Container carriers play a crucial role in the furniture industry. Their services make it possible for retailers to stock their showrooms with home furnishings that consumers are likely to purchase.
Unfortunately, one major carrier, Hanjin Shipping, has been forced to cease its operations, leaving many industry business owners unsure of when their products will arrive. Learn more about the issue and what can be done as a retailer.
What happened to Hanjin Shipping?
Until its 2016 announcement of bankruptcy, Hanjin Shipping was the seventh-largest container carrier in the world. The news was released at the end of August, but sources from Global Trade Magazine state that the process was ongoing months prior, possibly longer.
The company proposed a rescue plan to its creditor, Korea Development Bank, and others from which it borrowed funds. The plan consisted of repaying $5 billion in debt, an amount noted at the end of 2015 that was a product of a downward turn in the container shipping industry. In fact, the industry was so heavily impacted that carriers, including Hanjin Shipping, struggled to cut expenses that would adequately offset the financial burden.
The initial repayment plan would have required Hanjin Shipping to pay back approximately $1 billion annually. The company’s response was to request an extended timeframe for which the debt would be repaid. Creditors denied the request, forcing the carrier to file receivership, a type of bankruptcy. The reason for the denial was that the proposed plan did not represent any changes from plans that were denied previously.
What was the impact on THE Alliance?
The company was one of six ocean carriers that made up THE Alliance. The group, set to officially launch in April of 2017, consisted of Hanjin Shipping, Nippon Yusen Kaisha, K Line, Yang Ming, Hapag-Lloyd, and Mitsui OSK Lines.
The intent was to provide carrier services in east-west trade lanes following approval from the proper governing authorities. Each company agreed to a five-year participation term, which would require servicing the Transatlantic; Asia to Europe and the Mediterranean; Asia to both the west and east coasts of North America; and Asia to the Middle East, Persian Gulf, and the Red Sea.
Prior to the bankruptcy announcement, THE Alliance would have commanded an 18 percent share of the global container fleet capacity with more than 620 ships. The partnership would establish the group as a leading competitor against organizations such as the newly formed OCEAN Alliance, which comprises four prominent carriers. As of September of 2016, the future direction of THE Alliance is unclear.
How are vessels affected?
Many ships carrying cargo have been stranded at sea or seized at ports. Global Trade Magazine reported three vessels were left off the coast of Southern California and another in the port of Prince Rupert in British Columbia.
As of September, Hanjin Shipping ships in Chinese ports are not allowed to operate, and a court order for the arrest of a vessel in Singapore has been carried out. There is also no cooperation with North American ports, who must await further notice before they can clear boats for docking and transfer of goods.
Evergreen Line and other industry partners have since refused to load cargo onto any Hanjin Shipping vessels. Additionally, the company will not receive cargo from other entities. The impact has rippled over to land transportation services as well. The train service provider Canada National released a statement noting its immediate decision to not load cargo onto trains destined for a Hanjin Shipping vessel.
What is expected going forward?
Hyundai Merchant Marine Co., another Korean-based carrier, is planning to purchase partial assets from Hanjin Shipping. Hyundai Merchant Marine Co. recently escaped bankruptcy by negotiating new charter rates with ship owners that received creditor approval. Remaining operable, the company plans to acquire “healthy assets” from Hanjin Shipping that may result in a $360 million price tag.
The acquisition looks promising, as the South Korean financial authorities have given the green light to move forward. If the transaction is fully executed, Hyundai Merchant Marine will add 37 vessels to its fleet. Additionally, it would take over management of the Gwangyang Terminal, Long Beach Container Terminal, and HPC Terminal. The timeframe for completing the transaction remains uncertain.
How can furniture companies protect themselves?
If a furniture retailer is experiencing delays with shipment of goods that directly relates to the Hanjin Shipping issue, the owner or a representative of the company should send a written notification to the Federal Maritime Commission at email@example.com.
The message should note that the delays are a Shipping Act violation and include the name of the impacted party and company and their contact information as well as the name of the entity and contact details for the party in violation. Within the body of the message, the retailer should give a complete description of the issue at hand and desired solution based on actions already taken.
Proof of payment, invoices for expected shipments, terminal appointment documents, and other relevant paperwork should be attached to support the message. Further, companies should include a description of their cargo as well as specific shipping details, like the port of origin and destination and date of sailing.