Following several quarters of financial difficulties, banks stopped providing financial support to Hanjin Shipping, which has triggered their restructuring and payment default to several counterparties, inclusive of fuel suppliers, port authorities and even its employees. Hanjin Shipping reported a net loss of $233.6 million in Q1/16 citing freight rates’ drop to record lows. By last Friday, Hanjin said 44 out of its 98 container ships have been denied access to ports around the world and one ship was seized. Hanjin isn’t alone in struggling in the current market, several transportation companies have been dealing with increased volatility in fuel costs and currency swings that test even the most sophisticated and larger operators.
Hanjin’s demise demonstrates the perils several companies face in regards to Trade Disruption. Either directly owned money by Hanjin (its suppliers) or having products sitting in containers on their ships (its clients) where its unlikely these products will reach destination in time for their optimal distribution, several dozen companies are now struggling to figure how they will survive without the funds or with contractual penalties deriving from the shipper credit default. Companies of all sizes can run counterparty risk scenarios, however the reality is, these scenarios are only as good as the real protection arranged to indemnify the company, in case they occur.
Daniel R. Galvao