Today is the last day at work for the few remaining
employees at Hanjin Shipping in the United States, as the company, which once had 400 employees in the U.S., has
wound down operations in the nation after declaring insolvency and filing for
bankruptcy protection in both South Korean and U.S. courts.
Hanjin filed for bankruptcy protection at the Seoul Central District Court Aug. 31, and in early September, requested to have its rehabilitation in bankruptcy court in Korea be recognized under Chapter 15 of the U.S. bankruptcy code.
Hanjin was the largest Korean container carrier and the seventh largest in the world before filing for court receivership.
Originally, Hanjin said it wanted to “seek normalization through commencement of company reorganization,” but its financial condition was so poor that its auditor, Samil PricewaterhouseCoopers, recommended this month to a South Korean court that the carrier should be liquidated.
Once Hanjin containers left terminals and were unloaded, many truckers and shippers were faced with a problem when marine terminals or inland yards refused to take back the containers. This created or exacerbated a shortage of chassis at some ports.
Hanjin’s bankruptcy was the biggest in the container shipping industry since the 1986 bankruptcy of U.S. Lines, but far more complex because as a member of the CKYHE Alliance, Hanjin’s problems impacted partners COSCO, “K” Line, Yang Ming and Evergreen Line, who shared space with the carrier on ships. Many of those companies sprang into action immediately in order to protect their customers, refusing to load cargo on Hanjin ships or load Hanjin cargo onto their vessels.
Both Hanjin and rival Korean container carrier Hyundai Merchant Marine (HMM) sought assistance from the Korean government early in the year, and for many analysts, the fact that it was Hanjin that ended up filing for insolvency was a surprise. Dirk Visser, senior shipping consultant at Dynamar, told American Shipper earlier this year that “we always had the impression here that Hanjin was the stronger party and now it seems that Hyundai is the surviving one.”
It’s still not entirely clear why the fortunes of the two carriers were so different.
Hanjin had difficulty getting concessions from charterers, and according to the Yonhap News Agency, was put under receivership in September after “creditors, led by the state-run Korea Development Bank, rejected its latest self-rescue package worth 500 billion won (U.S. $440 million), which fell short of the 700 billion won demanded by its creditors.”
Cho Yang-ho, chairman of the Hanjin Group, which also includes Korean Air Lines, told South Korea’s parliament in October that his company had done everything it could do to save the container carrier. Yonhap reported he told legislators that Hanjin fell victim to the global players' game of chicken, which forced it to cut already extremely low freight rates in order to compete with other carriers.
Still, there are concerns that Hanjin’s demise may, at least in part, stem from the scandal that has engulfed the presidency of Korea President Park Geun-hye.
In September, Park criticized Hanjin Shipping for having a “complacent mindset,” saying the government would not blindly support companies in financial trouble. She said such companies should implement belt-tightening efforts first.
In November, the Korea JoonAng Daily reported that Cho Yang-ho, chairman of Hanjin Group, said he was forced to step down as chief of the organizing committee for the 2018 PyeongChang Winter Olympics and reportedly lost favor with Park’s government because he refused to separately donate to the K-Sports Foundation led by Choi. He also was reported to have rejected demands that he place business orders for Olympics infrastructure to a company related to Choi.
The newspaper noted, “Coincidentally, the government and state-run creditors turned cold toward Hanjin Shipping, one of Cho’s major companies, and had the country’s largest container carrier head to bankruptcy court.”
There are concerns that Hanjin’s problems will create continuing difficulties for carriers in both Korea and around the world.
This month, the Korea Economic Daily published an article that said, "Foreign shipping companies use false propagandas against Korean rivals."
SM Group plans to launch a container service using the name SM Lines between the Far East and U.S. early next year. Various sources have told American Shipper many details need to be worked out, but the company's U.S. operation is likely to be based out of Phoenix, Ariz. or Southern California, and could have anywhere from one to three transpacific strings, with a focus on shippers in South Korea, China and the U.S.
But Hanjin’s financial problems could also cause problems for other carriers. Rumors about financial problems at other carriers could cause shippers to avoid them. When "K" Line received reports in September that employees of APL Logistics, a subsidiary of Japan's Kintetsu World Express, were spreading rumors about it possibly filing for bankruptcy, it sprang into action - wresting an apology from APL Logistics President Beat Simon. And just this week, "K" Line followed up by filing a lawsuit against APL Logistics in Japan.
Lawrence Gross, a partner at FTR Transportation Intelligence, told Reuters that Hanjin's collapse could push producers and retailers to more closely scrutinize the shipping companies they choose.
"Customers have treated container shipping as a pure commodity play, but now they realize not all carriers are built the same," Gross said. "I think we may see a bit of a flight to quality as customers seek more stable partners."