Cargo owners and shipowners are most at risk of suffering financial losses from Hanjin Shipping’s entering into court receivership, according to a new briefing published by insurance broker Marsh.
Charter rates could take a hit as a “considerable” number of vessels end their contracts with Hanjin and return to the market, increasing competition, said the briefing, which is titled Shipping industry vulnerable following Hanjin administration (accessible here).
“As a result, owners may face a reduction in income when they do find a new charterer, or, failing that, be forced to have the vessels laid up and suffer a complete loss of earnings,” the paper said.
Hanjin has vessels on charter from Seaspan, Danaos and Navios, among others. The South Korean carrier accounted for 17% of Danaos’ revenue during its fiscal year 2015. Gerry Wang, the head of Seaspan, on Monday compared the fallout of Hanjin’s receivership to the effect that Lehman Brothers’ collapse had on financial markets.
Cargo owners should brace themselves for disruption to supply chains, which Marsh said could be “significant and have knock-on effects as facilities become clogged and competition for alternative capacity intensifies”.
The disruptions may also extend to Hanjin’s partners in the CKYHE alliance (Cosco Container Lines, K Line, Yang Ming and Evergreen), if the lines rely on Hanjin vessels to provide a service for their own customers under box-swapping agreements.
Terminals and ports may also need to protect their own financial position, Marsh went on. Port fees, tug and pilot services are at risk of not being paid if Hanjin vessels are permitted to come berth at their facilities, the firm said.
Hanjin’s port agents and crews are also at risk of not receiving their full pay, as are suppliers of bunkers, equipment and stores to Hanjin vessels, Marsh said.
“The wider ramifications of such an important company failure are only beginning to unfold. The situation is particularly acute, as August to October is generally the busiest time of the year for the shipping industry, as companies stock up for the holiday season,” Marcus Baker, chairman of Marsh’s global marine practice, said in a release.
Hanjin’s effects on marine insurance will be more uncertain, in Marsh’s view.
“There is now considerable concern throughout the industry as to whether or not companies are insured against this scenario. Marine cargo insurance policies are written on a wide variety of terms and conditions, for which there are going to be very different answers on a ‘case-by-case’ basis,” said Baker.