Analyst: Hanjin insolvency could boost 3PL earnings

Third-party logistics providers like Expeditors International of Washington have traditionally benefitted from disruptions in direct shipper/carrier relationships, according to a recent client note from William Blair Equity Research.    Hanjin Shipping’s insolvency could be a boon to third-party logistics providers like Expeditors International of Washington, Inc., according to analysts with investment fund William Blair Equity Research’s Global Industrial Infrastructure group.
   Expeditors has traditionally benefited from periods of increased volatility in the shipping market due to its high service levels, William Blair said in a recent client note.
   Hanjin filed for bankruptcy protection with the South Korean courts on Aug. 31, effectively stopping its vessels in their tracks, which caused cargo congestion and massive confusion throughout the global supply chain.
   Since then, the beleaguered ocean carrier’s ships have been floating offshore, waiting for individual bankruptcy courts in other countries to recognize the Korean proceedings and bar lien holders and other creditors from arresting those vessels when they enter port to discharge their cargo.
   Hanjin posted an update Monday on the status of all 97 of the vessels it currently operates, with only one ship, the Hanjin Greece, listed as berthed and working to discharge cargo. Of the remaining 96 vessels, 59 were listed as waiting in open waters, 19 as underway, 10 as under “embargo,” five as having been arrested or seized, two as being under “owner withdrawal,” and one as “redelivered.”
   Beneficial cargo owners have been working with ports and other service providers on a plan to rescue their cargo from Hanjin’s ships, but someone will still have to pay for those operations. Terminal operators, longshore unions, railroads and trucking companies have all made it clear they will no longer provide service without payment, whether it be from Hanjin or direct from the shippers. In most cases, they demanded funds be provided up front due to large existing pre-petition debts on the part of Hanjin.
   Another issue that has yet to be resolved is what BCOs are supposed to do with those empty containers once they have received their delayed cargo. Shippers don’t want them because they have no place to store them and will be charged per diem fees for the chassis on which they sit and terminal operators may not receive them, but container lessors and chassis providers don’t have the ability to track all of those assets and pay to retrieve them, nor should they be required to do so.
   Container leasing company Textainer, for example, said Monday it may incur “significant costs” from the recovery, repair, repositioning and re-leasing of boxes it leased to Hanjin. For Textainer, this effect could be compounded as rates for re-leased containers could be substantially lower than those paid by the now insolvent carrier.
   William Blair noted that although this is creating some disruption for individual BCOs, it’s also causing spot container freight rates to shoot up as much as 30 to 40 percent on major trade lanes like the transpacific.
   “Some of this we believe is temporary spikes, but with the removal of Hanjin capacity and carriers’ broader efforts to reduce capacity, it could result in some freight that was negotiated at low rates being ‘rolled off’ carriers heading into peak season,” the firm said.
   In the past, Expeditors International has benefitted from similar situations, said William Blair, pointing most recently to the West Coast port congestion crisis of early 2015.
   “This is due to the disruption between shippers and direct carrier relationships,” it explained. “Shippers will scramble to get freight moved in an orderly fashion and typically will turn to a freight forwarder like Expeditors, who we believe incrementally benefits and gains share due to its high service levels.”
   An increase in volatile spot market volumes often provides carriers and forwarders with the opportunity to charge a higher margin to expedite emergency shipments, and this trend could be amplified by the timing of Hanjin’s bankruptcy heading into the traditional peak shipping season.
   “There is a slight negative for Expeditors as with higher spot prices, it will lose some margin on its contractual business,” noted William Blair. “However, we believe the positives should outweigh the negatives and provide some upside to results over the next few quarters.”