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Bankruptcy leaves ships unable to unload

Fearing a Grinchy Christmas, U.S. retailers were holding their breath and consulting with attorneys after Hanjin Shipping Co., Korea’s largest shipping line, filed for bankruptcy protection in South Korea. The move threw global commerce into chaos as Hanjin ships became stranded outside ports without money to load, unload or dock.

Around 128 ships were carrying $14.5 billion worth of cargo when Hanjin filed for bankruptcy protection.

Hanjin, ranked as the world’s ninth-largest container shipping company, operates 140 container or bulk vessels, transports more than 100 million tons of cargo a year and runs 13 terminals, two distribution centers and six off-dock container yards in major ports. Its ships carry almost 8 percent of the trans-Pacific trade by volume.

A Korean court approved Hanjin’s petition for bankruptcy protection Sept. 1, clearing the way for the company to seek stay orders in the courts of 43 countries to protect its ships and other assets from seizure by creditors. As of June 30 its debt was more than $5.5 billion.

“Retailers’ main concern is that there is millions of dollars’ worth of merchandise that needs to be on store shelves that could be impacted by this,” Jonathan Gold, vice president of the National Retail Federation, says in a statement. “Some of it is sitting in Asia, waiting to be loaded on ships; some is already aboard ships out on the ocean; and some is sitting on U.S. docks waiting to be picked up.”

Gold says port terminal operators, railroads, trucking companies and others won’t work for Hanjin for fear they won’t get paid, which has paralyzed the shipping giant. “We need all parties to work together to find solutions to move this cargo so it does not have a broader impact on the economy,” he says.

Retailers are particularly concerned about the waylaid freight because fall is the time when they begin taking deliveries for the Christmas shopping season. “The upcoming months are critically important to retailers, particularly ahead of Black Friday and the holiday shopping season,” says Jung Tae Han, a senior vice president and chief financial officer of Samsung Electronics’ Visual Display Division, in a filing in federal bankruptcy court in New Jersey.

Samsung filed the document in support of Hanjin’s petition to the court to recognize the bankruptcy proceedings in Korea and order a stop to creditors trying to seize Hanjin ships and other holdings in the United States in compensation for unpaid debts.

Ahn says two Hanjin ships anchored off Long Beach, California, without the financial wherewithal to dock and unload were carrying 304 containers of Samsung parts and electronics valued at $24.5 million and 312 containers of Samsung refrigerators, washing machines, microwave ovens and dishwashers valued at $13.5 million.

He says many of the electronics parts were destined for Samsung’s factory in Mexico, but “unless the cargo is unloaded immediately Samsung will have to charter at least 16 planes to transport 1,469 tons of goods at a cost of no less than $8.8 million.”

On Sept. 9 U.S. Bankruptcy Judge John K. Sherwood awarded Hanjin protection under Chapter 15 of the Bankruptcy Code, which shields foreign companies from lawsuits by U.S. creditors while they reorganize in another country. This cleared the way for at least four Hanjin ships to dock in U.S. ports and unload. Hanjin’s U.S. representative told the bankruptcy judge that the shipper had money to pay terminal fees and stevedores.

Computer maker HP Inc. also filed a brief supporting Hanjin’s petition. HP’s filing says it has “tens of millions of dollars” worth of personal computers, printing supplies and repair parts in more than 500 containers hung up in the Hanjin bankruptcy. About 314 of the containers were en route to the Americas, and 142 were destined for or in transit to the United States, HP says.

“The ongoing disruption to HP’s supply chain caused by [Hanjin’s] bankruptcy filings is material, costly and worsening on a daily basis,” the filing says. “For example, if HP does not meet its delivery obligations, its customers, including local, state and U.S. federal government agencies, can cancel purchase orders or their contract with HP. In some cases, HP may be required to pay up to $100 per day in liquidated damages until delivery is complete, or suffer deductions to its invoices (e.g., 5 percent per week from the total invoice).”

Bloomberg News reported that Nike and Hugo Boss also had product tied up on Hanjin ships.

On Sept. 13, Cho Yang-ho, chairman of Hanjin’s parent firm Hanjin Group, transferred $36 million to the bank account of Hanjin Shipping to help pay for unloading cargo and using port terminals, according to a report in the Wall Street Journal. His cash injection is part of Hanjin Group’s earlier pledge to put up $90 million to help the struggling company. The Korean government was considering putting up another $90 million in public money to unfreeze the cargoes. An estimated 128 ships were in service and carrying nearly $14.5 billion in goods when Hanjin filed for bankruptcy protection.

Rebecca Moss, a 25-year-old artist-in-residence from London, was stranded aboard the Hanjin Geneva as it stood by, unwelcome at any port, 23 miles off Tokyo. Moss had won a berth aboard the ship through the “23 Days at Sea” program run by Access Gallery in Vancouver, British Columbia.

Moss boarded Hanjin Geneva in Vancouver in late August, bound for Shanghai. She says in a Facebook post that Hanjin’s bankruptcy and the ship’s plight seem tailored to her art form, which is creating “slapstick scenarios [on video] that seek to understand a dynamic between humanity and a landscape by pushing situations to a point of crisis.”

Her residency had “taken an extreme and unknown turn, but surely the best residencies push work into unforeseen territories,” she wrote. “My work will have to explore the enormity and complexity of it — this is my focus.” She seemed inclined to explore the vulnerability of the captain and crew to the vicissitudes of global capitalism. “Who is really in control?” she asks.

In its filing in the New Jersey court, Hanjin traced its financial woes to the global recession and financial crisis following the subprime debacle in the United States in 2008, the subsequent recession in Europe and the economic slowdown in China, which together have precipitated a drastic and prolonged slowdown in global shipping. The shipping industry has yet to break out of the financial squeeze caused by an oversupply of ever-larger vessels, declining demand for shipping services and plummeting rates.

“The financial pressure on industry players, and in particular on weaker carriers, is intensifying daily as rates plumb new depths,” reports Drewry Maritime Advisors, a U.K.-based shipping consultant, in a March 2016 white paper. “Consolidation may be a route to survival for some.”

Drewry says four major mergers in a little more than a year’s time suggest a move toward industry consolidation: Germany-based Hapag-Lloyd with Chile’s CSAV at the end of 2014, followed by Germany’s Hamburg Süd with Chilean carrier CCNI, China’s COSCO and CSCL, and France’s CMA CGM with Singapore-based APL, all in 2015.

“Despite a recovering global economy, the container shipping industry has remained afflicted with severe debt after investing heavily during the boom years and has failed to capitalize on cheap oil prices,” Drewry says. “Industry cash buffers have been built up over the past few years, but these are likely to see significant depletion following a poor second half of 2015 and expectations of a weak 2016.”

The South Korean government is encouraging Hyundai Merchant Marine Co., Korea’s second-largest shipper, to purchase parts of Hanjin to get ships back in operation before the Christmas shopping rush. Its dismantlement would be a major comedown for a company that Forbes magazine in 2003 named one of Asia’s 50 best big public companies.

This article originally appeared in the November 2016 issue.