The Bottom Line: Managing the aftermath of a major carrier bankruptcy

   The recent events surrounding the bankruptcy of Hanjin Shipping have resonated with serious negative overtones impacting global supply chains in almost every industry.
   Vessels and cargoes are being seized, crew members are facing arrest and prosecution, senior executives are being pursued by government authorities, and freight is being held up from meeting delivery and destination requirements.
   In my consulting practice, we faced numerous concerns raise by purchasing, import, traffic, and supply chain executives who were dealing with major delays and potentially more serious cargo issues in their import and export operations.
   Our recommendations provide a blueprint for what steps a supply chain professional can take when this scenario arises. Hanjin was by no means the first serious bankruptcy in the world of international business, nor will it be the last, and shippers must have a plan in place for such events.

Assess The Damage. This is the first step to mitigation. Evaluate where your shipments are and which ones could be negatively impacted. Prioritize the shipments that require immediate attention.
   The next step should be to communicate the issues internally to all stakeholders. Even though it may be embarrassing to admit your concerns, a direct, no-nonsense approach will always prove more successful with colleagues and other vested interests, as it allows them to take necessary action as early as possible.

Mitigate Your Circumstances. Once your initial assessment is done, create a strategy and action plan that can mitigate your specific issues. This can include moving freight with other carriers, pulling shipments where possible and air freighting small balances to fulfill immediate needs.
   Reviewing the back of an ocean bill of lading to determine your rights and the carrier’s liabilities—something one would normally only do under the most terribly boring of circumstances—becomes a necessary evil in the overall risk management evaluation and assessment process. Bills of lading, Inocterms, purchase orders, commercial invoices, carrier contracts, and forwarding and brokerage agreements will all impact responsibility, liability and your eventual course of action.
   It’s also important to speak with an attorney at an early point, especially if you have in-house counsel, and advise them of the situation. Due to the nature of this particular event, it may be worthwhile to seek maritime and admiralty expertise, obtainable from a few of the specialty law firms engaged in these international and global trade arenas.

Loss Prevention. Many supply chain executives proactively mitigated their situation with Hanjin well in advance of the actual bankruptcy declaration on Aug. 31, 2016.
   They followed sound supply chain principals of due diligence, reasonable care and proactive engagement by actively managing carrier contracts, diversifying supply carrier options, and creating strategic contingency plans in the event of an emergency.
   Many supply chain executives secure a competitive and comprehensive freight contract with carriers and service providers, but the job doesn’t—or shouldn’t—end there. Transportation managers must stay abreast of industry events and circumstances with critical supply chain partners and information flows.
   While many were caught by surprise on Aug. 31, some anticipated the possibility of Hanjin collapsing and began moving freight to other carriers in late spring. Reading the daily news reports and monthly columns from an outlet like American Shipper, which highlighted Hanjin and several other struggling carriers as potentially in danger of becoming insolvent, is another critical component of any prudent supply chain executive’s information flow.
   It’s also important to understand at a granular level all of the responsibilities and liabilities—both yours and the carriers’—in the bills of lading, contracts and agreements you have signed on a proactive basis, not just when a potential problem arises.
   And keep in mind, short-term delays are not the only problem. Vessel seizures can significantly extend cargo delays, and the more time freight sits “idling,” the more exposed it is to threats of loss or damage from water and handling, as well as theft and pilferage.
   Many import and export executives have found that diversifying one’s carrier options, spreading the freight and, by extension, risk over several variable contracts can significantly mitigate that risk.
   Further, executives that proactively assess potential threats—most often via a SWOT (Strengths, Weaknesses, Opportunities and Threats) Analysis—will be in a better position to deal with disruptions in the supply chain.
   This type of analysis offers a forward-looking profile of potential supply chain disruptions and allows management to create contingent strategies. This way, if a disruption occurs, you already have a plan of action to mitigate the impact of any resulting supply chain problems.
   Hanjin’s bankruptcy is the largest in history for an ocean cargo carrier, and the number of other carriers with similar financial woes has caused analysts to speculate that it may not be the last.
   Those supply chains with aggressive mitigation strategies will have the best chance to survive these types of events with the least amount of disruption. And proactive creation of risk management programs that mitigate risk, or even prevent the effects of such disruptions before they occur, is the best way to avoid being stuck in an awkward position.
   It becomes a choice: put your head in the sand and deal with what comes your way; or manage risk to give yourself the best opportunity to protect your supply chain for growth, profit and successful domestic, import and export operations.