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President of South Korea criticizes Hanjin’s ‘complacent mindset’

The President of South Korea, Park Geun-hye, said corporate responsibility and moral hazards are creating adverse effects on its national economy and the government will not blindly support companies in financial trouble.

   The President of South Korea, Park Geun-hye, has criticized Hanjin Shipping for having a “complacent mindset,” the Yonhap News Agency reported.
   Speaking at a cabinet meeting on Tuesday, Park said corporate responsibility and moral hazards are creating adverse effects on its national economy and the government will not blindly support companies in financial trouble. She said such companies should implement belt-tightening efforts first.
   Meanwhile, Hanjin Shipping Chairman Cho Yang-ho has borrowed 40 billion won (U.S. $35.5 million) to support the company on the heels of Monday’s announcement that Choi Eun-young, the former head of the company, was offering 10 billion won of personal assets as assistance, Yonhap reported.
   Alan Murphy, chief executive and partner at SeaIntel Maritime Analysis in Copenhagen, told American Shipper Monday before Park spoke, that in addition to Cho’s contribution, he thought Hanjin would commit 100 billion won and the Korean government might provide a 100 billion won loan.
   “These are not insignificant amounts, and would go a long way towards paying for the unloading of the cargo from Hanjin vessels, which will cost at least 100 billion won, according to Korea’s Ministry of Oceans and Fisheries,” Murphy said. “The challenge is that with outstanding costs of more than 600 billion won and growing, it will be difficult to target the funds exclusively to getting cargo off vessels. And it will do nothing towards 3.14 trillion won of debt maturing within one year or the more than 6 trillion in total debt.”
   But analysts seemed downbeat on Hanjin’s long term survival.
   Murphy said, “Hanjin is over, their time has passed. Any saving grace through a white knight or government intervention had to have happened no later than Sept. 2. The proverbial ship has sailed. Shippers have been burnt badly and are losing millions every day their cargo is stuck at sea. They are not coming back.”
   Murphy added, “This will likely take months if not years to clean up, and in the end, there may be an entity named Hanjin still floating around, as the brand may still have some value to Korean shippers, while it will be toxic to global shippers. So, the best possible future for Hanjin will be as a small regional Korean carrier, which there are already a handful of. But they will never return to being a global shipping line.”
   Lars Jensen, chief executive and partner at Sea Intelligence Consulting, said, “I find it very difficult to see Hanjin re-emerge as a large global carrier again. Perhaps as a much smaller entity it can be done, but not at a scale matching where they were a couple of weeks ago.”
   He said the money being pledged to support the company is not material in relation to the depth of the problem.
   Dirk Visser, Dynamar’s senior shipping consultant and managing editor of its publications and the DynaLiners newsletter, said his company had estimated that 70 billion won would equal about three and one-third days of Hanjin’s former daily operating expenses.
   Visser sad that he was 100 percent sure this will be the end of the road for Hanjin and there is not any chance of survival (for Hanjin’s container business). “It will take months before all cargo has reached consignees, if not auctioned before then by stevedores or other parties looking to recover their claims on the carrier,” Visser said.
   “Looking forward, I think we may -ultimately and as yet- see a larger than at present Hyundai Merchant Marine, then including remnants of the Hanjin Shipping portfolio (including ships) – as if, after all, the two had merged,” said Visser.
   He added, “The simple fact is that heavily export-focused South Korea will decide that it just cannot do without a world-wide operating container operator of substance.”
   As HMM is planning to join the 2M Alliance – currently consisting of Maersk Line and MSC – next spring, that would make what Visser calls “2M+ even stronger on the transpacific” and in the Far East-Europe trade.
   “Whether this would be acceptable to the various regulators remains to be seen,” he observed.
   Jensen said there is still a lack of clarity in regards to what is happening at the company, with cargo being handled from some Hanjin ships but not others.
   Wednesday morning, J. Kip Louttit, executive director of the Marine Exchange of Southern California, said three Hanjin containerships are at the ports of Los Angeles and Long Beach.
   The Hanjin Boston is at berth 218 at the Port of Los Angeles and is scheduled to depart Thursday for Boston. Meanwhile, the Hanjin Montevideo remains at anchor inside the Long Beach breakwater. “Information we received yesterday is that before she left TTI (Total Terminals International) and went to anchor inside the breakwater, she did a full discharge of containers and partial onload,” Louttit said.
   The Hanjin Gdynia arrived and anchored outside the Long Beach breakwater Wednesday morning at 3:50 a.m. and Louttit said he was told the ship will “hopefully” move to TTI in Long Beach Wednesday afternoon.
   He said the Hanjin Greece discharged cargo at TTI in Long Beach and left for Oakland.
   The Port of Oakland said the Hanjin Greece was expected to berth late Wednesday afternoon at the Oakland International Container Terminal and discharge about 450 import containers, while the Hanjin Boston was expected to follow on Friday and discharge 64 containers.
   “For the sake of customers with cargo on those ships, we’re glad this day has finally come,” Port of Oakland Executive Director Chris Lytle said. “Businesses can’t operate with products stuck at sea.”
   Jacqueline Smith, maritime coordinator of the International Transport Workers’ Federation (ITF), told American Shipper that serious efforts are being made to protect Hanjin’s seafarers, and their situation and welfare is being monitored by the ITF, the Federation of Korean Seafarers (the ITF’s affiliate union) and the Korean Shipowners’ Association. The first task was to ensure that provisions and water were onboard all ships, Smith said. “We understand that insurance has also been taken out to cover three months’ wages for all crew as well as three years’ pension entitlements,” she added. “The word back from our inspectors who have met Hanjin crews is that they are still being paid and are ok.”
   Reuters has reported that lessors have sold three bulk ships charted to Hanjin for $39 million, citing a report by the ship valuation firm VesselsValue.
   A large part of Hanjin’s container fleet is chartered, including from public companies such as Danaos and Seaspan.
   In an interview with Bloomberg television, Seaspan CEO Gerry Wang compared the fallout from Hanjin’s filing for receivership to the impact the 2008 Lehman Brothers bankruptcy had on the financial markets.
   “It’s a huge, huge nuclear bomb,” he said. “You’re talking about $120 billion dollars worth of goods on those ships that are stuck now before delivery to the ports and to people like Walmart. So there is a material impact to the supply chain.   
   People are suffering from the consequences of this major shakeup.”
   Other estimates are lower. The Wall Street Journal reported that about $14 billion worth of cargo was “stranded at sea,” while Hofstra University professor Jean-Paul Rodrique said in a blog post, “Assuming a 70 percent level of ship utilization and a 20 percent share of empty cargo, this represents 350,000 TEUs of cargo. If we assume a cargo value of $50,000 per TEU to consider a balance of cargo types (average value reported by the insurance industry), the outcome is $17.5 billion worth of cargo that may have been impacted.”

Chris Dupin

Chris Dupin has written about trade and transportation and other business subjects for a variety of publications before joining American Shipper and Freightwaves.