Hanjin Shipping has filed for bankruptcy protection. With vessels stranded and thousands of containers in limbo, it’s a nightmare scenario for importers. Most unfortunate are the numerous Hanjin employees now without jobs; especially those stuck on vessels.
Billions of dollars worth of cargo is sitting on nearly 40 marooned Hanjin vessels. Ships are being refused at ports only adding to the woes of over $5 billion of unpaid bills from Hanjin, one of the top 10 shipping lines in the world.
A tragic series of events indeed, one can’t help but one wonder what’s next (or maybe more appropriately who’s next) within the ocean shipping world. With 2015 ocean freight rates amongst the lowest the industry had witnessed in several years- the writing was on the wall.
Capacity was and still is abundant for many shipping lines. Decreasing volumes and overstated forecasts from importers amongst several other key indicators all pointed to with certainty that some ocean shipping companies could not/can not sustain the burden for much longer. In fact, Hanjin had provided some of the lowest rates in key ports for one of Sybr’s clients. With market research and analysis, we strongly advised the client to avoid the temptation. Sybr advised a client in Q4 2015 of Hanjin’s position and avoided inevitable service disruption. The client could not thank us enough after the bankruptcy filing announcement. With Christmas season just a few months away, the busiest and most profitable time of the year for many importers, goods continue to “sail smoothly”.
Market outlook forecast models project a more stable 2017 for ocean shipping. With many carriers expected to either hold or slightly increase rates, it’s certainly a positive for an industry with many troublesome signals. One that still has many carriers projected to operate at a loss. Carriers are practicing every possible cost reduction measure (slow steaming, etc.). Others such as Maersk have implemented large-scale layoffs. Those ocean carriers able to brace the impact of the current industry climate for the next 2-3 years are the carriers poised to reap the benefits of competitor miscalculations.
Consolidations, route-string efficiencies, and mergers/alliances could only serve in the best interests of certain carriers. Other factors, particularly multi-year agreements with key sustainable clients/importers could lead to not only a beneficial opportunity but a necessity for operational planning, purchasing, and of course freight rate decisions. Carriers should negotiate dynamic multi-year rate structures and avoid the year-to-year Request for Proposal (RFP) hassle.
Hanjin’s failures debunk the notion that major ocean shipping companies are “too big to fail”. While it may seem enticing from an importer’s perspective to capitalize on low freight rates, you better be certain that lucrative deal you advertised to your customers isn’t idling somewhere in the Pacific Ocean. Moreover, if you are awarding a carrier in a similar position such as Hanjin was, you certainly must perform a sensitivity analysis, model your risk levels-projected savings accurately; and, you might want to give the VP of Marketing a heads up as well!
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Keywords: Ocean Freight Hanjin Bankruptcy Shipping Rates Consulting Canada Sybr