Sept 09, 2016 (LBO) – South Korean container shipper Hanjin Shipping has filed for court receivership, which will increase costs for businesses and consumers that were relying on the shipping line, analysts said.
Hanjin is ranked the seventh largest globally, with 98 ships and a 2.9 percent market share, and about 14 billion dollars worth of cargo has been stranded with the collapse announced on August 31.
“Right now, there is much more (freight) demand than there is supply. People are scrambling to find a carrier with space,” said Peter Friedmann, executive director of the Agriculture Transportation Coalition shipping industry group, according to Reuters.
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“But the biggest challenge right now is for people with cargo on Hanjin ships,” he said.
Carriers have announced they will hike container freight rates by as much as 50 percent beginning next month, after the news broke. Sri Lankan companies that relied on Hanjin Shipping too could be affected with stranded cargo.
Banks stopped providing financial support to Hanjin, which has been bleeding red ink, last week, CNBC reported.
That spurred the shipping line to file for court receivership on August 31. As a result, as many as 66 of Hanjin’s container ships were denied access to ports around the world and at least one ship was seized.
Hanjin’s parent company, Hanjin Group, planned to raise around 90 million dollars to help cover the cost of unloading cargo, but the court said the amount was inadequate and that it wasn’t clear when that plan would be executed, the report said.
That has left a lot of uncertainty over how long Hanjin’s ships will sit idle.
Analysts at Citigroup said that toys were likely to be the product most impacted as retailers awaited their shipments of Christmas goodies.
In a research note on Tuesday, Citi analysts said “softlines,” or retail inventory that doesn’t usually come in a box, such as linens or personal items such as gloves, were also likely to be impacted, although department stores appeared to have been reducing their exposure to Hanjin over the past few months.
Companies, particularly those relying directly on Hanjin to move their goods, may see some pressure on their gross margins as shipping prices between Asia and the U.S. rose as much as 40-50 percent in the wake of the bankruptcy protection filing, Citigroup noted.
But some companies may not yet be aware if they’re exposed to Hanjin. Because the shipping line was part of an alliance of shippers, it may have been carrying cargo that was sent on another carrier.
Samsung Electronics said its television and appliance businesses had around $38 million worth of parts and finished products stuck aboard two Hanjin ships, and that it may need to charter at least 16 planes to move the cargo, costing at least $8.8 million, Reuters reported on Wednesday.
Korea Post has had a long term contract with Hanjin Shipping to send letters and parcels overseas. Korea Post halted all packages through the shipper after it filed for receivership, including those heading to the U.S., Germany, Australia, Canada, Hong Kong, China, Taiwan and 14 other countries.
Meanwhile, Hanjin’s sailors could take the worst hit from the shipper’s troubles. Media reports have said some ships, which can have crews as large as 25 on board, were running low on food, water and other supplies amid uncertainty over how long staff would need to wait for legal resolution.
There had been an assumption that major container-ship owners would always find a way to survive, even if a government needed to step in to save them with a bailout. South Korea’s decision not to had rocked that assumption.
One less player in the market meant freight costs ahead may remain higher than before Hanjin’s filing.