Embattled South Korean cargo container carrier Hanjin Shipping Co. Ltd. is expected to present a $1.1 billion liquidity plan Thursday in efforts to avoid bankruptcy.
The company’s largest creditor, Korea Development Bank, must sign off on the deal. However, a few details still need to be ironed out before a Sept. 4 deadline for Hanjin to get its finances in order. Hanjin plans to meet with its creditors on Sept. 2 to seek approval of proposed deferment and equity conversions from bond holders to finalize the liquidity plan, and also is working to renegotiate charter costs on its leased cargo ships.
The Hanjin deal could have far-reaching impacts at the dozens of ports around the world where the company moves as much as 100 million tons of cargo annually – particularly at the Port of Long Beach.
If the plan is accepted, South Korea’s largest shipping company could avoid being placed under court receivership. Otherwise, it would be one of the largest and most visible carriers to go under in recent years.
“Of all of the major container lines, they’re probably the ones closest on the ropes,” said Mark Szakonyi, executive editor of JOC.com, the online arm of the Journal of Commerce, who covers container shipping and the international supply chain industry.
According to an analysis by JOC.com and PIERS data, parent Joc Group Inc., Hanjin’s U.S. imports fell by 4.2 percent through the first half of the year, while exports fell by 14 percent. However, Hanjin says those numbers don’t take into account U.S.-bound cargo that entered North America through the Prince Rupert port in Canada. Hanjin Shipping reported a net loss of $221 million in the first quarter of 2016 and a second-quarter net loss of $182 million.
Hanjin Shipping’s parent company Hanjin Group has pledged to give its subsidiary a $400 million infusion to help it meet its liquidity goal, according to Hanjin spokesman Mike Radak. Hanjin Shipping has also been divesting itself of non-essential assets to raise another $400 million, he said.
The carrier has also considered selling its Long Beach terminal to Hanjin Transportation, another business under the umbrella of Hanjin Group, said Radak.
That terminal, Pier T, is operated by Hanjin-owned Total Terminals International and is the largest by acreage at the Port of Long Beach, handling about 2 million TEUs (20-foot equivalent cargo containers) per year, about one-third of the port’s total cargo. Hanjin is the primary carrier at Pier T, but several other shipping companies pay Hanjin for access.
Port of Long Beach spokesman Michael Gold said that should Hanjin Shipping reduce its presence at Pier T, the port should be able to replace it with a new carrier.
“This particular terminal is one of our more modern terminals, so it’s attractive,” Gold said.
Hanjin is not the only shipping company suffering financial problems as the global industry struggles with slumping demand and prices. Another South Korean carrier, Hyundai Merchant Marine, is also in dire economic straits.
Hanjin is trying to right the ship by partnering with five other cargo carriers, including Hapag-Lloyd and K Line, in an alliance designed to better control the supply of freight space on their vessels and drive up the cost per container. Known as The Alliance, the five-year partnership will go into effect on March 1.
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