Near the end of August, Hanjin Shipping filed for bankruptcy. The company is South Korea’s largest shipper and accounts for 3% of the global shipping market share. Carriers, brokers, and other shipping industry companies must now consider the effects of Hanjin’s bankruptcy on the global supply chain.

 

The Impact of Hanjin on US Trade and Consumers

When such a large shipping company files bankruptcy, the effects ripple throughout the global economy. The US shipping market and global market will feel the effects as Hanjin continues to apply for protections in export destinations to offload preexisting cargo shipments. Here are some of the outcomes that US consumers and supply chain players may experience as the bankruptcy process continues:

• Customers will experience delays in certain product orders. Many US courts are currently allowing Hanjin ships to offload cargo, but some remain offshore as they wait for shipping request approvals. As a result, customers waiting for cargo may experience delays as retailers wait for distribution.

• The entire industry will experience temporary price spikes. Hanjin was responsible for transporting more than 100 million tons of products every year. Any delay in the supply chain affects supply and demand—the basic building blocks of pricing. Industry professionals expect temporary price spikes to affect oil and consumer goods heading into the holiday season. Samsung in particular relies on the Hanjin shipping brand to transport millions of dollars’ worth of visual display technology and home appliances.

• Individual US companies may experience repercussions. At least three transportation companies may experience adverse business effects as a result of the bankruptcy filing. Danaos, Navios Maritime Partners, and Seaspan are all connected to Hanjin’s services. For Danaos and Navios Maritime Partners, the filing comes at a precarious financial time. These businesses and others may experience financial difficulty directly associated with Hanjin Shipping’s bankruptcy.

• Hanjin may foreshadow a trend in the supersaturated shipping industry. The shipping industry may lose billions of dollars in 2016 due to an overcapacity of containers. The bank associated with Hanjin’s restructuring may have rejected an application for loan restructuring in an effort to consolidate the industry in South Korea. Other countries and shipping services may experience the same financial difficulties as long as the industry is oversaturated. While other companies may not experience bankruptcy, consolidations and mergers may influence overall outcomes in the industry worldwide.

• US retailers may “go local” to avoid international shipping risks. To mitigate the risk of insolvency in the global trade market, the delays following this bankruptcy may serve as an impetus for US retailers to choose local suppliers. Focusing on local suppliers may allow retailers to manage risk and control price fluctuations more easily.

• Businesses not associated with Hanjin may experience side effects too. Without Hanjin’s cargo supplies, other shipping companies will need to adjust to pick up the slack. Large companies like Amazon may effectively negotiate agreements with other shippers and jeopardize smaller business shipments.

 

Handling Shipping Chaos After Hanjin’s Bankruptcy

For now, businesses that rely on international shipping must expect the best and prepare for the worst. Understanding the real and possible outcomes of Hanjin’s financial crisis can help businesses adjust their shipping practices and protect their own supply chains. Talk with your own shippers, and develop a contingency plan to prepare for shipments around holiday season.