Posted on Sep 29, 2016 by: Scott West
Unstable weather, geology, and political environments present serious risks to just-in-time delivery, adding a hazardous element to “leaning out” your inventory.
Hanjin Shipping, one of the world’s largest shipping lines and to most prolific transporter of goods in the Pacific, filed for bankruptcy in South Korea on August 31, 2016. Overextended and facing a declining bottom line due to overcapacity and competition in the shipping industry, Hanjin lost the backing of its banks, forcing it to file for protection in South Korea.
The ripple effect is this: No Hanjin ship will be allowed to dock in any port, since payment for docking, unloading, fuel, and food for the crew is unknown. The shipping line will have to file with a bankruptcy court in each country its ships need to port in. Naturally, these things take time.
In the interim, cargo onboard is not only unreachable but also considered part of the vessel's value; until the courts can determine who owns what, billions of dollars of goods and equipment remain adrift. It may take months for owners of cargo to collect their shipment.
This most deeply affects manufacturers, distributors, and retailers. Christmas goods are being shipped now for the upcoming season. Walmart and Target will see a slowdown in the goods they normally stock until other shipping lines replace the lost capacity.
And if you can’t wait for the Hanjin cargo, using another shipping line may prove costly. Suddenly, 7.8% of the Trans-Pacific trade volume with the U.S. is out of action. Everyone needing products now will have to pay increased rates from just a week ago; at least, until the South Korean bankruptcy court awards control of the shipping assets to someone else.
Until that time, not only are ships and cargo in limbo, but also the crew. They are stranded onboard, and while various parties work to finalize a funding mechanism, there is no contingency for replenishing the standard two-week food supply for the twenty or so crewmembers on each vessel—and they can’t come into port until someone buys the ships!
One final note: Hanjin owns a majority stake in the largest terminal at the Port of Los Angeles. Hopefully another company will purchase Hanjin’s stake in TTI so that the terminal isn’t closed and hundreds of employees laid off.
When purchasing an insurance program for your retail goods, distribution, or manufacturing company, ask your agent about supply disruption coverage and if your policy includes coverage. If so, for how much? In this day of global trade and commerce, consider what it would mean to your business if a vital supplier was unable to get their product to you.