The Hanjin Bankruptcy and Choppy Seas

In early September the Korean shipping company, Hanjin, went into bankruptcy, no longer able carry the burden of its $5.5 billion debt, a long string of losses, and brutally intense competition coupled with the loss of support from its bankers. The company’s fall threatens to disrupt trade at a time of global economic weakness and when North American and European retailers usually stock up their inventories for the holiday season. Indeed, the Korean company is the world’s seventh largest shipping firm, accounting for 2.9% of global shipping trade and nearly 8% of the trans-Pacific trade volume for the US market. Moreover, at the time of its bankruptcy, Hanjin handled 40% of Samsung’s exports and 20% of LG Electronics and was an active force in Chinese exports and the US supply chain. It is not surprising, then, that in the aftermath of the Hanjin bankruptcy the South Korean, Canadian, Chinese, Singaporean, and US governments scrambled to reach agreements to allow Hanjin ships to dock and unload their cargoes. Along these lines, Seoul is seeking to have another Korean shipping company, Hyundai Merchant Marine, step up with additional ships while the state-owned Korean Development Bank is coordinating temporary financing. The trade impact of Hanjin’s collapse also is important to China, where the economy has been struggling to stay above a 6.0% pace. A disruption in Chinese exports could have socio-political consequences if it pushes up unemployment and results in bankruptcies. China’s economy is vulnerable to any major disruption of trade, which Hanjin can cause unless Asian and North American government move in a more coordinated fashion to push along a rapid resolution of the issue. Also of note, Chinese shipping companies are struggling under many of the same difficult conditions as Hanjin, but Hanjin’s demise is not likely to dent overcapacity sufficiently.