Hanjin Shipping Company’s collapse could be the first of in a “series of dominoes” as the industry struggles with overcapacity, an analyst has warned.
Capacity in the industry has increased, with the introduction of bigger vessels and more of them, at a time when demand in the EU and US for goods made in Asia has declined.
“As a result, competition to fill the ships has become fierce, leading to carriers such as Hanjin accepting rates… that are less than cost,” said Richard Clayton, chief maritime analyst at IHS Markit. “The next question is: was the collapse of Hanjin a one-off or the first fall of a series of dominoes?
“Most carriers are losing money every day on every ship,” he said, and the problem is worse for carriers charting ships because “owners don't see why they should now accept lower rates for their vessels”.
Hanjin filed for bankruptcy last week after its main financial backer pulled out. Since then, it has been reported at least 45 of the company’s ships have been stranded at sea, either because ports have been refusing them entry over fears they will not be paid, or because Hanjin is concerned ships will be seized by creditors.
Companies including Samsung and HP are reported to have stock stranded onboard Hanjin ships. The Wall Street Journal estimated as much as $14m of goods could be trapped.
Hanjin was given protection from creditors by a US court earlier this week, and is seeking similar protections elswhere.
“It’s likely that Hanjin Group [Hanjin Shipping’s parent company] will find the funds to pay everyone to enable the trapped boxes to be discharged,” said Clayton. “But that still leaves a huge debt and nothing to pay it back with.”
The collapse of one of the world’s largest shipping companies came when its main financial backer, the Korean Development Bank [KDB], withdrew its support after its debts became too large.
“When the size of Hanjin’s debt hit $5.5bn, of which about $2bn was due to creditors over the coming year, KDB pulled the plug,” said Clayton. “That was the signal for Hanjin’s house of cards to come crashing down.”
Hanjin has not yet responded to requests for comment.
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