Shipping suffered a 212 billion won loss.

Once news broke out of Hanjin Shipping’s possible bankruptcy, civic organizations quickly gathered in Busan to rally for the shipping company. Supporters claim that Hanjin Shipping’s condition necessitates government intervention, and that letting the company go bankrupt would be a devastating blow to the South Korean economy. The organizations credit the company for developing the logistics and shipping sectors of South Korea and hopes that the government will take action to prevent the looming bankruptcy.

 

Additional Information:

Hanjin Group Promises to Back Liner as Creditors Seen Exiting (JOC)

Hanjin Shipping Nears Bankruptcy After Creditors End Support (WSJ)

Hanjin Shipping Gets Breathing Room (American Shipper)

Korea’s Hanjin Shipping Becomes Symbol of Industry in Trouble (Bloomberg)

Trans-Atlantic Route Faces Uncertainty Amidst Recent Events

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Source: www.jsis.washington.edu

 

Although the trans-Atlantic route has always been the calm and stable contrast to the hectic, ever-changing trans-Pacific route, the route has begun to sing a different tune in light of the recent events that have transpired. Namely, experts are pointing out to the political negotiations of the Transatlantic Trade and Investment Partnership (TTIP), slow economic growth in Europe, a possible Italian banking crisis, and Brexit as real concerns for the future.

At the moment, U.S. imports from Europe have been stable, maintaining its healthy growth in volume that has begun since 2013. On the other hand, U.S. exports have shown growth as well, albeit not at a pace that will keep up with the influx of imports. Many are attributing this to the growing strength of the U.S. dollar – this import-export trend on the trans-Atlantic route will play a major role in the sustainability of U.S. profits.

Another factor that will affect the route is the merger between Hapag-Lloyd with United Arab Shipping Co. Unlike the emergence of the THE Alliance and Ocean Alliance, the new Hapag-Lloyd will have a much bigger stake in this route whereas the two newly-formed alliances is more invested in growing their trans-Pacific trade.

Perhaps the biggest impact on the trans-Atlantic route will be caused by Brexit, the shocking U.K. vote to leave the EU. Although we have yet to feel every single ripple caused by the waves of Brexit, many changes have already begun to set in. For example, the exit from the EU immediately caused the value of the U.K. pound to drop to a 30-year low. This, coupled with the growing strength of the U.S. dollar, explains the recent import-export trend between the U.S., U.K., and the rest of Europe.

Prior to U.K.’s exit, the nation made up 45 percent of U.S.’s export to the EU. This will definitely have profound effects on the relationships between the two sides of the trades. The EU will have a much harder time striking a friendly deal now that it has lost the influence and impact that the U.K. brought to the table previously. Thanks to the culmination of all the recent events, the upcoming TTIP negotiations will be a scramble of political and economic outcomes.

Additional Information:

Trans-Atlantic Ocean Trade Faces Political and Economic Uncertainty (JOC)

US Committed to Swift Conclusion of Transatlantic Trade Deal, Says Senior Trade Negotiator (The Parliament Magazine)

Early Post-Brexit Considerations for International Business (Lexology)

TPP Outlook More Grim by the Moment (Politico)

BNSF to Appeal Court Ruling on LA-LB Port Complex Rail Yard Proposal

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What began as a promising project proposal has now devolved into a game of legal tug-o-war between BNSF Railway and the California Superior Court. Just last week, the California court rejected BNSF’s proposal for a near-dock rail yard just north of the LA-LB terminal. The lower court ruled that the proposal’s environmental impact report was inadequate, thus delaying the project for at least another two years. BNSF has begun to appeal the court’s decision through the appellate court, stating that the court is overstepping the boundaries in which the California Environmental Quality Act (CEQA) can operate in. BNSF has stated that if the original ruling stands, they will have no choice but to abandon the $500 million investment altogether.

The goal of the project is to build a rail yard that is primarily used for transferring international containers to intermodal trains, which will significantly reduce truck congestion and traffic on the busiest, largest U.S. port complex. A project ten years in the making, the plan has always been to link this “Southern California International Gateway” to the intermodal Hobart yard located in downtown Los Angeles. BNSF believes that this project can be the precedent of many transportation infrastructure projects that will greatly reduce the traffic in Los Angeles and improve the efficiency of the port complex. In the same week of the ruling, the LA-LB port complex faced technical difficulties and shortages that resulted in delays at multiple terminals, lasting anywhere from two to five hours. Needless to say, if the rail yard can indeed reduce traffic and improve efficiency, it is something that everyone can benefit from.

Unbeknownst to most, the rejection of the proposal was not actually based on the environmental friendliness (or lack thereof) of the rail yard itself. Rather, because it will reduce the international cargo volume directed to the Hobart yard, there is reason to believe that a decrease in international cargo traffic will only be offset by an increase in domestic cargo traffic. And since the proposal fails to address the future use and impact of the Hobart yard, the ruling was given to prevent the possible increase in overall traffic and congestion.

From a business standpoint, BNSF is strongly motivated to realize this project so it can increase the volume of intermodal cargo which fuels its coal and oil business. Its main competitor, Union Pacific Railroad (UP), owns the Intermodal Container Transfer Facility that is just five miles off the terminal harbor. With a decline in business the past two years, BNSF is betting a lot on this proposal to maintain its competitiveness with UP. To defend its proposal, BNSF included a $100 million commitment to green technologies for the SCIG, such as electric cranes and use of solar energy.

Despite the support of the port and city of Los Angeles, the legal battle is a difficult one because of the complexities in the relationship between BNSF and the port. The project would directly benefit both the port of Long Beach and Los Angeles, so their support in the appeal lacks objectivity. The appeal’s success will hinge on the appellate court’s interpretation of the CEQA and whether or not the Hobart yard’s future use is under CEQA’s jurisdiction. Because of CEQA’s broadness and the uncertainty of the rail yard’s effect on traffic congestion, the appeal of the lower court’s ruling can still go either way.

 

Additional Information:

BNSF, Backers to Appeal Decision Delaying Near-Dock LA-LB Terminal (JOC)

BNSF to Appeal Ruling Blocking California Rail Yard (WSJ)

Port of L.A. and Railroad Appeal A Court Decision that Blocked A New Freight Yard in the Harbor (LA Times)

CEQA: The California Environmental Quality Act (California Natural Resources Agency)