What’s happening?

Whilst Hanjin Shipping may not be a household name, the effect of the shipping company’s collapse is likely to be felt by everyone.

Hanjin Shipping would usually transport consumer goods of every description including things like: trainers, clothing and electrical goods. However, after the company filed for bankruptcy in Seoul and bankruptcy protection in various jurisdictions around the world, ports and terminals are refusing to allow Hanjin’s vessels to dock through fear of not getting paid. In addition, the vessels themselves are reluctant to enter port limits through fear of being arrested.

It is understood that nearly 100 Hanjin vessels are believed to have been stranded worldwide, whilst approximately six have been arrested or detained. Whilst the vessels are stranded there is no ability to discharge the cargoes carried on them.

Effect on Retail

With around half of its fleet stranded outside port limits, the collapse of Hanjin, South Korea’s biggest container line, is directly effecting the supply chain of certain products. With Christmas around the corner, the disturbance in the supply chain may impact upon the availability and price of certain goods.

Even if the issue of the stranded ships is resolved in the next few months, the costs of products may increase just in time for Christmas in any event. The ports and terminals are already levying extra charges in order to allow the containers to be discharged. In addition, the price of shipping goods in containers has increased by around 40%. Whilst other carriers have attempted to re-program their fleets to help ease cargo backlog, it is likely that they will look to take advantage of the market fluctuation and increase their freight rates.

It is understood that the Korean electronics company, LG, has cancelled its shipping orders with Hanjin and is looking for an alternative company to transport its products. Whether this impacts on the cost of LG products remains to be seen. It is also reported that Samsung are in the same position and are looking for alternative shipping options.

For the retail sector, the main cause of concern from the collapse of Hanjin Shipping is likely to be the delay in accessing goods and any escalation in price of the products as a result.

Depending upon the particular terms in the contracts, the cost of the delay may fall to the original seller if they are in breach of any timescale for delivery obligations under the sale contract. However, any supply shortage is likely to increase the demand and consequentially the cost of a product in any event. For new product lines, for example, there is unlikely to be much, if not any, existing stock to protect against shortfalls and those companies lucky enough to have such a product may be able to charge a premium. This may be particularly relevant as this year’s Christmas “It” toy has yet to be identified.

Things to consider

  • any implications arising out of the delay under the sales contract or onward contracts which the buyer has with third parties
  • the ability to pass on any escalation in price of products to consumers
  • any alternative supply methods

The effects of Hanjin’s collapse will be felt for many more months to come.