It is quite a moment. Korea’s state-backed development bank has declined to support the restructuring plan of the country’s biggest shipping company. Bankruptcy looms. Anyone hoping this heralds an outbreak of common sense in the oversupplied container shipping market will be disappointed.
Korea Development Bank said on Tuesday that Hanjin Shipping’s restructuring plan would not solve its cash crunch. Hanjin’s shares shed another quarter before being suspended. It now has until September 4 to get its finances in order or enter creditor protection.
Hanjin could yet be salvaged. Smaller rival Hyundai Merchant Marine is already in the process of a debt-for-equity swap, and shipping is a politically important industry in Korea. But Hanjin’s predicament is arguably worse than Hyundai’s. The former has not made a net profit (after minority interests) since 2010 and debt — much of which falls due in the coming year — is more than seven times its equity. Shaky finances mean Hanjin could be excluded from THE Alliance, a new group of shipping lines set to form next March, which wants to share vessels and cut costs. Ideally, Hanjin would be allowed to fail and many of its ships would be scrapped.
That is unlikely, even if it does go bust. About half of its fleet is chartered, according to Alphaliner, so the owners of those ships will simply offer them elsewhere, even if that means accepting lower rates. And in the global pecking order Hanjin is low with just 3 per cent of global capacity — small on the surplus deck space of the wider industry.
That leaves the industry waiting for demand to catch up with supply, which could take several years. Three crumbs of comfort: there has been a slight improvement in rates, fuel costs remain subdued, and the supply of ultra-cheap money that financed frantic overbuilding has finally been curtailed — as Hanjin may now discover to its cost.
Email the Lex team at firstname.lastname@example.org
Get alerts on Hanjin Shipping Co Ltd when a new story is published