Cargo owners are likely to re-evaluate their counter party risk in shipping cargo with container lines after the collapse of Hanjin in South Korea and to prefer carriers that are transparent about their finances, according to analysts at Arctic in Oslo.
From the standpoint of cargo owners and shippers, the collapse of Hanjin will raise concerns about the reliability and creditworthiness of other container operators, they noted.
Container lines, including Hanjin, are right now carrying cargoes from the Far East to the markets in other parts of the world for Christmas in what is a peak season for the industry. The fact that the collapse of Hanjin coincided with this period is likely to heighten the concerns shippers and cargo owners have about the health of this part of their global supply chain.
“We also find that the situation will lead shippers to re-evaluate their preferred container operators with those having a transparent balance sheet, or at least willing to be transparent, benefitting. In our view this puts Maersk and Hapag-Lloyd ahead of the rest, although the Japanese players and COSCO technically do show their balance sheets,” the two analysts said in a report emailed to IHS Fairplay.
The prolonged weakness in container shipping freight rates has, in principle, favoured shippers as it has meant very low cost of ocean freight. However, the collapse of Hanjin shows that this has not been without a risk.
Container freight rates resumed a fall in June after remaining stable for the two previous months, figures released by Container Trade Statistics (CTS), the UK-based consultancy showed on 5 August. Its price index, which includes both spot and contract rates, fell by one point to 63 in June, a new low, after two months at 64 points.
Drewry, the London-based consultancy, forecast in the beginning of the year that the industry’s losses would exceed USD5 billion this year.
The longer low rates and deep losses prevail, the higher the counter party risk in container shipping has become as ultimately, the collapse of a major carrier would no longer be avoided.
Shippers and cargo owners that may have found the situation quite advantageous to them will now have to reassess it as the prospect of damage to their global supply chain following the collapse of a major container line can far outweigh at least short-term savings from all time low freight rates. The call for transparency that the Arctic analysts mention is an understandable consequence of the events.
Stavseth and Wikborg note Hanjin is the world’s seventh largest container line and it controls about 620,000 teu of capacity, including vessels chartered in, and point out that it is the biggest business failure in the container shipping industry.
They also note that its collapse may cause secondary tremors as vessels chartered by the company may be redelivered to owners, which would put downward pressure to charter rates. Any sales of vessels Hanjin owns could have the same effect.
Against that background, it must be reasonable to assume that the collapse of Hanjin can put additional pressure on already battered balance sheets on container lines and tonnage providers. In a worst case scenario, that may increase prospects of other business failures in the sector, with potential further challenges to global supply chains.
Reported by IHS Fairplay