The Hanjin Bankruptcy: Your Global Supply Chain Strategy Hinges on a Tugboat
by Kelly Barner
On August 31st, Hanjin Shipping Co., the seventh largest shipping company in the world, filed for receivership in a South Korean court. A few days later, on September 2nd, they filed for Chapter 15 bankruptcy protection in New Jersey. According to riskmethods’ own research, Hanjin Shipping has a debt of approximately $ 5 bn and recently faced serious liquidity problems. Now that the Hanjin bankruptcy is public, the race to prevent supply chain disruption and merchandise / financial loss has begun.
Legal and financial experts will spend months debating led up to this supply chain catastrophe and how it could have been prevented, but for thousands of companies and individuals, the focus is far more short term. What is to be done about the $ 14.5 bn worth of freight belonging 8,300 cargo owners currently on Hanjin’s ships? Some of it belongs to retailers, some to manufacturers, and some to individuals, all of whom are unable to take ownership of their cargo. Why?
Hanjin Bankruptcy: Your supply chain risk management strategy hinges on a Tugboat
Once Hanjin acknowledged their financial instability with the receivership and bankruptcy filings, service providers instantly refused to work with them, prudently citing their concerns about being compensated should they perform services for the sinking shipping company. This includes the tugboat captains and dock workers that are critical to Hanjin’s ships getting safely into port and unloading their cargo. The freight world has gone into a sort of bankruptcy-induced limbo.
You can be sure that companies reliant upon trans-Pacific shipping routes thoroughly vetted a number of shipping companies before making the decision to work with Hanjin. Their choice turned out to be wrong, and they may or may not have seen early signs of financial instability, but it is almost a certainty that no one thought to include tugboat operators’ appetite for risk into their decision to have Hanjin manage their freight.
The smallest link in the chain can easily make an entire business fall
Just as a manufacturer must be willing to stake the success of each design on every individual component, supply chain managers must look at all of the factors that contribute to the reliability of delivery. And if something does go wrong, they must know what the second and third tier fallout is likely to be. The smallest link in the chain can easily make an entire business fall, as many companies are now learning the hard way.
The corporate perspective on global risk is often so distant that the supply chain seems neat and simple, while in practice, the delivery of goods and the collection of revenue hinges on the frame of mind of a tugboat captain. Without their confidence, Hanjin’s ships are sitting outside of ports (in the best case scenario) or being seized by governments in lieu of payment (in the worst). Everyone not already snarled in Hanjin’s downfall is determined to remain that way, which means high levels of risk aversion and frantic willingness by other involved parties to seize cargo to protect against total loss – even if it is your cargo rather than theirs.
Is the Hanjin bankruptcy relevant for you? Is your organization’s supply chain affected?
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