Hanjin Bankruptcy
Since the original filing in Seoul Central District Court (Korean Court) on August 31, 2016, international shipping has been roiled by the various issues associated with the world’s seventh largest ocean carrier falling victim to receivership.
The very first concern for scrap recyclers who have containers onboard Hanjin ships is where those containers are located. Next, the questions have ranged from, “What will happen to my cargo,” to “How do I get my containers back,” to “How can the other ocean carriers apply ridiculous rate increases overnight?”
For the most part, the legal questions are still somewhat unresolved—it is not a common occurrence for a major ocean carrier to go bankrupt. However, shippers are starting to get information as to where their containers are located. Unfortunately, in many cases, the containers are on ships drifting at sea while Hanjin decides where those ships can be sent to offload their cargoes or, in some cases, they are sitting on ship that has been “arrested.” In maritime law, arrest is the equivalent of seizure. Law enforcement that implements the arrest must assure that the ship will not be allowed to leave the arrest location without prior authorization. While there is not necessarily an obligation for someone that has arrested one of Hanjin’s ships to offload the containers there is an obligation upon that person to protect and care for the cargo on those ships.
Initially, to avoid having its ships arrested, Hanjin ordered its ships to stop short of entering their ports of call. While the order issued by the Korean Court protected Hanjin ships from being arrested in South Korea, their ships were subject to arrest in every other country. Several days after the Korean Court issued its order, a U.S. Bankruptcy Court judge in New Jersey issued an order protecting Hanjin Shipping under Chapter 15 of the U.S. Bankruptcy Code. Chapter 15 essentially recognizes a bankruptcy order from another country and provides most of the protections provided to companies that file for bankruptcy in the U.S. to a company that filed for bankruptcy in a foreign jurisdiction. Nonetheless, at least three Hanjin ships were arrested following the Korean Court’s order.
But worse, despite protection from arrest in U.S. ports, Hanjin was confronted with another major problem—terminals, stevedores, truckers, fuel and provision suppliers, and others were refusing to work Hanjin ships unless they were provided assurances that they would be paid for the work they would do. Some of these entities, in discussions with shippers or consignees (beneficial cargo owners), said that if those beneficial cargo owners were willing to pay the fees they were owed for their work in taking the containers off the ship that they would release the container to that cargo owner. However, while most of the cargo owners had already paid Hanjin, they were confronted with having to pay double, or more, the original freight cost.
Hanjin Shipping received a substantial cash infusion from the current chairman and former chairwoman of Hanjin Group, sufficient to meet the demands of the U.S. port workers and ships that have been offloading since early Saturday morning on September 10, 2016.
In the meantime, Hanjin’s bankruptcy has left a very significant void in certain shipping lanes, particularly those from South Korea to the U.S. but also certain Chinese ports to the U.S. As a result, some other carriers have added ships to their normal rotation but have also taken advantage of the situation to raise substantially their rates for shipping containers leaving many shippers, especially scrap recyclers, crying foul! The U.S. Federal Maritime Commission (FMC) has invited shippers to advise it of any violations of the U.S. Shipping Act or egregious price adjustments that would be tantamount to gouging.
There are many lessons to be learned from the Hanjin Shipping bankruptcy, not the least of which is that there are a number of ocean carriers who are having financial difficulties. Particularly if you ship primarily with one carrier, you should make every effort to keep apprised of that carrier’s financial condition. Also, if you enter into an annual contract with that carrier, you should consult your maritime attorney about the possibility of inserting certain clauses into the contract that can protect you as a beneficial cargo owner in the event that your ocean carrier encounters rough seas as has Hanjin.
It is probable that resolution of the Hanjin Shipping bankruptcy and the attendant fallout that is likely to occur with beneficial cargo owners, ports, terminals, stevedores, trucking companies, and railroads and others will take quite some time. However, the results may provide a roadmap to follow in the event that another financial catastrophe in the ocean shipping industry should occur.