SEOUL Hanjin Shipping is heading for liquidation, after a South Korean court essentially pulled the plug on the container carrier.
The Seoul Central District Court on Feb. 2 elected to halt Hanjin's rehabilitation process due to the shipping line's falling liquidation value and the lack of any turnaround sponsors. The court gave creditors or other parties two weeks to appeal before it finalizes the decision on Feb. 17, closing the curtains on the company's 40-year history.
Hanjin, once the world's seventh- or eighth-largest container shipper, applied for court receivership last August. Its ships were stranded as ports around the world barred them from docking, fearing nonpayment for unloading work.
Major stakeholders Korean Air Lines and Hanjin's founding family, along with creditor Korea Development Bank, sought to restore the supply chain by paying the handling fees.
Hanjin sold off its Asia-U.S. routes to South Korea's Samra Midas construction group. Hanjin used to be the fourth-ranked player in that corridor, with a 7% market share. Chartered ships account for most of its roughly 140-vessel fleet; the few company-owned vessels have also been sold off, leaving no notable assets.
LG Electronics and other major Hanjin clients have switched to different shipping lines. Meanwhile, Hanjin's troubles have helped to tighten the supply of containerships to an extent, boosting shipping rates. In December, the average rate between Asia and the U.S. was 15% higher than in July, data from the Japan Maritime Center shows.
Hanjin's exit will leave rival Hyundai Merchant Marine virtually unchallenged in the South Korean maritime transport sector. HMM is taking in 200 Hanjin employees, as well as the company's stakes in American and Spanish terminals. HMM's cargo load at South Korea's Port of Busan soared 26% on the year in November.
AND THEN THERE WAS ONE However, HMM signed contracts for many of its charter ships back when those deals fetched higher closing prices. The same misstep that doomed Hanjin is also hurting HMM's finances. HMM is busy rationalizing operations, but the company is expected to turn in a sixth straight operating loss for the financial year ended December. One South Korean analyst said HMM will need additional government support to buy fuel-efficient vessels, among other measures.
The government, seeking to preserve South Korea's ocean transport industry, established a state-backed ship-owning company worth 1 trillion won ($872 million) in January. The new entity is tasked with buying vessels from domestic shipping companies at market prices, then leasing them out at affordable rates. Some say this move is essentially a bailout for HMM.
Although mergers and acquisitions are picking up across the international scene, ailing companies like Hanjin are being left behind to await their demise. Whatever bounce Hanjin's bankruptcy produces will be limited, since the construction of giant container vessels ordered by various lines will be completed this year. Many experts say a real recovery will not come until at least 2018.