Hanjin Container Line collapse

[Ravenser]

Would they be allowed to write it off against tax if they hadn't incurred the debt in the first place?  If my understanding is correct - and I could well be wrong - the goods do not become the consignee's until they have paid the shipper for them to be released from the port of arrival (unless they have paid for them in advance of course).  And I have heard a whisper that in some cases because some Chinese concerns are scratching for business they might accept a situation where they are not paid for the goods until they have been sold (by the importer in the destination country).

 

Thus in reality as far as the contents of the container are concerned the UK customer has lost nothing - except the goods he was expecting (and of course possible R&D costs that cannot now be recovered by selling the goods).

 

Any sensible purchaser will buy from China on ex works or FOB terms, because Chinese shippers expect to be paid handsomely by carriers for the privilege of carrying their cargo - and that has to be funded by inflated charges to the consignee at this end. So the European buyer will almost certainly control the shipping. However the bills of lading will not be released by the supplier in China till they are paid

[jjb1970]

Something to keep in mind is that by its very nature shipping is an international business. There are international agreements and conventions but legal cases are still subject to local legal procedures which differ greatly. Usually international agreements are more concerned with the maritime part of the process, not what happens when a box is sitting in a terminal somewhere. Contracts across international boundaries usually specifiy what legal system will have jurisdiction in the event of a dispute. Usually these things are resolved relatively speedily in terms of releasing cargo although legal cases may last years. Something to keep in mind when perhaps criticising terminals is that they themselves stand to lose heavily from this collapse and they're only looking after their own interests, which is what any business would do in such a scenario, before releasing cargo. Ultimately, things like this are why you insure cargo.

[admiles]

My business is a Felixstowe based forwarding agency.

 

The Port of Felixstowe are only releasing containers for delivery on payment of a £460 handling charge and a deposit of £2000 per container. All in addition to the normal charges payable to Hanjin which they are still collecting. The £2000 is to be refunded within 7 days of the return of the empty container.  The £460 kept by the Port of Felixstowe is to recover the monies owed to them by Hanjin. Whether this is fair of course is open to debate! 

 

So far I have about 380 containers affected and most of my customers, though moaning and groaning a bit, are taking the news fairly well. One or two most certainly are not!

 

My thoughts are very much with the Hanjin staff. I've worked with a few of the Felixstowe based people in the past and count a couple as good friends. Professionally they were (and are) a decent company to deal with. Unlike certain other shipping lines I could mention....

 

Interesting times ahead!!

[Nile_Griffith]

In some cases that would be the situation.

However in others the customer might have spent a lot of money on advertising, he might have hired a warehouse and transport.

He might also have borrowed rather more than he should have done from the bank.

Then of course there is seasonal stock to go with Christmas, or in conjunction with the release of a film or a sporting event.

There are bound to be complications over the scrap/insurance value of that sort of material.

It will affect some people in a serious way

I remember when LG had a spot of bother some years ago and although not directly affected, it tied things up and led to several people doing work on which there would be no chance of any direct return when they could have been employed on profitable work.

Bernard

 

 

Would certainly add to these comments. Had a client a few years back who took the brave step of arranging for the import of a former GP car over from the States. The car was going to be part of a publicity campaign for a client of his own. As part of the shipped consignment was a load of themed merchandising, well it made sense, cheaper purchase cost in the U.S. and he already had a big metal box with some available space coming across the pond to ship it in.

 

So everything was put in place. The end client set up appearance dates and marketing support around the country etc etc etc and the mighty ship set sail from the U.S. West coast bound for the mother country. Well somewhere in the six week voyage (I think it was six weeks). The shipping company metaphorically speaking....... Turned it's toes up!! Now my client quite rightly had allowed a little leeway in time for potential bad weather and delays in unloading etc etc. However what he had not considered was that mid Atlantic it would all go wrong. The cargo ship remained at sea for an extra week before putting into port at Rotterdam rather than Felixstowe.

 

Needless to say the end client was not at all happy and sought to recover all costs connected with the planned events from my customer. Yes my customer had an insurance policy in place to cover his professional services, but the subsequent to'ing fro'ing and legal shenanigans did for his business anyway.

 

As said, it's not all big business blue chips that have their livelihoods connected with such misfortunes.

[definate maybe]

My business is a Felixstowe based forwarding agency.

 

The Port of Felixstowe are only releasing containers for delivery on payment of a £460 handling charge and a deposit of £2000 per container. All in addition to the normal charges payable to Hanjin which they are still collecting. The £2000 is to be refunded within 7 days of the return of the empty container.  The £460 kept by the Port of Felixstowe is to recover the monies owed to them by Hanjin. Whether this is fair of course is open to debate! 

 

So far I have about 380 containers affected and most of my customers, though moaning and groaning a bit, are taking the news fairly well. One or two most certainly are not!

 

My thoughts are very much with the Hanjin staff. I've worked with a few of the Felixstowe based people in the past and count a couple as good friends. Professionally they were (and are) a decent company to deal with. Unlike certain other shipping lines I could mention....

 

Interesting times ahead!!

Small world, I'm also at a Felixstowe forwarding agent. Luckily I have only had a couple of containers affected. One of which was a reefer so had the additional £1000 on the deposit.

I have to agree that I will miss dealing with the ever helpful and friendly people at Hanjin. What with this terrible news and the Coscon/ China Shipping merger and the inpending merger of Hapag Lloyd/ UASC it will be interesting to see what shipping lines remain in the coming years.

[rockershovel]

I was in Rotterdam a few years ago, standing on the wing bridge and watching the biggest container ship I've ever seen being unloaded, and the Bridge Officer said "that's Christmas". I hasn't really thought of it in those terms but it probably WAS the stock in trade for the Xmas trade for a lot of companies.

 

There's a scene in one of the Patrick O'Brian Aubrey/Maturin books, where the "East Indiaman Black Ship" makes an appearance - a convoy of ships from the East Indies containing pretty much, that year's produce and hence, earnings..

 

Re #56 above, I had a small surveying company at one time which was forced out of business by a supplier who simply decided not to pay their subcontractors, essentially imposing their own business failure on third parties. So it goes. I never ventured into that line of work again, though.

[jjb1970]

The issue of consequential damages from late delivery of a service is a perennial one that affects almost all industrys. Many contracts limit liquidated damages to the value of the contract on the not unreasonable basis that if a company is providing their services for a given cost then they can't really be expected to take on responsibility for an open ended liability that could be equivalent to hundreds of times the contract value. From the purchasers perspective that can be infuriating, but it should be tempered by recognition that their own terms of business (if it is a commercial customer) will probably include similar limitations for the same reason. That said I was involved in one project to build some gas carriers for a country in Asia where the gas company was demanding that the terms for any companies bidding to provide the ships would also accept all liability for the LNG terminals (they wanted to get the ships on a long term time charter basis). One well known Japanese shipping company answered that anything was possible but it'd clearly be reflected in the costs.

[Fenman]

An interesting snippet about this news.

 

Paul

[Dagworth]

http://www.bbc.co.uk/news/business-37335614

[Revolution Ben]

 

Hello all,

 

Suffering for her art....

 

http://www.bbc.co.uk/news/world-asia-37346601

 

Cheers

 

Ben A.

[Ian J.]

Hello all,

 

Suffering for her art....

 

http://www.bbc.co.uk/news/world-asia-37346601

 

Cheers

 

Ben A.

 

But as she says, it's an ironic situation as she studies 'absurdist filmmaking' and was looking for the comedy in the tension between mechanical systems and nature. Well, she's right in the middle of that so well placed to make artistic comment on it!

[jjb1970]

An interesting article on the state of shipping:

 

http://uk.reuters.com/article/uk-shipping-banks-idUKKCN11L2HV

 

There is no secret that shipping loans as the German equivalent of the toxic debt bubble countries like the UK, Ireland and US built up on property and consumer credit, and their KG sector (basically a ship finance product for small investors)is a disaster. The banks have been in a dilemma for years, if they pull the plug they'll just be left with assets that are in negative equity and which will be hard to sell, if they keep supporting their clients then they're basically just extending the crises by preventing a clear out of the weaker players to rebalance the sector, and even if the weaker players go down their ships will still go to somebody so it wouldn't solve the over capacity issue.

[Ian J.]

The over-capacity issue can only be resolved by scrapping the older, less efficient ships. Which of course is effectively a loss, something that banks don't like.

[4630]

. 

[Ian J.]

What's perhaps worrying is that over-confident lending has been behind pretty much all financial crashes over the centuries, be it the railway crash in the 19th century (over-lending to railway building), the Wall Street crash of 1929 (over-lending to private share investors), or the crash of 2008 (over-lending to house purchasers). This shipping issue could cause an extension of our existing ills, and a return to recessions (in theory) around the world, as banks have to deal yet again with writing off debt. I hope it does not turn out that way.

[Bon Accord]

What's perhaps worrying is that over-confident lending has been behind pretty much all financial crashes over the centuries, be it the railway crash in the 19th century (over-lending to railway building), the Wall Street crash of 1929 (over-lending to private share investors), or the crash of 2008 (over-lending to house purchasers). This shipping issue could cause an extension of our existing ills, and a return to recessions (in theory) around the world, as banks have to deal yet again with writing off debt. I hope it does not turn out that way.

 

If nothing else, it just goes to show that Banks have consistently proven that they cannot be trusted to act responsibly.

When are we going to wake up and do something about it?

[jjb1970]

With the exception of a seven year excursion into electricity generation I've worked in the maritime sector since leaving school in 1989 in one way or another. I've been at sea, worked in class and now work for a trade association representing a specialised part of the maritime sector. I have to say, over that time I've seen dips, peaks and a few economic cycles but nothing like the down turn of the last few months. Wherever I look it is pretty depressing with the single exception of cruise ships. The class societies have all been reducing staff numbers, the Korean yards are a mess (there was carnage in the Chinese shipbuilding sector earlier in the down turn, they seem to have stabilised at a new level), Hanjin are the tip of an iceberg, the sector is full of zombie companies only avoiding bankruptcy because financial institutions can't afford to let them go bankrupt, it is brutal out there. Of course a downturn is always painful but the depth and breadth of this downturn is savage.

Some of it (a lot of it) is self inflicted. The new building boom in the 2000's had much in common with the housing bubble. The class society I worked for calculated that there were certain ship types where the average age of the global fleet was 4 - 5 years with 50% tonnage building, that is clearly not sustainable. And it wasn't just banks. One of the particular problems in Germany is that ship finance became part of the small retail investor market, offering products where individuals could finance ships. And for a while the KG funds were offering very attractive returns, unfortunately as so often happens when retail investors see big returns dangled in front of them common sense and risk awareness go out of the window (or as other would say, greed makes people stupid). Building ships is just not a good world for small investors to get into. Although, given the schadenfreude that Germany has enjoyed since 2008 as they lectured other countries about the benefits of basing an economy on making things, good productivity, financial prudence etc it is quite reassuring to know that their banks were just as bad as ours in terms of risky and irresponsible lending.

[Ravenser]

The over-capacity issue can only be resolved by scrapping the older, less efficient ships. Which of course is effectively a loss, something that banks don't like.

 

And the carriers, who are desperately chasing volume and market share (especially the Asian ones), won't do it either.

 

Even if they sell vessels for scrap they can find them being bought up at scrap prices and returned to service - that is supposed to have played an important part of MSC's growth

 

And this all assumes that the world has the necessary scrapping capacity . There aren't enough beaches in the Bay of Bengal or enough Indian's with gas axes to do the job.... 

[Ravenser]

Don't worry, there's plenty of Thai, Indonesians, Vietnamese and Philipino's who'd love the chance of "de-constructing" a few large vessels

 

But they've never actually managed to buy a single vessel to scrap in 20 years. The Thais, Indonesians and Philippinos are much too well paid for the numbers to add up

[jjb1970]

One of the problems is that it is that the entirely correct regulations which are now being applied to scrapping (or recycling as it is now called) are making scrapping rather an expensive option. So many operators are holding on to old junk and avoiding scrapping. And they're offering this old tonnage at very cheap day rates which has had the bizarre (but predictable) consequence that in some trades modern, efficient tonnage is struggling to compete against old junk as the lower day rates wipes out the operational cost advantage of the more modern ships.

[Bon Accord]

With the exception of a seven year excursion into electricity generation I've worked in the maritime sector since leaving school in 1989 in one way or another. I've been at sea, worked in class and now work for a trade association representing a specialised part of the maritime sector. I have to say, over that time I've seen dips, peaks and a few economic cycles but nothing like the down turn of the last few months. Wherever I look it is pretty depressing with the single exception of cruise ships. The class societies have all been reducing staff numbers, the Korean yards are a mess (there was carnage in the Chinese shipbuilding sector earlier in the down turn, they seem to have stabilised at a new level), Hanjin are the tip of an iceberg, the sector is full of zombie companies only avoiding bankruptcy because financial institutions can't afford to let them go bankrupt, it is brutal out there. Of course a downturn is always painful but the depth and breadth of this downturn is savage.

Some of it (a lot of it) is self inflicted. The new building boom in the 2000's had much in common with the housing bubble. The class society I worked for calculated that there were certain ship types where the average age of the global fleet was 4 - 5 years with 50% tonnage building, that is clearly not sustainable. And it wasn't just banks. One of the particular problems in Germany is that ship finance became part of the small retail investor market, offering products where individuals could finance ships. And for a while the KG funds were offering very attractive returns, unfortunately as so often happens when retail investors see big returns dangled in front of them common sense and risk awareness go out of the window (or as other would say, greed makes people stupid). Building ships is just not a good world for small investors to get into. Although, given the schadenfreude that Germany has enjoyed since 2008 as they lectured other countries about the benefits of basing an economy on making things, good productivity, financial prudence etc it is quite reassuring to know that their banks were just as bad as ours in terms of risky and irresponsible lending.

 

The group of German dentists owning a number of VLCCs being a case in point. If memory serves most of them were managed by Frontline, I wonder how they're faring now.

[definate maybe]

The over-capacity issue can only be resolved by scrapping the older, less efficient ships. Which of course is effectively a loss, something that banks don't like.

 

In essence I agree but the problem is that the newer builds are getting ever larger but everyone still wants to offer a weekly service. With 18000+ teu vessels now becoming the norm on the far east Europe axis, there are 3 or 4000 slots per service per week. If you consider there are probably 10-15 far east- Europe sailings per week we are talking somewhere around 35000 teu slots per week extra available with less requirement.

More economic running of the modern vessels will counter some of the financial impact of lighter loaded vessels but what we see is a round robin of freight rate cuts to get more cargo. We often see notifications that shipping lines are inposing rate increases but these are often cancelled as the lines are scared of losing cargo to their competitors.

The average haulage rate to London from Felixstowe is around the £375 mark but at the start of this year especially we were shipping lines charge less than that to get the cargo from China and Thailand to Felixstowe in the first place. It really has been a crazy world and market share appears to be a lot more important than profitability.

Mark

[jjb1970]

The group of German dentists owning a number of VLCCs being a case in point. If memory serves most of them were managed by Frontline, I wonder how they're faring now.

They were the ultimate example of the KG model, I haven't heard anything about them for a while. On VLCCs, some owners managed to do well by just using their ships as floating oil tanks as countries and oil companies ran out of storage capacity in the oil glut. Oil is another messed up sector, the one thing that cheers some shipping companies is to look at oil and realise things could be worse.

[Bernard Lamb]

Add the steel industry to the messed up list and the world economic situation looks rather bleak.

I suppose if you anchored a few surplus ships of the coast of Turkey they could be converted into some medium term accommodation for refugees.

Bernard

[Ian J.]

If shipping companies are underpricing in order to get business, then it's only a matter of time before several more players 'sink without a trace'. I imagine that will cause more capacity to become redundant, only to get picked up by fly-by-nights out to make a fast penny while letting the ships deteriorate to a point where they are seriously unsafe and have to be scrapped anyway as they'd never make it past the safety inspections.