Hanjin is broke so who will pay?

Hanjin is broke so who will pay?

Hanjin is so broke they can’t even pay attention, and that’s a problem. At last count there were more than 80 vessels on the water or stranded outside ports carrying about a half million containers. Unfortunately for Hanjin, and their shippers, finding safe harbors who won’t allow creditors to seize their loaded ships and finding the money to get these vessels off loaded isn’t easy. For this to happen in regard to USA bound vessels the U.S. Courts must recognize the Hanjin bankruptcy in South Korea.  I would like to be the first to publicly suggest that Hanjin get themselves a ‘GoFundMe page’ and put the tin cup out. It would help if they put a picture of a puppy on their GoFundMe page.

Not that the Hanjin collapse wasn’t problematic enough, now there is a low rumble narrative from a few people in the industry saying Hanjin may try and collect full contract money from shippers.  Here’s the deal.  Larger shippers and ocean carriers often sign rate contracts based on promised volume benchmarks. The more volume the shipper commits to ship the lower the rates are agreed to by the ocean carrier. Much of the time if the volume commitments are not fully attained, the ocean carrier gives the shipper a pass for trying and honors the lower rate anyway. The ocean carrier wants to keep a good relationship with larger shippers and playing nice makes the most sense, most of the time.

Word is Hanjin is so desperate for cash they, and their creditors, may try to enforce (sue for) full contract rates for all the shippers who have not hit their promised volume benchmark, or so the rumor states. If Hanjin did collect the entire rate agreed in contracts, it would mean millions and millions of extra dollars that could be used to help get their Hanjin owned vessels off loaded and presumably sail off to be liquidated. The idea is making the full payment demand to all the shippers who have already paid the lower rate for the agreed higher volume and seeing if they can collect.

Personally I don’t see it happening even though there is some case law that says I am wrong.  In 2010 ‘The Containership Company’ which ran weekly trans-Pacific service went bankrupt in a Danish court.  According to JOC a federal court in New York has already decided in the case. The decision was shippers were indeed liable for making up the difference of the short pay and the higher contract rates. From what I understand the courts are still deciding on related issues with more hearings are pending.

Even with the aforementioned example of the initial court decision, I believe Hanjin is not the same beast. First, the sheer numbers are too large.   Instead of a weekly trans-pacific from China to Los Angeles as in the example, Hanjin has a half million containers on the water from countless individual shippers. Moreover some of these shippers are not lightweights and have names like HP, Samsung, Toyo Tires, and Konica-Minolta.  It will also be argued Hanjin stopped operations prematurely without due notice breaching any agreement by not allowing the shippers to fulfill their volume pledge.  For those reasons I don’t think shippers/beneficial cargo owners being held to the fire is likely, although nothing is impossible and I am seldom the smartest person in the room.

What should you expect if you have freight on a Hanjin vessel? One of my customers gave me a call asking me the same question.  He has a container on a Hanjin vessel heading to the USA from China.  Hanjin is so broke the vessel had to bypass the Suez Canal on its way to New York. The vessel is sailing the long way around South Africa and the Cape of Good Hope to get to the Atlantic for the west bound journey to New York.  Now that’s broke. It sounds like they may have to swing by Bermuda to hustle some tourists on the pool table for gas money.

The terms of his deal for my customer were that the shipper in Asia secured the freight and cargo insurance.  Here’s what I told him after I cited I was no expert.  I recommended he contact the cargo insurance company for the shipment and report the delay and the threat of potential non-delivery of the cargo right away. Depending on their exposure, it wouldn’t hurt to have the insurance companies lobbying for a solution.  I also suggested he take a good hard look at the Letter of Credit for the shipment to see under what circumstance funds would, or would not, be released for the shipment.  Knowing would enable him to determine if he would be paying for inventory he may not see for a while so he could plan accordingly.  Then I told him not to hit the panic button just yet.

In this particular instance with Hanjin’s collapse, I believe the numbers are just too big for the powers that be not to work something out. If you recall with SOLAS earlier this summer, there would have been a high price to pay if something wasn’t worked out.  Since the cost of failure was too high to let it happen a solution became paramount thus possible. Will the Hanjin solution be free to all players?  Maybe not as ports won’t work on IOU’s from dead companies last time I checked. But there will be a ‘work-around’ jammed into place before too long. I will be anxious to see what it is.