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Bankruptcy boosts freight rates

September 13, 2016

The collapse of the world's seventh-largest shipping company stranded about $14 billion worth of goods at sea. It also jacked up freight costs in an industry that has been beset by low rates for years.

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Hamburg Containerschiff Hanjin Europe
Image: Imago/Hoch Zwei Stock/Angerer

The bankruptcy of Hanjin Shipping, a major South Korean freight company, did more than just send global supply chains into disarray - it provided other shippers the lucrative opportunity to plug the logistical gap.

Companies scrambling to find an alternative to move clothing, electronics, furniture or other exports from one country to another are willing to pay a pretty penny for the service. Along some sea routes, freight rates have jumped by as much as 50 percent as shippers capitalize on the urgent demand.

According to the Shanghai Shipping Exchange, which tracks the cost of moving goods across oceans, freight rates between Asia and North America went up nearly 40 percent in the weeks after Hanjin filed for bankruptcy protection on Aug. 31 in South Korea. In the Pacific, between Asia and the US, rates went up by as much as 50 percent.

"Right now, there is much more (freight) demand than there is supply," the executive director of the Agriculture Transportation Coalition, Peter Friedmann, told the Reuters news agency. "People are scrambling to find a carrier with space."

One factor that has sent retailers into a frenzy to secure shipping is the impending year-end holiday shopping season, which begins in earnest next month. Companies are looking for ways to shift their goods from Hanjin ships to other ocean freight operators or air freighters.

As of Sunday, 93 Hanjin ships in 26 countries were out of service, trapping some $14 billion (12.5 billion euros) worth of merchandise at sea. There are about half a million standard 20 foot-long metal containers, or TEUs, currently stuck in limbo. But that's only a fraction of the more than 16 million TEUs that exist in total.

By Tuesday, three more Hanjin ships had received clearance to be unloaded at a port in Long Beach, Calif., after the company managed to secure protection from a US judge against seizure of its assets by creditors.

The global shipping industry has been struggling in recent years, bedeviled mostly by overcapacity. There are roughly 6,000 container ships in existence - and new ones keep getting bigger. The largest container ship can carry around 20,000 TEUs and is longer than the Empire State Building, albeit without the antenna.

cjc/uhe (dpa, Reuters, AP, AFP)