Hanjin, South Korea’s largest shipping company and seventh largest in the world, is on the skids. Although it represents 2.9% of the world’s shipping capacity, the company has posted net losses every year since 2011 and filed for bankruptcy protection on August 31st, 2016. For almost two weeks, 92 of the 141 container ships operated by Hanjin have been stuck at sea, anchored outside ports around the world. While ports are barring the ships from entering because the costs associated with unloading the cargo are unlikely to be paid, Hanjin faces the possibility that the cargo or ships could be seized by creditors. Stuck in the middle are the ships’ crews who are being told to conserve food and water for a wait of indeterminate length as the legal matters are sorted out.
While the company isn’t out of the woods yet, it looks as though things could be coming together sooner rather than later for Hanjin. U.S. bankruptcy judge John Sherwood decided to grant Hanjin protection last Wednesday. Korean Air, the biggest Hanjin shareholder, has approved a plan to loan the bankrupt shipping firm 60 billion won ($54.16 million), allowing one ship, the Hanjin Greece, to dock in the port at Long Beach, California, where a stake in that terminal would be offered as collateral for the loan. Meanwhile, of course, Hanjin’s competitors are busy picking up business among the firm’s jilted customers and beginning to take over trade routes once monopolized by the failing company.
Opinions are mixed as to the short- and long-term effects of the Hanjin bankruptcy. Because shipping was ramping up in general in order to fuel the annual consumerist Christmas splurge, there’s some speculation that store shelves will contain less of the overwhelming abundance of goods to which we have become accustomed, yet I am sure that no retail opportunity would go unfilled by the many manufacturers and shippers that are swooping in to cover this consumption emergency. There’s also some hypothesizing going on about the effect of this magnitude of shipping disruption on the price of oil. If this means that shipping as an industry is faltering and instead of picking up our knock-off knick-knacks in Asia we’re opting instead for our own homegrown tchotchkes, the price of oil could go down as a result of reduced demand. However, if shipping takes to the air instead of the slow boat from China, the increase in fuel-intensive shipping would tend to raise the price of oil. The slight recovery in the West after the meltdown that began in 2007 caused a race to build more new container ships (capacity increased by 8.9% in 2015) even as 25% of extant shipping capacity sits idle due to China’s failure to maintain its explosive growth. This oversupply of capacity has meant that shipping rates had been falling until Hanjin’s bankruptcy caused the price for shipping space to nearly triple last week. If Hanjin’s ships are seized and sold to repay creditors, however, this oversupply of shipping capacity won’t be going away and prices should come back down.
Hanjin Shipping files for bankruptcy protection in U.S.: Wall Street Journal, courtesy of Arirang News
So, why does any of this matter? In a globalized economy, the ripple effects can be felt in far-reaching and unexpected ways. Since we have embraced policies that sent American jobs overseas in exchange for the promise of cheap trinkets that even the unemployed could afford, the typical American way of life depends upon a constant stream of inexpensive imports. Disruption of this supply can be painful to people whose standard of living dropped, yet who may be asked to pay more for scarce goods. Missing inventory at American stores can mean layoffs and a continuation of the downward economic spiral. At the same time, a break in the global supply chain is also an opportunity for those willing to fill the gap and those willing to reduce their wants in exchange for greater economic resiliency. Maybe if we lack so many “Made in China” purchasing options, we can encourage our own communities to rebirth themselves, providing jobs for our neighbors and encouraging Americans to rely on their own interconnectedness instead of the sweatshops of the world. I can think of no greater Christmas gift than this.
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