Maybe Hanjin Shipping’s exit from the global picture was just the pick-me-up the industry needed. As the world’s seventh largest carrier, Hanjin’s sacrifice was most likley not motivated by bravery or generosity towards its peers but, nevertheless, the effects this decision has had on the oversupply/low-demand crisis are as clear as daylight.
Hanjin’s bankruptcy announcement and the receivership filing were more than enough for ports like Shanghai and Xiamen in China, Valencia in Spain and Savannah, Georgia in the US to refuse receiving the Korean carrier’s ships in the uncertainty that they may not be able to pay for port services.
Now that the company has publicly confirmed its drastic plans, the repercussions have been pouring in. Many ports in the Transpacific trade route have confirmed increases in port rates starting September 1, while Hanjin’s alliance partners are cancelling bookings with the shipping line and are taking their business elsewhere, away from the bankrupt carrier.
Hanjin is part of the CKYHE Alliance and will have to cease joint operations with COSCO Container Lines, "K" Line, Yang Ming Line and Evergreen Line before 2017, which is when the alliance was scheduled to dissolve. Also, just like the shipping lines working with Hanjin decided to suspend their business with the Korean company, many forwarders have cut their relations with the carrier.
Late and expensive
The withdrawal of Hanjin’s 618,150 TEU capacity is a convenient opportunity for cargo-hungry carriers, especially in the Transpacific trade routes, where the shipping line moved 20-25 thousand TEUs. However, it is expected that cargo and trade route redistribution will cause considerable delays in delivery times, forcing the carriers absorbing Hanjin’s cargo to encourage clients to book transport at least three weeks in advance.
An increase in freight rates is expected, along with a tighter containership offer in the Transpacific trade route. For example, by September 1 there will be a US$600/FEU increase, with which feight rates would reach an average of US$1,700, equal to a 54% rise on the Asia-WCUS. Meanwhile, the Asia-ECUS will record an increase of US$800/FEU reaching US$2,400, a 50% higher than the previous average operating value.
The potencial problem for Northamerica and Latinamerica is that the oversupply/low-demand distribution is uneven. While there are trade routes where carriers are operating at a loss due to low demand, there are others –such as the Transpacific trade route- where the business has stayed healthy.
It is precisely in the Asia-America (north and south) trade routes where the demand has stayed stable. This means that Hanjin’s capacity withdrawal will put more pressure on other carriers operting these routes who have worked very hard to optimize costs to maximize every voyage.
However, analysts project that this situation will only be part of a short-term reaction to the crisis triggered by Hanjin’s exit, an excepctional scenario for an industry not used to immediate impact. After Hanjin’s TEUs are relocated among other carriers balance should be restored, and only then can the real effect be taken into account.
While the decision on Hanjin’s future is pending, creditors, clients and suppliers are taking precautionary measures. While the Hanjin Rome vessel was recently seized in Singapore by a creditor, the Korean shipper put out a press release informing the suspension of cargo loading in any of its containerships, cancellation of future bookings and restrained access to container storage facilities. CKYHE Alliance members are not to engage in any business involving Hanjin cargo or vessels with available space.
The freezing of assets and actions has given clients a chance to seek other alternatives for their cargo, but there are still thousands of exposed TEUs in the middle of the ocean, travelling towards an uncertain future. What will happen to that cargo once it lands on shore? Asuming the cargo arrives safe and sound, and if Hanjin’s receivership filing is accepted –which is the most likely outcome- containers won’t be released in lieu of payment, just as some storage facilities are not even taking in empty Hanjin boxes.
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