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The most significant bankruptcy in the shipping industry

The most significant bankruptcy in the shipping industry

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Currently, the world commerce is increasing in an exponential way more and more. Thanks to the globalization, companies from every country can trade their product and services in an unprecedented way. Today, one of the most important means for the world commerce is the shipping industry, due to its low costs compared other transportation ways and the versatility it gives.

One of the most important places for the shipping industry is Asia, due to its amazing growth in its economy. Countries from this continent like China, South Korea, Singapore, Vietnam, Japan, among others are developing multiple products and manufacturing for different companies around the world, and through the shipping industry, they are having an excellent alternative to be connected with them.

South Korea has one of the highest rates of economic growing on the planet, making the shipping transportation industry is a vital channel to distribute what it produces to the rest of the world. Presently, this country is the home of one of the most important shipping companies worldwide, called Hanjin Shipping, which currently is in bankruptcy.

Hanjin Shipping Co.

Founded in 1977, Hanjin Shipping was for more than 30 years a main actor in the sea transportation industry, moving more than 100 million tons worldwide, principally between Asia and the United States. Currently, this company has a presence in more than 200 countries and offices in Japan, the United States, Vietnam, and China. In addition, Hanjin Shipping has 200 ships, offering 60 different services.

Hanjin Shipping was considered a leader for the global shipping transportation, but in September of 2016, the company was declared in bankruptcy. This event, has a lot of retailers, mainly in the United States, worried, due to the possible freights increasing and commercial conditions changing.

Hanjin Shipping Bankruptcy

At the beginning of 2016, the company started a debt restructuration with its creditors, due to the insolvency issues it had, but this was not possible. In September, after some months trying to find credit in multiple financial institutions or a commercial arrangement with its creditors, the company announced its ruin. After this announcement, the company was locked in some countries and its assets were frozen by some of its creditors.

Some experts attribute the Hanjin Shipping bankruptcy to multiple causes; like the deceleration of the world’s economy, the Chinese economic slowdown, the volatility on the United States retail market and the low prices of some raw materials, like oil and gas. Currently, all these difficulties are affecting the principal shipping companies around the world, but Hanjin was mainly affected because its businesses distribution, that is to say, that almost all its clients were in the United States, so the commercial concentration affected all its operations, taking the organization to the insolvency.

Not only the concentration of Hanjin operations caused its bankruptcy but also the deceleration in world’s economy, mainly in China. This situation, affected in a strong way the activities of the company because it made them lose huge amounts of money for years, triggering its insolvency and hence the attempts for refinancing its debts.

For some experts, another important reason of the Hanjin Shipping falling was the 2008 world’s economic crisis, which is still affecting and slowing the economy in some important countries from Asia, like China or Vietnam.

Image courtesy of Je.T. at Flickr.com

Freight increasing

The Hanjin Shipping was considered as the seventh most important company for sea transportation in the world and by its problems and departure, the shipping freights are increasing more and more. Furthermore, the holidays are coming, so the transportation demand will growth in the next days, making the existing shipping offer insufficient. In other words, the great void left by the Hanjin Shipping will make that sea distribution costs rise, due to the high demand and the lacking offer.

According to some authorities, the moving cost for a 40-foot container from China to the United States will increase more than 50%. This situation will have very negative repercussions and consequences for the retailers and consumers in America, making all the commodities costs and prices higher for holidays.

The falling of this shipping giant is a great loss for the shipping industry, due to the great participation it had in the world’s commercial trading, more specifically in the United States. The $4 billion debt that Hanjin has, will make that a lot of consumers in America and other places have to pay more for imported products.

The bankruptcy of Hanjin Shipping has been considered the most significant and larger in the history of sea transportation industry, and all its commercial and economic effects will remain for years, besides, this adverse situation could affect other shipping companies, which could not support and keep the transportation needs around the world. Put differently, the Hanjin falling not only affected it but also could disturb other distribution businesses that do not have the capacity to supply the trading arrangements that Hanjin had worldwide.

Related: Shipping industry decline: Global slowdown effects on international trade by Suzzanne Uhland

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