Hanjin Shipping files for bankruptcy protection

South Korea’s Hanjin Shipping Co., the seventh largest shipping lines in the world, has filed for bankruptcy protection, creating a tremendous amount of uncertainty with shippers, including many exporters of recyclables. The company filed after its creditors rejected a restructuring plan put forth by Hanjin.

Over the past several years the container industry has struggled with a combination of overcapacity on vessels, low freight rates and a sluggish global economy.

The combination of these challenges has resulted in reported losses for Hanjin for the past several years, with one report noting the accumulated loss was $5 billion.

With losses mounting and little sign of a plan to turn around the financial situation with the ship line several large creditors have decided not to extend the much-needed credit to the company.

According to a number of news sources, Hanjin stopped taking in new cargo and a number of ports -- in North America, Asia and Europe -- have begun turning away its vessels because the company failed to pay the fees that come with using their ports.

Adding to the concern for some shippers have been reports of some Hanjin vessels being seized at a number of Chinese ports. Bloomberg reports that 10 Hanjin vessels were impounded at Chinese ports.

The uncertainty over the containers on the vessels has created a significant concern for companies that presently have containers on Hanjin vessels already enroute to final destinations.

Meanwhile, the South Korean government is working to put together a financial package that could assist Hanjin to continue operating, though several reports are speculating that the end result will be the company having its assets liquidated.

In the meantime, the question is what to do with more than 500,000 containers already loaded on Hanjin vessels. With many terminals, railroads and trucking companies reticent to work with the company out of fear of getting paid, it may be a few weeks before the parties can work out solution to address the containers stuck on the vessels.

While Hanjin’s vessels are being frozen out of many ports, several other ship lines, including Hyundai Merchant Marine, are looking to step in and offer assistance. A Reuters article notes that Hyundai is looking to take over some of Hanjin’s routes.

The Korean government said it wants Hanjin’s domestic rival, Hyundai Merchant Marine Co., to buy healthy assets from the troubled company. It rejected the idea of a merger.

For many shippers, the situation at the present time is less certain. One exporter says the situation is “blurry.”

“No one is quite sure what is going to happen,” he notes. Meanwhile, freight rates are increasing, which is creating some challenges for shippers.”

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What is most concerning for some of these shippers in regard to Hanjin’s filing is that the container line had a sharing agreement with Evergreen Shipping, Cosco, K Line and Yang Ming. An exporter says that while he may have booked space with Evergreen, the container could be on a Hanjin vessel. “It is just so murky right now,” he notes. Having to sort out the space sharing arrangement will be another issue that needs to be resolved and adds to the uncertainty over how the containers eventually will be released.

With Hanjin not taking bookings, freight rates are expected to climb as shippers who typically booked with Hanjin look to place containers on other vessels.