Collision Course: What Hanjin's Potential Bankruptcy Means

3 min

We have all heard that the world is, once again, flat, given the importance of global trade and the interconnectivity of the supply chain. With Hanjin Shipping Co. Ltd. ("Hanjin"), South Korea's largest shipping company and the world's seventh largest container operator in terms of capacity, filing for receivership in connection with its bankruptcy proceeding in South Korea this week, new complications are appearing throughout the global supply chain.

Hanjin's filing had an immediate impact and continuing ripple effect throughout the international supply chain, particularly with respect to the high-volume and commercially important Trans-Pacific trades from Asia to the United States. Hanjin reportedly has been banned from loading containers in South Korea and has stopped accepting new bookings. Additionally, as ports and terminal operators are becoming increasingly concerned about Hanjin's ability to satisfy past and current financial obligations, they are reportedly blocking access to Hanjin vessels—forcing vessels to remain offshore. Further, several terminals are already refusing to load containers on outbound Hanjin vessels unless they receive full payment in advance.

These developments present instant problems for a host of shippers, other carriers, terminals and transport intermediaries, such as non-vessel-operating common carriers ("NVOCCs") that have looked to Hanjin for ocean transport. These parties either have cargo in transit or have pending, scheduled shipments with the South Korean carrier. Considering Hanjin may not be in position to pay the ports for the time being, in-transit cargo may take weeks or even months to be unloaded and released. Further, while Hanjin has secured receivership in South Korea, it has not done so in the United States yet―although this is likely to happen in the near future. As a result, Hanjin vessels located in the United States, and the cargo on such vessels, may be subject to arrest by Hanjin's creditors.

Shippers, NVOCCs and others should take immediate action to mitigate any negative impact resulting from Hanjin's court receivership and the resulting disruption in transportation operations. Specifically, shippers, NVOCCs and others should consider taking the following steps:

  • Assess how much freight is currently moving under Hanjin's bills of lading;
  • Provide notice immediately to Hanjin that any contracts with the carrier should be considered void due to Hanjin's inability to provide service;
  • Be mindful that others may assert liens on or arrest Hanjin vessels, containers and other assets;
  • Consider alternative carriers for pending and future shipments to ensure freight continues moving;
  • Determine if cargo is being shipped via another carrier that may have a "vessel sharing agreement" with Hanjin―this is akin to code-sharing with airlines; and
  • Monitor closely the freight market and freight rates – existing rates and contracts may need to be renegotiated.

The points above are only a few of the issues that shippers and NVOCCs should keep in mind as the Hanjin situation unfolds. As the supply chain disruption resulting from Hanjin's court receivership is expected to remain in the near term, Venable is able to assist shippers and NVOCCs to navigate safely the unknown waters of Hanjin's fall-out. For further information and assistance, please feel free to contact Venable's International Trade and Logistics Group.