Insolvency of seventh largest shipping company has already resulted in cargo worth £14bn being stranded
The bankruptcy of South-Korean shipping company Hanjin has led to £14bn worth of cargo being stranded in ports and open waters across the globe, and could also result in further insolvencies along the supply chain.
The world’s seventh largest shipping company filed for bankruptcy on 31 August, following a failure to restructure its debt. It operated 98 containerships (some owned, some chartered) and several other types of ships.
Within a day of the announcement, ports began to refuse to allow Hanjin vessels entry into their ports, for fear of not being paid port fees.
“Goods due to be shipped on those Hanjin vessels that are now barred from entry have begun to build up in ports,” Marsh said in its latest report ‘Shipping industry vulnerable following Hanjin administration’.
“The owners of the goods have consequently been exposed to financial risks following the failure of the ship operator, as contractually agreed delivery dates would be missed, goods would need to be stored, and extra expenses incurred as alternative routes for delivery would need to be arranged.”
Marcus Baker, chairman of Marsh’s global marine practice added there is now considerable concern throughout the industry as to whether or not companies are insured against this scenario. “Unfortunately, there is no simple answer that fits all cases, as marine cargo insurance policies are written on a wide variety of terms and conditions, for which there are going to be very different answers on a “case-by-case” basis.”
But the global marine insurance market is already on notice and carefully following the situation, Bart Hoogstad, European head of marine and transportation at Crawford & Company, said. “Whilst at this early stage, we have not heard reports of claims for material damage to cargo, it is inevitable there will be some physical loss, damage or expense to a variety of cargo arising from this situation. No doubt cargo owners and their logistics departments/partners are in contact with freight forwarders and other parties in the logistics chain, aiming to get their cargo released and delivered to final destination.”
Ports’ refusal to allow Hanjin vessels entry could also lead to ports becoming rapidly inundated with containers which are unable to be shipped quickly. Due to a lack of space, ports and terminals may have to close their gates to Hanjin-scheduled containers.
“This will then have an adverse effect on independent truck companies, rail freight companies, and hauliers, as they will be refused entry to ports and will have to find a means of storing these containers, with the added financial burden of not being paid for having failed to deliver the boxes to the port,” Marsh said.
“In order to avoid entering financial difficulties themselves, such companies may have to refuse to load boxes scheduled to be carried on Hanjin vessels. While this would reduce the problem of storage, it would also reduce their income. In addition, since many trucking companies work on very tight financial margins, the financial insolvency of Hanjin could lead to the financial default of others all along the supply chain.”
No comments yet