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Post-Hanjin, there’s a need for a global container rescue fund

Post-Hanjin, there’s a need for a global container rescue fund

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The demise of Hanjin has come as a surprise to many market participants. Mostly, because the signals given by banks during the last six months led many to believe that Hanjin was the stronger of the two Korean national carriers. But let’s not debate the past and rather try to analyse the still developing situation and try to take steps to prevent a bigger disaster, which in fact, might be ahead of us.

The top 10 container carriers are the engines of global trade. The further up the list, the bigger the systemic risk in case of a breakdown. They are not too big to fail and they are organised in large consortiums, which are spreading out the consequences of a possible collapse of a single carrier all over the world. We have seen that Hanjin containers have been loaded on many different vessels around the world, while at the same time, Hanjin vessels have loaded containers for many different carriers, which are now more or less stuck.

Of course, the maritime network is suffering from the sudden collapse and the owners of charter vessels, terminal operators, ports, fuel suppliers and equipment suppliers are rushing to protect their interest, maritime lawyers and courts are working around the clock and around the world. And in the middle, deep down in the hole is the customer, who is going to pay the ultimate price. Who is taking care of the cargo interests? The cargo owners are struggling to find out where their containers are and how to get them. They are being ignored or taken advantage of by some market participants, which feel the need to recover as much of their losses from the cargo owners, as possible.

Unlike in a collision, there is no general average in bankruptcies. All of a sudden, the vessel owner and the cargo owners are not ‘in the same boat’ and there is no set of well-established rules on how to deal with such an ‘accident’. And I think that we now might come to realize that this is exactly what is missing here. We need to establish a set of rules and agree on procedures on what happens with the cargo in case of a sudden bankruptcy of a carrier. It simply cannot be that the customers are left stranded.

As soon as the bulk of the work is done, I suggest that perhaps under the leadership of the IMO, organisations representing regulators (FMC) and shippers (ESC, shippers councils) and ocean carriers (the World Shipping Council), ports and terminals and last not least the seafarers convene and hammer out a term sheet and a road map on how to set up, fund and administer a ‘Container Rescue Fund’, which should assume control of a collapsed carrier and make sure that the ships can call at a safe port, discharge the cargo and repatriate the crew as needed. The funding needs to be supplied by all stakeholders, even if it is as little as $1 per each container carried around the world. Funding needs to be built up to cover the costs, while some organisations, such as ECAs or insurance companies should be tasked to provide necessary bridge financing, in case the amounts available in the rescue fund are not (yet) sufficient.

The goal of setting up such an international (neutral) non-profit organisation is to prevent a collapse of world trade, keeping disruption and losses to a minimum. Most certainly, it is not intended to pay for everything. But it should be a system, which limits the exposure and has clearly defined terms. Shipping is based on pre-agreed contracts, such as the bill Of lading, the time charter, the voyage charter and many other forms. Let’s find a solution for this case, which is not yet covered.

 

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Tobias Koenig

Tobias is the managing partner of Lexington Maritime, focusing on market deficiencies and opportunities in the maritime industry. He was previously the founder and majority shareholder of Koenig & Cie, an investment firm with more than $6bn on its books. He sold the firm to private equity investors and now works in Hamburg and New York.

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2 Comments

  1. Hans-Peter Becker
    September 20, 2016 at 12:19 pm

    Dear Mr. Koenig,
    “..They are NOT too big to fail..” – If you would have written this phrase 6 weeks ago, the shipping industry would have beaten you over the head and the law firms of the top 3 would have been at your doorstep. Now you can state this without fearing to be called stupid and naïve. But at the same time, you are now lobbying for a “rescue fund”– for what?? Do you really think, that such fund could help stranded seafarers on abandoned vessels? We have them now already at large and nobody cares (the seamen’s missions excluded!).
    Why to rescue customers, who chose the cheapest on the block for a $5,-/TEU advantage, just to learn that it was “too cheap to be good”?
    Why bailing out Chartering owners, who think their risk is sealed by the ink on long term contract? Who are neglecting the market developments until they figure it out – it’s too late!
    And last but not least, why protecting the irresponsible management of container carriers, who define themselves over vessel sizes, market shares and at the same time ingnore the vessel demand and market developments?
    Any owner of a fish&chips shop could have run this in a better way, by just looking every night in his cash box.
    The lesson out of the Hanjin demise should be how to run a business in a reasonable, responsible and profitable way – every day, every quarter, every year and not trying to offset the losses of one year with the borrowings of the next and the hope for better times in a distant future.
    We should not develop tightly knit security net for incompetent managers on all sides of the negotiation tables!!

    But – I know that in 6 months the shippings industries collective dementia will have picked in…. until the next casualty.
    Best regards
    Hans-Peter Becker

  2. James Thatcher
    September 20, 2016 at 1:39 pm

    First allow me to say, that the proposal is not a bad one. Unlike my colleague above, I can see some of the sensibleness in protecting the consumer. After all, the consumer is never privy to the health of the carriers, almost all are privately held and ergo are not responsible for publishing any number other than their revenue.

    And whilst I think there should be more agreement drawn into contracts by carriers for what should occur in a bankruptcy of the company for the vendors that it utilizes (such as bunker, terminal charges, rail/feeder carriers, and other players that are now coming out of the woodwork for Hanjin); at the end of it all there has to be something done for the consumer. I think we can all agree that we do not want a direct government interaction in this case, as flexibility and sovereignty would quickly come into play; but there is a more fundamental question if we were to take on this approach:

    “Who holds the money?”

    Simply stating, it would be in a “trust fund” is not a bad idea, but reminds me of the US Elections of 2000 when Al Gore stated he would put funds into a “lock box.” In my opinion, there should possibly be a quasi governmental organization, the UN? the WTO, the World Bank? We cannot obviously require the carriers to hold this money in arrears as they could plunder it (remember they have closed books). So we have to as Woodward and Bernstein were once told “follow the money,” to ensure that we have accountability and oversight should/when the next collapse occur.

    But, that’s just my 2¢