Hanjin Shipping was ranked World No.1 in Vessel Schedule Reliability, and was named the Best Company in Transport for Dow Jones Sustainability Index as recently as 2012. In 2013, the company again was ranked World’s No. 1 for Container Service Reliability. In 2015, Hanjin Shipping launched a new Far East to Latin America service, and as recently as in May 2016, Hanjin created “The Alliance” with other global shipping companies.
It filed for bankruptcy in August 2016. What went wrong with Hanjin Shipping ?
Hanjin Shipping was established as Hanjin Container Lines in 1977, Hanjin Container Lines merged with Korean Shipping Corp to form Hanjin Shipping in 1988. Hanjin Shipping opened a terminal at Long Beach of Los Angeles in 1991.
What was “The Alliance”?
Hapag-Lloyd AG, Germany’s top container shipping line, and five Asian carriers formed a new vessel-sharing alliance to take on bigger rivals amid a glut in capacity that had depressed freight rates.
The partners included Japan’s Kawasaki Kisen Kaisha Ltd., Mitsui OSK Lines Ltd., Nippon Yusen KK, South Korea’s Hanjin Shipping Co. and Taiwan’s Yang Ming Marine Transport Corp., united to be called “The Alliance,”. It would control 18 percent of the world’s container shipping fleet with more than 620 vessels and a combined capacity of 3.5 million standard twenty-foot containers, or TEU.
What is “TEU”?
In shipping industry, ships capacity is measured in Twenty- Foot Equivalent Units (TEUs). TEUs is used to measure a ship’s cargo capacity. The dimensions of one TEU are equal to the 20 standard shipping containers i.e. 20 feet long, 8 feet tall. Usually 9-11 pallets can fit into one TEU.
Reasons Behind the Collapse
The numbers as per the annual K-ITRS business reports released by Hanjin Shipping from 2010 to the 1st quarter of 2016 are as follows.
Total sales revenue of Hanjin Shipping fluctuated from 8.561 billion USD in 2010 to 8.604 billion USD in 2011, 9.405 billion USD in 2012, 9.443 billion USD in 2013, 8.223 billion USD in 2014, and to 6.839 billion USD in 2015.
Gross revenues peaked in 2012 & 2013 at 9.405 billion USD & 9.443 billion USD respectively, Hanjin Shipping stated that Annual sales exceeded 9 billion USD for the first time in its history. The figure began to decline since 2013.
Two reasons for the peak revenues in 2012 & 2013 were significant rise in container traffic which increased from 3,705,953 TEUs in 2010 to 4,477,043 TEUs in 2012. The other is that revenues from bulk products were still going strong from 1.3 billion USD in 2010 to 1.1 billion USD in 2012.
Even with the record-breaking shipments in 2012, Hanjin Shipping lost money during the year as it did in 2011. In 2011, the loss was attributed to the container division that suffered from continued hike in oil prices and decreased container freight rates. In 2012, the loss was attributed to high oil prices, limited recovery of container freight rates, and appreciation of Korean won against the dollar.
From 2014 till first quarter of 2016,the container traffic held steady, but revenues went downhill rapidly. Decline in revenues from bulk business was more drastic, revenues which were 1.1 billion USD in 2012, fell to 0.46 billion USD in 2015.
In 2013 ,for the first time, Hanjin Shipping company management mentioned liquidity issue in their Annual report. Clearly, 2012 and 2013 were pivotal years for survival of Hanjin Shipping.
By the 1st quarter of 2016, the financial condition of Hanjin Shipping rapidly deteriorated. Comparing the 1st quarter data between 2015 and 2016, revenues from container business fell from 1.91 billion USD to 1.28 billion USD, revenue from the bulk business fell from 1.63 billion USD to 1.1 billion USD, and net profit fell from +0.20 billion USD to -26.1 billion USD.
At the end of June 2016, Hanjin Shipping’s debt was reported to be about 5.3 billion USD.
On 31st August 2016 Hanjin shipping, filed bankruptcy by leaving 66 ships carrying goods worth 14.5 billion USD stranded at sea. Harbours around the world refused the entry of Hanjin ships due to fear of getting unpaid.
Hanjin shipping is not alone, the biggest 12 shipping companies that have published results for the past quarter, 11 have announced huge losses.
On 13th September 2016, the chairman of Hanjin Group transferred 36 million USD to Hanjin Shipping to help to unload the cargo stranded on the ship’s vessels. A former chairwoman of Hanjin Shipping pledged 9 million USD to help the sinking shipper. Hanjin Shipping submitted to a South Korean court that it could take an estimated 154.5 million USD to unload all stranded cargo.
Korean Air, the top shareholder of Hanjin Shipping, on 10th September 2016 approved a plan to lend the shipper 53 million USD, conditional on Hanjin Shipping providing its stake in Los Angeles’ Long Beach Terminal as collateral.
After filing the bankruptcy, members of the formed “The Alliance” are believed to have come to the conclusion that the alliance should be launched without Hanjin Shipping due to concerns that working with the sinking Korean shipper likely heading to liquidation will prevent the alliance from winning orders.