Hinjan Case 69e

PAF – Karachi Institute of Economics and Technology Course: Warehousing and Logistics Faulty: Atif Ahmed Class ID: Examination Assignment -1

Total Marks: 05 Date: 18/02/2018 Due Date: 25/02/2018

The Hanjin Shipping Bankruptcy Case Hanjin Shipping Co., the eighth largest cargo container carrier (by total capacity) in the world, filed for bankruptcy in South Korea and the United States, stranding nearly 80 ships with almost 500,000 containers offshore. The company plans to file for bankruptcy protection in up to 43 jurisdictions to protect its cargo. Overcapacity in the shipping industry, along with slowing global trade, is resulting in historically low shipping rates and putting extreme pressure on the shipping industry. With seasonal inventory in limbo, retailers will be forced to re-evaluate their import strategy, including high-cost options, such as airfreight, to mitigate potential supply chain interruptions. According to Joe Dunlap, CBRE managing director of supply chain services, "The financial failure of Hanjin Shipping is a shock to global commerce and logistics, but it isn't a complete surprise given mounting overcapacity in global shipping and subsequently depressed container rates. While the eventual removal of some or all of Hanjin from the equation might benefit other carriers, it has left retailers and other importers facing starkly higher costs and service impacts as they scramble to find various other methods to transport or replace their goods, such as airfreight." While this may affect the real estate needs of a small number of retailers and distributors that are highly dependent on Hanjin, the overall effect on industrial

and retail real estate is likely to be negligible unless this issue spreads to more shipping companies. South Korea's Hanjin Shipping Co., the eighth largest cargo container carrier in the world, filed for bankruptcy protection August 30. Almost immediately, this caused major upheaval in global freight shipments as ports around the world refused to handle cargo from Hanjin ships over concerns about the shipper’s ability to pay docking fees. At the time of the bankruptcy filing, Hanjin had approximately 80 ships at sea with at least 500,000 containers on board. In a scene reminiscent of the labor slowdown at U.S. West Coast ports in early 2015, dozens of ships with billions of dollars of cargo are anchored in international waters, sending retailers into a panic over how long their cargo will be delayed and their supply chains disrupted. Hanjin is trying to steer its ships to Singapore, Hamburg and Busan—key transshipment hubs across the globe—in order to minimize disruptions to the supply chain. Overcapacity in the shipping industry is a looming concern as shippers are introducing larger post-Panamax ships to their fleets. In 2015, more than 200 ships were added, ing for an expansion of 1.6 million 20-foot-equivalent unit (TEUs) containers. This was the largest expansion since 2008, when more than 400 ships and 1.5 million TEUs were added. As container capacity grew, global shipping demand slowed. In the first half of 2016, global container throughput grew only 1.2 percent over the previous year, while in the U.S., loaded inbound container volume grew 3.6 percent year-over-year—well below the robust 7 percent growth rate in 2015. This slump in demand, coupled with rising capacity, inevitably led to a decline in the cost that shippers can charge to move a container. The China Containerized Freight Index, a measure of the average cost to ship containers from China to ports around the world, fell to its all-time low in April. While it rebounded slightly, the September 2 index price of 694 is down 15 percent year-over-year and 40 percent over the past two years. In the immediate aftermath of the bankruptcy, the price to ship a TEU from China to the U.S. West Coast rose from $1,100 per container to $1,700. Given the excess capacity in the shipping industry, this rise in price is expected to taper off in the next 30 to 45 days as rival shippers absorb the Hanjin capacity.

While this will have a wide ripple effect over the global supply chain as importers look to diversify the way they import and export goods, the most immediate impact will be felt by retailers who are depending upon these shipments to replenish inventories now. The major near-term impacts are: 





Supply chain interruption. The freezing of shipments means millions of dollars of merchandise destined for retail shelves is held back at ports or at sea until a resolution is reached. This will limit not only immediate store stock for affected retailers, but also their holiday merchandise, which is often shipped months in advance. Because a resolution could take several months, many retailers will likely explore alternative shipping arrangements (other shipping companies, air, etc.) to ensure shelves are fully stocked for the busiest shopping period of the year. Exacerbating profit margin pressures. The supply chain interruption and additional costs of reordering merchandise and expediting delivery will be another squeeze on retailer profit margins that already were affected in recent years by e-commerce and omnichannel growth. Brick-andmortar brands that sought to compete with online players by offering quick, low- or no-cost shipping and returns are facing higher operational costs in recent years, and the additional outlay required to address the Hanjin bankruptcy will put further pressure on the balance sheet. Macroeconomic effect. The Atlanta Federal Reserve forecasts a Q3 2016 U.S. gross domestic product (GDP) annualized growth of 3.7 percent— an outlook highly dependent upon aggressive restocking of business inventories. Given the immediate concern of cargo unable to reach the docks and longer-term volatility in the shipping industry, the outlook for inventories and, by extension, such robust Q3 GDP growth may be in jeopardy.

he Hanjin Shipping Bankruptcy Case as per the newspaper report is most

unprecedented and provided important lessons for Exporters & Importers on the right choice of Inco & Methods of Payment to Avoid Risks. WHAT HAPPENED?

80 container ships with over 500,000 containers belonging to Hanjin Shipping were stranded. Many Exporters and Importers were affected. In our forthcoming master class entitled “Inco 2010 – The Language of Domestic & International Trade” we will be highlighting the following issues: ISSUES 1. When a transporter fails to deliver the goods as per the carriage contract due to insolvency, which party (exporter or importer) shall bear the relevant risks and consequences? 2. Is the buyer still liable to pay the purchase price though it has not received the goods as expected due to Hanjin’s bankruptcy? 3. Can the seller or buyer claim marine cargo insurance for the damages caused by Hanjin? 4. If the goods are discharged at a port other than the destination port, who is responsible for transporting the goods to the destination port? Who bears the additional costs incurred? Does marine cargo insurance cover such loss? 5. A detailed analysis of the 11 Inco (E, F, C & D groups) – the common misunderstanding and misuse by reference to the Hanjin Shipping case. 6. A detailed analysis of about the exposure of using DAP, DAT and DDP in the Hanjin Case.