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Is Hanjin shipping’s Lehman moment?

Is the fall of Hanjin shipping’s Lehman Brothers moment? That’s the point of view of Gerry Wang, the head of Seaspan, which charters a number of ships to the bust Korean line.

Speaking on Bloomberg Television, the Hong Kong domiciled shipping veteran said: “The fallout of Hanjin Shipping is like Lehman Brothers to the financial markets. It’s a huge, huge nuclear bomb. It shakes up the supply chain, the cornerstone of globalisation.”

The bankruptcy of New York bank Lehman Brothers eight years ago ushered in the global financial crisis.

Wang went on to say that the current business model of container shipping was not sustainable.

“At the end of the day, the industry has been money losing. For like any industry, for long term, it’s just not sustainable,” he told the television channel.

Not everyone agrees with Wang’s Lehman comparison however.

Splash’s lead finance columnist, respected ship finance veteran Dagfinn Lunde commented: “I do not agree at all. Very little will happen due to Hanjin’s demise; the ships will still be there.”

Hong Kong-based transport analyst Charles De Trenck was more circumspect.

“It could very well be similar in the sense that no other government allows another line to go down,” he said, adding: “Well, until the next disaster, which could come sooner than a decade.” Like Lunde, De Trenck warned boxship overcapacity was still very much prevalent, while global economic growth remains “anemic”.

De Trenck argued there is a “Lehman post event realization” for some that this is worse than some of the “apparatchiks” thought possible.

Robbert van Trooijen, chief executive for Asia Pacific at Maersk Line, told Splash that, long term, fewer players in container shipping would benefit shippers.

“From a Maersk perspective we have always said that our industry is too fragmented and that industry consolidation, despite temporary but inevitable supply chain disruption, is ultimately good for the industry. The resultant stability will eventually benefit the shippers,” van Trooijen said.

Neil Dekker, Drewry’s director of container research, said Hanjin’s court receivership should serve as a “big wake up call for the entire industry”.

“The events of 2008/09 should have shaken the industry up and four companies were very close to financial failure at that time,” Dekker revealed, adding: “But the industry has reacted rather arrogantly and lessons were not learnt with overall profitability so poor in recent years.”

The Drewry analyst warned other box firms could fold too.

“Lines have focused on cost cutting for years, now is the time to focus on revenue,” he advised.

Tim Routh, from portal China Sea Rates, said shipping had yet to have its Lehman moment, despite the enormity of Hanjin’s failure. Hanjin is the world’s seventh largest containerline with a strong bulker portfolio too, controlling around 140 ships. To date, it is the largest container shipping bankruptcy in history.

“I have stated from the outset of the HMM and Hanjin issues that they are the Fannie May and Freddie Mac moment,” Routh said, referring to the failed US mortgage lenders who collapsed before Lehman. “The Lehman Bros is still on the cards,” he warned.

At a live Q&A session on our new interactive forum, Splash Chat, eight days ago, Lars Jensen from SeaIntelligence Consulting predicted there would be just six to eight global container carriers by the mid-2020s, down from the current 15.

To access Splash’s full, unrivalled coverage of the decline and fall of Hanjin Shipping, click here.

Sam Chambers

Starting out with the Informa Group in 2000 in Hong Kong, Sam Chambers became editor of Maritime Asia magazine as well as East Asia Editor for the world’s oldest newspaper, Lloyd’s List. In 2005 he pursued a freelance career and wrote for a variety of titles including taking on the role of Asia Editor at Seatrade magazine and China correspondent for Supply Chain Asia. His work has also appeared in The Economist, The New York Times, The Sunday Times and The International Herald Tribune.

Comments

  1. nice compilation of overstatements!
    However:
    1. Any comparison with Lehman is groundless, as in finance there is this thing called the interbank market which is absent from the shipping industry thus there is no issue of systemic stability
    2. Juxtaposing Lunde’s claims with Wang’s seemingly makes no sense at all as they discuss different aspects of Hanjin’s meltdown
    3. Maersk would do anything to convince the shippers that further consolidation would be in their favor. Shippers want low cost and reliability, which they have both in the current cisrcumstance, Hanjin notwithstanding
    4. I think Drewery folks have it clear in their minds, but then again these things are no-brainers these days

  2. Obviously there are a lot of pros & cons which might be the reasons and possible consequences of the actual situation. Consolidation obviously has an impact on
    supply & demand. It is reducing the number of players which eventually facilitates
    reduction of tonnage. “Remaining operators” would have to agree who takes out how many vessels, what would be the price tag? Market shares based on past performance? Global market shares without considering lines’ strength in any given trade lane and the existing equipment imbalances in these trades? Good luck!
    Assuming for a moment the new groupings would find a solution for that, you end up with a number of players. Which time frame is needed to sort out all that and
    how will demand develop during such process? At the end of the day there will be
    “x” number of players competing on the basis of “X” volumes. Maybe, “supply” would be easier to “co-ordinate.

    What about demand? It is not just a matter of volumes. Have lines in the past really
    asked for the demand of their customers? They rather looked at their competition
    and told their customer, you are going to do it better. But you have to look at the
    competition and tell your customer you are going to do it differently. When you sell the same services and engage the way, you just compete on price (sound familiar).

    A solution – change you business model – develop a new product. Try to extend your value chain. Door/door – port/port ration?! What is the logic behind when stakeholders run their business by using lines’ boxes only having paid ocean freight? And in many cases getting the empty back where it is not needed?

    A fundamental change of the business model is easier said then done. A strong organizational culture is like the body’s immune system. always tryinng to fight radical innovtion that might pose a threat to the existing biusiness model. The purpose of such culture is to maintain and to prtect against risks.

    I hope the abvove will create some discussion and possibly even arguements.

    Best regards from EDU

    (Edward’s Disruption Unit)

    E for Eduard – D for Disruptioin – U for Unit

  3. There are some Lehman parallels – both lost their national support and both events were considered as ‘unthinkable’. Hanjin will surely lead to consequences in the industry and within the Korean system. However, a major difference is that Lehman’s business model was focused on abstract financial products and the collapse of the bank created a lot of uncertainty about the ‘value’ of such artificial products and the stability of other players involved. However, Hanjin deals with real assets. Furthermore, Lehman happened at the end of a boom phase and caused a bubble to burst.

  4. And why is everyone so surprised? The order books for new builds of a few years ago foretold this disaster. So why didn’t the industry see the lemmings coming? As to the Lehman analogy, George said it right. Finally (if in fact we’re even there), as the old sports proverb here states, ‘It ain’t over till the fat lady sings.’ I think she has only started to clear her throat.

  5. Good comments. I would like to propose the “abstract” parallel for container shipping (ie, the stuff Liners dont really understand) is that the industry does not properly account for its revenues…These guys have been booking others’ revenues for decades. It could be glossed over when containerization was growing 10pct or more. …but core or actual reveues are far lower than what is booked. ….

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