The bankruptcy of the Cho family-run South Korean shipping company Hanjin has left dozens of gigantic container ships stranded at sea, and merchants worried that the goods they ordered may not reach them.
Hanjin Shipping, South Korea’s largest and the world’s seventh-largest shipping company, filed for court protection on Wednesday and stopped accepting new cargo, after creditors rejected its self-rescue plan.
Following its decision, Hanjin ships on the China-to-Canada route have been refused permission to offload or take aboard containers, because there are no guarantees that tugboat pilots or stevedores will be paid.
The company said Friday that about a third of its cargo fleet – some 40 vessels – is marooned at sea or has been impounded at ports.
10 Hanjin vessels were either seized or denied access at Chinese terminals in Shanghai and Tianjin over the past 48 hours, according to local media reports, with another vessel impounded in Singapore earlier the week.
An estimated 540,000 containers are expected to face delivery delays, according to the reports.
Ocean freight shipping fees between China and the US have soared as much as 50 percent since the bankruptcy was announced, although experts expect the increase to be temporary.
Chaebol woes
To many South Koreans, Hanjin’s troubles are typical of the difficulties the country’s large family-owned business conglomerates – known as Chaebol – are undergoing as offspring of the founding generation struggle to effectively and efficiently run the business empires they inherited.
Hanjin’s founder Cho Choong-Hoon started a trucking business in 1945, and made a fortune hauling supplies for US forces during the Vietnam War. The conglomerate he built helped propel South Korea into one of the world’s major economies.
But since Cho’s son Yang-Ho took over in 2014, Hanjin Group has spent about 1.2 trillion won ($1.07 billion) trying to save the troubled shipping company, which has foundered as freight rates have tanked due to weak demand and soaring global capacity.
Hanjin is currently struggling under a debt estimated at six trillion won ($5.37 billion), after posting huge losses over the past several years.
The younger Cho took over management of Hanjin Shipping two years ago from Choi Eun-Young, the widow of his younger brother Cho Soo-Ho, who ran the shipping firm until his death in 2006. After a brief respite following the global financial crisis, the company slid back into the red in 2011.
“Without expertise or understanding of the industry, Choi Eun-Young was appointed as the CEO only because she was a relative,” Lee Ji-soo, an attorney at Law & Business Research Center in Seoul, said of Choi’s time at the helm. “It is a typical chaebol story.”
Industry overcapacity
The crisis has badly hit the oversupplied international shipping industry, which is suffering from its worst downturn in six decades, and has sent ripples as far as the US economy, with retailers fearing it may damage Christmas trade.
“Forty-five of our 144 vessels are unable to operate in the normal fashion in some 10 countries,” a Hanjin spokesman told AFP. “Some of them are being impounded, others being barred from docking or discharging.”
Hanjin officially entered court receivership Friday, the Seoul Central District Court announced.
The court will decide whether to keep Hanjin afloat under a recovery program including debt rescheduling or to declare it bankrupt. Hanjin Shipping’s assets will in the meantime remain frozen, and the court-appointed new management is required to come up with a new rehabilitation plan by November 25.
Apart from troubles with its management, Hanjin is operating in a brutally competitive, consolidating industry, where profits are being squeezed as shipping rates fall while capacity continues to climb.
Even the biggest ocean shipping company, A.P. Moller-Maersk, is seeing its profits fall, and scrambling to cut costs.
Smaller operators like Hanjin, which with 618,133 TEUs (Twenty-foot Equivalent Units) of container capacity is in the lower tier of the top 10 shippers, cannot muster the scale needed to get by.
sri/nz (AFP, AP, dpa)
