16-09-2016 Hanjin Shipping not a ‘Lehman event’, By Wei Zhe Tan, Lloyd’s List
THE court-led receivership of Hanjin Shipping may have come as a shock to many in the industry but it was unlikely to lead to a systemic collapse in the container shipping system worldwide, according to Alphaliner executive consultant Tan Hua Joo. Mr Tan was responding to comments made by Seaspan Corporation chief executive Gerry Wang on Bloomberg TV, comparing Hanjin’s situation to the implosion of Lehman Brothers in 2008, which eventually led to the global financial crisis.
He noted that Hanjin only accounted for about 3% of global capacity for container shipping. “Even in the largest market that Hanjin was serving, which is the transpacific market, it had a 7% share of the market. So a 7% disruption of the US inbound supply chain is unfortunate but it is not a catastrophic event.” The event caused a two-week delay in inventory for most cases at 7% of the entire market, Mr Tan added.
Putting things into perspective, he does not expect the Hanjin event to be one that the container shipping system is unable to recover from fairly quickly. Hanjin’s 3% of global capacity should be easily replaced by other container shipping lines, Mr Tan noted, given that idle capacity in the containership market is around 5% — significantly more than what Hanjin is operating. Additionally, with the number of containership newbuildings scheduled for delivery over the next four months (September to December), “it is almost similar to the capacity that Hanjin is withdrawing”. With both these factors in mind, he feels the 3% global capacity taken up by Hanjin can be easily replaced.
Looking at situation so far since Hanjin entered court-led receivership, Mr Tan notes that nearly 70% of Hanjin’s capacity on the transpacific trade has already found replacements. “The speed of the capacity substitution is incredible.”
Although Hanjin’s filing for receivership occurred amidst the so-called traditional peak shipping season, Mr Tan said it was fortunate that the peak season this year had been fairly tepid. As such he expects the entire logistics crisis to be resolved roughly a month and a half from now. “The whole impact of the Hanjin situation is going to blow over. It is not a Lehman event. If we were to look back on this situation several months from now, I think we would see that this thing is going to revert back to normal,” he said. Unfortunately, that would also mean that the increase in freight rates seen over the past few weeks in light of Hanjin’s predicament will be short-lived as the market enters its lull period, with the Chinese bank holidays coming up in early October. Mr Tan expects cargo volumes to slide by then, with the extra capacity offered by Hanjin’s competitors.
Hanjin’s situation has also barely made a dent in the charter market so far, and will not be of much help to shipowners, he said. But he did say that the situation with Hanjin’s vessels could have a major impact on how alliances are set up, especially for The Alliance, which Hanjin would have been part of. “Without the inclusion of Hanjin, the [alliance] at this point looks particularly weak and that, in a sense, is only going to drive the uncertainty as we move towards the new alliance set-up, which will come about in the second quarter of next year,” he said. Hanjin would have contributed about 20% of planned capacity in the alliance.
Hanjin’s situation can be viewed as a one-off event and can be blamed on bad timing, said Mr Tan. “If the situation for Hanjin did not occur today and it was pushed back six months from now, I think the Korean government would have stepped in. There is really no justification for the Koreans to step in to bail out Hyundai [Merchant Marine] a couple of months earlier and then failing to do the same for Hanjin because clearly Hanjin was the stronger of the two Korean carriers and I think they had a much better organisation, they had much better coverage and a fairly strong [information technology] system used by other competitors.” He noted that Hanjin also had more strategically attractive assets, such as worldwide container terminal holdings. Thus it would have made more sense to save Hanjin rather than HMM. In Mr Tan’s view, the main reason Hanjin was not bailed out by the government was political, in light of the recent alleged accounting scandals plaguing shipbuilder Daewoo Shipbuilding and Marine Engineering, previously rescued by the authorities. Thus lawmakers were unwilling to put their support behind Hanjin lest history repeat itself.
Looking at the broader shipping industry downturn, Mr Tan said that more of such shipping bankruptcies would be needed to restore the supply and demand balance. The industry possesses quite a poor track record in terms of self-regulation, Mr Tan said, in spite of persistently below average earnings mainly due to the ‘too big to fail syndrome’. He cited cases such as Zim, CSAV, Hapag-Lloyd and CMA CGM as recent examples. “The fact remains that there have not been sufficient exits in this market at all. If we look at the rest of the bankruptcies and exits that have taken place in the past, they have all been relatively small scale.”