Commentary: Is Hanjin the unlucky gazelle?

The South Korean liner carrier is surely to blame for its own demise, but how much of its demise can be attributed to luck in an industry where most play follow the leader?    It’s hard not to feel like Hanjin Shipping was the gazelle that happened to be on the outside of the herd when a hungry pride of lions was looking for dinner.
   There’s far more nuance in why Hanjin collapsed when other liner carriers didn’t than you see in a typical nature special. You can trace Hanjin’s troubles back a few years, not a few months, with multi-year internal and external dynamics at play.
   For instance, an advisory company looking to help carriers rebalance their financial situations, told me four summers ago that the Korean lines were in a very vulnerable state. This spring, a former carrier veteran who now runs the ocean business for a prominent U.S. freight forwarder told me the Korean lines were in worse shape than was even being reported.
   Great 20-20 hindsight, I know. But all these snippets of information came flooding back to me in recent days – I felt like a homicide detective who missed too many clues.
   But maybe, rather than specific missed clues about Hanjin, there is a bit of luck involved here. Maybe Hanjin was the unlucky pawn in a salvage plan by Korean creditors, a theory posited by Ryan Petersen, chief executive officer of the freight forwarder Flexport.
   Maybe, for as much structural support as Korea’s government and private sector gave to Hanjin over the years, there was an end point that doesn’t exist in other neighboring nations. Hanjin has untenable debts, sure, but it hasn’t been as consistently loss-making as many of its rivals over the years.
   It hasn’t ordered the most amount of capacity in the industry. It’s played ball in alliances, then mega-alliances. What truly differentiated Hanjin’s plight from that of half a dozen (or more) other lines?
   An interesting comment (albeit from an unnamed source) emerged Thursday that sheds a lot of light on the broader issue for me. The Economist used Hanjin’s bankruptcy to dive into Maersk’s situation, including whether the Danish line’s parent company will sell off non-shipping-related assets and focus on its maritime roots.
   But the report also looked at the core problems afflicting the container shipping industry, one of which is a fundamental lack of data and digitization. The report portrayed Maersk as being on the leading edge (within the industry) of a movement toward more data, to which, according to The Economist, “an executive at one of Maersk Line’s rivals admits: ‘We just watch what Maersk does and copy it.’”
   Isn’t that the big problem here? Isn’t Hanjin just the lemming that actually drowned?
   For all the purported egos in the liner shipping business, there has been a stunning lack of groundbreaking innovation for decades. Most lines basically do what the others do. I’m not even referring to the physical sense of commoditization – the notion that a ship is a ship is a ship. I’m not talking about differentiation by network – the idea that “we’re in the South America trades and they are not.”
   I’m talking about true business process innovation.
   Even prior to the Hanjin collapse, I had taken to asking people in the industry a simple question: what if every carrier had ordered one or two fewer ships and spent that, say $100 million, on software? Software to better understand the profitability of every single piece of business. To understand their real-time inventory (i.e. capacity) in a dynamic way. To understand where their sales staff were underperforming compared to forwarders and non-vessel-operating common carriers (NVOs).
   If a carrier wants to challenge me on any of those points to say that those systems exist, then I ask, why were they not being used? Because a business that has those systems would not allow themselves to hemorrhage money quarter after quarter, no matter the supply-demand economics.
   Yes, I understand ship-ordering cycles mean that carriers have to take bank-backed gambles on assets that have to be used whether the rates say they should be used or not. But, again, imagine a scenario where there are 20 to 40 fewer vessels in the market, and 20 companies that are individually smarter about the way they chase business and manage their product.
   There’s another element at play here, as Hayes Howard, chief executive officer of BlueWater Reporting noted. 
   “The lions might now have a taste for gazelle,” Howard said. “This is not a frivolous remark. Shippers have refused to punish carriers who do not keep their finances in order and indeed I think that was a contributing factor to the financial condition the carriers, and their bankers, have allowed them to fall into. Shippers should start paying closer attention to carriers’ financial health and this would naturally result in business moving from less financially secure carriers to more financially secure carriers, which may lead to one or more carriers collapsing or being pushed into mergers such as APL and UASC. The end result should be a healthier industry with carriers less willing to accept non-compensatory rates.”
   It’s hard for me to feel too much remorse for any carrier that, eyes closed, kept trudging toward that cliff, safe in the knowledge that it would be thrown lifeline after lifeline. And the way Hanjin has apparently handled customer service post-bankruptcy filing is a handbook on what not to do in these situations.
   But I do feel like Hanjin happened to be the unlucky gazelle, pushed to edge of the herd, a sacrifice so that all the other gazelles could live another day in the treacherous wild.