In International Shipping News 03/10/2016
Hanjin Shipping was established as Hanjin Container Lines by Cho Choong-hoon in May 1977. It began regular service to Middle East in 1978, and to U.S. West Coast in 1979. Hajin Container Lines merged with KSC in 1988 to become Hanjin Shipping. The company opened dedicated terminal at Long Beach south of Los Angeles in 1991.
In 1993, Hanjin Shipping received the Lloyd’s Loading List’s Star Performer Award for reliability on Far East to Europe Trades. In 1995, Hanjin Shipping launched China to Europe Service. In 2010, Hanjin started 10,000TEU class container vessel Hanjin Korea, which increased to 13,100TEU class container vessel Hanjin Sooho in 2012. TEU stands for Twenty Foot Equivalent Unit, while the other unit of measuring containers is FEU for Forty Foot Equivalent Unit. TEU container is a big and long box that you often see on big truck carrying one.
Also in 2012, Hanjin Shipping was ranked World No.1 in Vessel Schedule Reliability, and was named the Best Company in Transport for Dow Jones Sustainability Index. In 2013, the company again was ranked World’s No. 1 for Container Service Reliability. In 2015, Hanjin Shipping launched a new Far East to Latin America service, and as recently as in May 2016, Hanjin created “The Alliance” with other global shipping companies.
Then, on Sept. 6, 2016, there was the announcement of bankruptcy protection in the U.S., which followed a similar announcement on August 31 in Korea. At the time of bankruptcy filing, Hainjin Shiping was the 8thlargest container carrier in the world with over 150 containerships and bulk carriers as well as 4 regional headquarters in the U.S., Europe, Asia, and South East & West Asia.
How can such proud company go bankrupt?
To get a glimpse of why it happened, I reviewed annual K-ITRS business reports released by Hanjin Shipping from 2011 to the 1st quarter of 2016. Consider 1000 won per U.S. dollar. Also B refers to billion below.
Annual gross revenues of Hanjin Shipping, called total sales in the reports, fluctuated from 9,625 billion won in 2010 to 9,523 billion won in 2011, 10,589B in 2012, 9,650B in 2013, 8,095B in 2014, and to 6,850B in 2015. When gross revenues peaked in 2012 at 10.6 trillion won ($9.39 billion), Hanjin Shipping stated that “Annual sales exceeded10 trillion won for the first time in its history.” The figure began to decline since 2012.
Two observations may be noted for the peak revenues in 2012. One is the significant rise in container traffic which increased from 3,705,953 TEUs in 2010 to 4,477,043 TEUs. The other is that revenues from bulk products were still going strong from KRW 1,550 billion won in 2010 to 1,453 billion won in 2012.
Even with the record-breaking shipments in 2012, Hanjin Shipping lost money during the year as it did in 2011. In 2011, the loss was attributed to the container division that suffered from “continued hike in oil prices and decreased container freight rates.” In 2012, the loss was attributed to high oil prices, limited recovery of container freight rates, and appreciation of won against the dollar.
From 2013 to 2015, the container traffic held steady, but gross revenues went downhill rapidly. Gross revenues from container traffic decreased from 8,722 billion won in 2012 to 8,361 billion won in 2013, 7,435 billion won in 2014 and 6,339 billion won in 2015. Decline in revenues from bulk business was more drastic. It was 1,453 billion won in 2012, which fell to 740 billion won in 2013, 584 billion won in 2014, and to 461 billion won in 2015.
For the first time, Hanjin Shipping mentioned liquidity issue in their 2013 report, by promising to “overcome the liquidity issues that have continued through last year.” Clearly, 2012 and 2013 were pivotal years for survival of Hanjin Shipping during which corrective actions should have been developed.
By the 1st quarter of 2016, the financial condition of Hanjin Shipping rapidly deteriorated. Comparing the 1st quarter data between 2015 and 2016, revenues from container business fell from 2,126 billion won to 1,593 billion won, revenue from the bulk business fell from 1,968 billion won to 1,481 billion won, and net profit fell from +22.9 billion won to -261.1 billion won. Although not stated in the company business reports, the company debt is reported elsewhere to have increased significantly from 2007 to 2014. At the end of June 2016, Hanjin Shipping’s debt was reported to be about 6 trillion won ($5.33 billion).
I do not know what will happen to Hanjin Shipping. It may survive with massive aid from outside, or it may be acquired by Korean rival Hyundai Merchant Marine. At the very least, Hanjin Shipping’s experience shows the importance of keeping a competent planning division with sound economic and market analysis, let alone management with visionary mind.
Source: Korea Times
