Recently, Hanjin Shipping filed for bankruptcy. The aftermath of that action is causing chaos in ports around the world, and could impact markets in the United States…
$14 Billion in Goods Stranded at Sea
Hanjin Shipping, a Korean based shipping line, filed for bankruptcy protection last week – to no avail. Hanjin’s financial problems have left $14 billion in goods stranded at sea as ports around the world refuse to allow Hanjin ships to dock. The shipping company currently has about $5.4 billion in debts, and is in the process of raising $90 million to cover the cost of unloading cargo.
But will it be enough?
About 89 Hanjin ships out of its 141-ship fleet are stranded in international waters, denied access to ports around the world over concerns about who would pay docking fees, container storage costs, and unloading bills. Several ships have been seized by creditors, wreaking havoc upon port operations. While the Korean government works to contain disruptions in the supply chain, it may not be enough. Some estimates set the funding needed to cover unpaid fuel costs and payments to port operators to unload ships at $544 million.
This comes at a time when US retailers are stocking shelves for the end-of-year holiday shopping season.
Manufacturers and retailers are scrambling to recover the merchandise. Samsung Electronics,, maker of smartphones and gadgets galore, has said it has goods worth about $38 million on Hanjin ships in international waters. The company said it is considering chartering 16 cargo plans to fulfill its shipment contracts, mostly in the US. And while it may not impact retailers immediately, if the crisis continues, stores will absolutely feel the problem in their sales and profits. The American Apparel & Footwear Association, the national trade association representing apparel companies and their suppliers, had a call Tuesday with 150 members as to how to solve the problem.
But the situation isn’t any clearer.
The global shipping industry has been operating at a loss since the end of 2015, and is set to lose about $5 billion in 2016 due to an oversupply of vessels. Meanwhile, executives with freight-booking platform Shippabo warned that companies should expect delays as many cargo containers have been rerouted on different vessels. “For the top 25 importers, this is a blip,” said Frank Layo, a retail strategist at consulting firm Kurt Salmon. “They’re diversified, they’re not shipping it all on one line.” But for smaller retailers with less sophistication, “this could be devastating,” he said.
If this situation isn’t resolved in the next few weeks, expect those smaller retailers to see shares drop as a result.
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