September 1, 2016

Hanjin Shipping and Receivership Update #2

 

To Our Valued Customers: 

Regarding the situation with Hanjin Shipping, we are sharing in our second update what we have learned since yesterday:

As you all have most likely read or have discussed with us already, Hanjin Shipping will no longer exist as we know it moving forward, effective immediately.

Hanjin has requested as of 8/31/16 to go under Court Receivership in Korea so that a bankruptcy court appointed management team can act on behalf of Hanjin to settle accounts as much as they can, and to enable a somewhat orderly closure of the company over the next few months.  Typically, this process of granting receivership can take weeks, but in this case, due to the nature of the business that Hanjin is involved in, Hanjin is pushing for the receivership to be granted in the next 2-3 days.

Until receivership is granted (and a team is in place to act on Hanjin's behalf), all vendors of Hanjin's, including truckers, terminals, trans-shipment hubs, bunker facilities and providers, canals, chassis leasing companies, rail carriers, charter owners, alliance partners, banks, etc. will cease to conduct business with Hanjin.  So until that time, it is our understanding and expectation that all terminals will immediately cease to service Hanjin vessels, and may in fact refuse to allow Hanjin vessels into port (we are seeing it now all over the world).  Even the Panama and Suez Canals have reportedly blocked entry of Hanjin vessels into the canals.  

And that will be the status until receivership is granted and organized.

Once receivership is granted, it is our understanding that all vendors and Hanjin customers will have an official conduit through which they can conduct the financial and operational requirements to conduct the business that is required to work through the challenges that exist, process accounts payable and receivable, negotiate and settle debt obligations to the extent they can, obtain cargo releases, etc.  And it would be at that time that terminals, ports, canals, etc. will begin to allow vessels in to be worked.

For Hanjin cargo already in ports that has yet to be pulled, that cargo is frozen and in limbo. Terminals are in the process of determining the appropriate fees that they will assess directly to the beneficial cargo owners in order for those containers to be released.  In essence, if you are a terminal (or any vendor) you most likely had been providing Hanjin substantial terms and credit, so Hanjin vessels that have been worked in the last 30/60 days Hanjin has not paid those fees, and therefore their vessels were worked for free.  So terminals now are looking to recoup those charges and they intend to collect them from the beneficial cargo owner/consignee/shipper that are associated with those containers in their custody.  There will be tens of thousands of containers stuck in limbo in the next few days (and well over 100,000 by mid-September) at ocean and rail terminals all over the world.  In many cases, for lower value commodities like waste paper for example, the fear is that the additional fees will be high enough that many shippers/consignees may abandon that cargo.  

So what does all this mean to you?

1.  Most likely, if receivership is granted quickly and the process to work through the bankruptcy can get started, we will start to see Hanjin vessels able to berth and be worked, financed largely from CKYH+E (CKY+E) partners, and we can begin the process of obtaining releases.

2.  All Hanjin vessels will have delayed ETAs moving forward, and it will be impossible to obtain updated ETAs until the above processes begin to get worked out.

3.  The CKY+E Alliance will be particularly impacted (delays, vessel seizures, scheduling uncertainty as they are losing many of the vessels in their strings).  Once receivership is in place we expect those carrier partners to feverishly do everything they can to expedite and process the release and normal handling of their containers on Hanjin vessels.

4.  Rates will go up.  Just in the Transpacific Eastbound trade alone, Hanjin controlled a sizeable market share and was carrying approximately 30,000 x Teus every week from Asia to the United States.  All of this cargo has to find a new home immediately in a market that already was tight because of capacity cuts underway by most carriers.

5.  Did I mention rates will go up?  I expect the September GRI ($1000/40’) to go into effect with little mitigation.  Carriers have already filed a TPEB GRI for October 1, 2016 of $1500/40’ and we expect PSS clauses that are already on file with carriers to be imposed as early as 9/15/16.  And we expect export rates to increase as planned in October and November through previously announced GRIs.

6.  Air freight demand will increase as inventory gets stuck and importers and exporters may decide to air product in to satisfy customer demands and deadlines.

7.  Will other carriers simply add capacity to pick up the slack?  Yes, but it takes time to get those assets in the right place at the right time.  We have already seen announcements from COSCO, Evergreen, Yangming and Hyundai that they will be positioning extra loaders in place in September and October to relieve some of the pressure.

8.  Expect congestion.  We all have experienced how quickly ports and terminals can become congested, and what impact that has on the flow of goods in and out of terminals.  With Hanjin containers stacking up globally, we expect congestion delays to impact terminals for months. 

As we learn more, we will continue to publish and share articles, and add market letters to Laufer.com. 

Our #1 priority as always is to help maintain our customers’ competitiveness, to keep your cargo flowing as quickly and as consistently as possible, and to continue to communicate effectively along the way.  Our nimbleness, market awareness, and “Built Different” philosophy enable us to do this - as your partner.  We will get through this together.

Thank you very much for all your support.

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