Hanjin's bankruptcy may affect all of us very severely . . .

. . . because it might significantly impact the entire world economy over the next few months - perhaps continuing right through the Christmas shopping season.

For those who haven't been following the news, Hanjin Shipping Co. of South Korea filed for bankruptcy protection in that country last Wednesday.  It's one of the top ten container shipping companies in the world in terms of volume, and owns dozens of the large container ships covering the trade between China and its markets in the USA and Europe.  To make matters more complicated, the company is part of an alliance with five other shipping companies.  Containers aboard its ships might come from or be handled through any of the six enterprises, making control of them (and sorting out the current mess) very complex indeed.

The company had been in financial trouble for years, worsened recently by the crisis in the container shipping industry.  Now, creditors for Hanjin are scrambling to ensure that they get paid, as are companies with which it does business.  The Wall Street Journal reports:

... terminal operators, ports, cargo handlers, truckers and others have refused to handle [Hanjin's] cargo, for fear they won’t get paid. That is causing turmoil at U.S. ports and beyond, said shippers, importers and freight forwarders.

U.S.-bound cargo has been delayed at the point of origin, and cargo-laden Hanjin ships are unable to get into U.S. ports. Already delivered cargo is sitting unhandled, clogging ports and occupying containers needed elsewhere.

Several Hanjin ships have been seized by creditors or barred from shipping cargo from Busan, South Korea’s main port, and vessels have been turned away from ports in the U.S., China, Canada, Spain and elsewhere.

An official at the Korea International Trade Association said about 10 Hanjin vessels were either seized or denied access at Chinese terminals in Shanghai and Tianjin over the past 48 hours.

The ships were seized after legal action by shipowners who leased them to Hanjin and didn’t get charter fees, workers who didn’t get paid, terminals which weren’t paid docking fees and bunker fuel suppliers.

Earlier in the week another Hanjin vessel was seized in Singapore.

There's more at the link.

Many other companies, from giants like Walmart and Target to trucking companies, may face very serious consequences over this.  US News reports:

South Korea's maritime ministry said in a statement that Hanjin's troubles would affect cargo exports for two to three months, given that August-October is a high-demand season for deep-sea routes. It said 540,000 TEU of cargo already loaded on Hanjin vessels would face delays.

Hanjin, the world's seventh-largest container shipper, represents nearly 8 percent of the trans-Pacific trade volume for the U.S. market.

The National Retail Federation, the world's largest retail trade association, wrote to U.S. Secretary of Commerce Penny Pritzker and Federal Maritime Commission Chairman Mario Cordero on Thursday, urging them to work with the South Korean government, ports and others to prevent disruptions.

The bankruptcy is having "a ripple effect throughout the global supply chain" that could cause significant harm to both consumers and the U.S. economy, the association wrote.

"Retailers' main concern is that there (are) millions of dollars' worth of merchandise that needs to be on store shelves that could be impacted by this," said Jonathan Gold, the group's vice president for supply chain and customs policy. "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. It is understandable that port terminal operators, railroads, trucking companies and others don't want to do work for Hanjin if they are concerned they won't get paid."

The confusion might sink some trucking firms that contract with Hanjin to deliver cargo containers carrying everything from electronics to car parts from ports to company loading bays.

"They've got bills to pay — they could literally close their doors over this," said Peter Schneider, Fresno-based vice president of T.G.S. Transportation Inc.

There's more at the link.

Bear in mind that we're approaching the Christmas shopping season, the biggest of the year, in which many stores make 40% to 50% of their annual income.  They depend on Christmas turnover to turn a profit on their entire year's trading.  Suddenly, many of the goods they've pre-ordered may not get to them in time for the shopping season.  If they're already on Hanjin ships, or in Hanjin containers, the chances of transferring them to other means of transportation are very slim right now.  Even if that could be arranged, shipping rates on major routes are already trending much higher as a result of the crisis.  If it becomes two to three times more expensive to get them here (the BBC has a good breakdown of the costs involved), that might make the difference between their purchaser making a profit this year, or making a loss.  Some businesses might not survive the latter.

The problem may stretch into the longer term for those with cargoes in Hanjin's hands.  As the Wall Street Journal reported:

“In 2001, Cho Yang, a much smaller Korean carrier, went bust and it took six months before a mere 200 containers, handled by a single freight forwarder, could be taken off to ports,” said Lars Jensen of Copenhagen-based SeaIntelligence Consulting. “This is at a much bigger scale so I would not be surprised if scores of boxes on stranded Hanjin vessels [n]ever actually make it to their destination.”

More at the link.

In the short term, if you intend to buy goods made in the Far East as Christmas gifts, particularly high-end items like TV's, game consoles, etc., it might not be a bad idea to buy them now, because the quantities and models available nearer Christmas might be limited (and their prices might be higher).  Furthermore, if you rely on Far Eastern goods for your business - if you couldn't keep your doors open without them, or won't make a profit this year if you can't get enough of them - then you need to buy everything you can right now, while you still can.  Prices are already rising to reflect the limitations on supply.

I suspect Christmas this year may be more expensive for all of us, possibly by as much as 25% to 50%, when it comes to the Far Eastern-sourced gifts we'd normally buy.  A lot of consumers may not be able to afford that.  The same goes for a lot of companies, who probably can't afford the loss of sales revenue that will result.

Furthermore, remember that we've already discussed the crisis in container shipping in these pages.  Hanjin's the first major casualty.  There are likely to be more.  This crisis may be a long way from over, and may get worse before it gets better.

Peter