Hanjin Shipping's demise may lead to the end for profitable global trade
HANJIN Sooho is under arrest in Shanghai port ?one of 20 or more vessels trapped by the collapse in August of South Korea's Hanjin Shipping, at least 10 of them in China alone.
Hanjin was the world's seventh largest shipping line, and the first shipping collapse in 30 years. As Hanjin fell into bankruptcy, so its ships ?and the cargoes in them ?have been frozen wherever they sat.
As one expert shipper noted: "Ships have been seized. Some are staying out of port to avoid being seized. Some are just puttering around, loaded or unloaded."
Industry experts say more than 500,000 containers are trapped on these ships, with cargoes on board worth more than US$14 billion. Since any one container can hold consignments from dozens of exporters, the dreadful reality is that thousands of the region's companies have had goods helplessly trapped for almost three months, with no prospect of early release, Hong Kong's South China Morning Post reported.
Many in the shipping industry have been warning of such a disaster since the global financial market crash in 2008.
Freight rates today are around half what they were two years ago on many of the main shipping routes worldwide. When Hanjin went belly up in August, it had debts of more than $5 billion and was reported to be losing $2 million a day.
Analysts are predicting more mergers, consolidation and bankruptcies ahead. The lines most at risk are said to be Hamburg Sud, Hong Kong's OOCL, Israel's Zim, and HMM, Korea's second largest shipping line after Hanjin.
But absent of a big surge in international trade, no-one expects any improvement any time soon. In fact, life is expected to get significantly worse.
Giants like Maersk, with new super-large 10,000 TEU container ships coming on line, are spilling these onto routes that have historically only generated enough cargo for smaller vessels, aggravating capacity surpluses and ruining freight rates.
As one shipping expert noted: "Maersk is crushing everyone ?including itself."
Industry experts have inclined to call Hanjin's collapse a "black swan" event, but given the very real likelihood of further collapses in the near future, this swan looks very much more white than black.
The crisis cascades into the massive ship-building industries of China and Korea (Hyundai Heavy Industries laid off 10 per cent of its ship-building workforce earlier this month), and into the viability of leading ports. China, as home to seven of the world's top 10 ports, faces a massive challenge, with an overcapacity estimated at more than 50 million TEU.
Hanjin's collapse has also presented a grave warning to companies that rely on complex international just-in-time supply chains. Lucrative export orders to the US or Europe suddenly look much less lucrative if consignments get trapped for months in a container on board an arrested container ship. They can suddenly become loss making if replacements have to be rushed by air to make up for the consignments trapped somewhere at sea.
While some of the larger companies might have the financial strength to bear such a loss, many of the smaller exporters with trapped consignments do not. Companies are now talking of building more "buffer inventory" to protect against such dangers, but these can add significantly to costs.
While this might all be music to the ears of Donald Trump, who is calling on US companies to abandon their long global supply chains, and bring production home, for most multinationals and so many of the companies in Hong Kong and China that rely for their livelihoods on boisterous global trade, the picture emerging from the Hanjin crash could hardly be bleaker.
Our shipping lines may be at the hard end of the challenge facing globally-distributed manufacturing and trade, but in a city like Hong Kong many thousands in our trading economy face lean times.
HANJIN Sooho is under arrest in Shanghai port ?one of 20 or more vessels trapped by the collapse in August of South Korea's Hanjin Shipping, at least 10 of them in China alone.
Hanjin was the world's seventh largest shipping line, and the first shipping collapse in 30 years. As Hanjin fell into bankruptcy, so its ships ?and the cargoes in them ?have been frozen wherever they sat.
As one expert shipper noted: "Ships have been seized. Some are staying out of port to avoid being seized. Some are just puttering around, loaded or unloaded."
Industry experts say more than 500,000 containers are trapped on these ships, with cargoes on board worth more than US$14 billion. Since any one container can hold consignments from dozens of exporters, the dreadful reality is that thousands of the region's companies have had goods helplessly trapped for almost three months, with no prospect of early release, Hong Kong's South China Morning Post reported.
Many in the shipping industry have been warning of such a disaster since the global financial market crash in 2008.
Freight rates today are around half what they were two years ago on many of the main shipping routes worldwide. When Hanjin went belly up in August, it had debts of more than $5 billion and was reported to be losing $2 million a day.
Analysts are predicting more mergers, consolidation and bankruptcies ahead. The lines most at risk are said to be Hamburg Sud, Hong Kong's OOCL, Israel's Zim, and HMM, Korea's second largest shipping line after Hanjin.
But absent of a big surge in international trade, no-one expects any improvement any time soon. In fact, life is expected to get significantly worse.
Giants like Maersk, with new super-large 10,000 TEU container ships coming on line, are spilling these onto routes that have historically only generated enough cargo for smaller vessels, aggravating capacity surpluses and ruining freight rates.
As one shipping expert noted: "Maersk is crushing everyone ?including itself."
Industry experts have inclined to call Hanjin's collapse a "black swan" event, but given the very real likelihood of further collapses in the near future, this swan looks very much more white than black.
The crisis cascades into the massive ship-building industries of China and Korea (Hyundai Heavy Industries laid off 10 per cent of its ship-building workforce earlier this month), and into the viability of leading ports. China, as home to seven of the world's top 10 ports, faces a massive challenge, with an overcapacity estimated at more than 50 million TEU.
Hanjin's collapse has also presented a grave warning to companies that rely on complex international just-in-time supply chains. Lucrative export orders to the US or Europe suddenly look much less lucrative if consignments get trapped for months in a container on board an arrested container ship. They can suddenly become loss making if replacements have to be rushed by air to make up for the consignments trapped somewhere at sea.
While some of the larger companies might have the financial strength to bear such a loss, many of the smaller exporters with trapped consignments do not. Companies are now talking of building more "buffer inventory" to protect against such dangers, but these can add significantly to costs.
While this might all be music to the ears of Donald Trump, who is calling on US companies to abandon their long global supply chains, and bring production home, for most multinationals and so many of the companies in Hong Kong and China that rely for their livelihoods on boisterous global trade, the picture emerging from the Hanjin crash could hardly be bleaker.
Our shipping lines may be at the hard end of the challenge facing globally-distributed manufacturing and trade, but in a city like Hong Kong many thousands in our trading economy face lean times.