Gerry Wang’s candid remarks on the precarious state of container shipping have left us wondering whether the Hanjin default marks the industry’s capitulation and turning point, or whether more and potentially graver events are about to happen. After all, Hanjin’s business model is not unique. Like its competitors, Hanjin engaged in an arms race for bigger ships under the false premise that an ever-growing demand for consumer goods and economies of scale would work to its favor.

Not one of those assumptions was right. Sluggish economic growth has translated to lackluster demand for container trade, and bigger vessels remain under-utilised, despite their cascading effect to the detriment of smaller-size vessels. Operating expensive vessels in a low-rate environment means cash reserves will eventually dwindle. Although state-run liner companies could seek government subsidies, directly or indirectly, the same is not true for private ones. This is bad news for liner companies and bad news for independent containership companies that do business with them.

Indeed, liner companies have increasingly relied on third-party tonnage to meet their fleet growth targets. Today leasing companies own one out of every two containerships. The likes of Seaspan, Danaos, and Costamare, constantly built new ships backed by lucrative long-term charters by liner companies. Until HMM’s near miss and Hanjin’s bankruptcy, these charters provided strong cash flow visibility and the wrong sense that a credit default was unlikely. One can argue that in the eyes of investors all charters were “safe” and the only things that mattered were daily rate and charter length.

We can forgive Costamare, which had no exposure to HMM or Hanjin, for having a strong feeling of schadenfreude. Who is to say however that no other liner company will seek to re-negotiate the terms of its chartered vessels in the near future, or worse seek bankruptcy protection?

Enter the new reality. As Hanjn is redelivering its chartered-in vessels, their employment prospects are grim. The containership sector already has a sizable fleet in lay-up underlying a chronic fleet oversupply that is worse even than the dry cargo sector. Mr Wang admitted that finding employment for redelivered vessels could last six months. Seaspan manages seven vessels that were previously on charter to Hanjin. It owns three of these vessels and GCI owns the remaining four. The prospect of several months without pay, on top of unpaid hire prior to Hanjin’s bankruptcy is a bitter pill to swallow. Seaspan may have the capacity to absorb the hit but the same may not be true for smaller companies with exposure to the troubled liner company.

Which begs the bigger question. Are the days of fast growth among independent containership owners over? How many of them will manage to adopt and survive in this new landscape of charter-party risk and long-term employment uncertainty? This is the most appropriate time for the sector to dust off their contingency plans or draw them from scratch if they are unavailable.