On August 31st, 2016, Hanjin Shipping filed a receivership petition with Seoul’s Central District Court, and on September 6th, for Chapter 15 protection at US Federal Bankruptcy Court in Newark, NJ. Filings in approximately 45 jurisdictions worldwide, where Hanjin vessels trade, are expected to be filed in the very near term.
With approximately 140 vessels under management, only 40 of which are self-owned and 100 chartered-in or leased, there have been serious implications for the market, at least in the short term. With only US$ 700 mil in equity, US$ 1.7 billion value of its fleet and $5.4 billion in outstanding obligations, the capital structure resembles a house of cards. The value of the cargo on-board of Hanjin’s vessels at the time of filing for receivership was estimated at $14.5 billion. The ensuing result has been a logistical nightmare, given all such cargo had contractual obligations to be delivered on time, but Hanjin’s vendors would not render any services unless they were getting paid in advance. Receivership and Chapter 15 can stop creditors from knocking on the door, but vendors would now perform only on cash basis payments. Hanjin’s financial nightmare has been compounded by the legal complexity of the business which is further compounded by the logistical complexity of the containership liner business. Only the fact that the containership market has appr. 25% capacity (which has caused Hanjin’s financial troubles in the first place) can alleviate concerns that Hanjin’s potential demise will no be a threat to the supply chain and international trade.
Moral Hazard Case Study: Hanjin Shipping Maritime Executive, September 6th 2016
Containers Stranded at Sea After South Korean Company Goes Bankrupt NPR, All Things Considered, September 8th, 2016 To Listen to the Audio Clip, Please Click here!
Retailers Seek U.S Help With Shipping Crisis The Wall Street Journal, September 1st, 2016
Hanjin Shipping Bankruptcy Unlikely to Ease Gluts of Vessels The Wall Street Journal, September 2nd, 2016
Shipping Chaos The Exchange CBC News Canadian Broadcasting Corporation TV Interview, September 2nd, 2016
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