Hanjin Shipping’s entry into receivership at the end of August left global ocean supply chains in a spin. Could the fallout see the air cargo market benefit?
     You might ask a forwarder, but the immediate answer points to the nightmare of possibly having to pay twice for shipping the same goods.
     “We pay upfront to Hanjin and they go into receivership, so when we finally find the goods locked up somewhere, in some cases we have to pay again.
     “Sure, we have insurance, but what a mess right now!” FT was told.

Long Slow Descent

     Hanjin, the world’s seventh largest container line, was struggling financially for some time before its creditors finally pulled the plug. But despite the warning signs, the transport sector was still left in shock.      After all, the world’s leading box shipping companies survived the 2009 global financial crisis and the subsequent long-term downturn in rates through a combination of cost cuts, the formation of alliances, M&A consolidation, and government assistance.
     The demise of Hanjin has left cargo and the Korean line’s ships stranded around the world. As things stand, many terminals are refusing to release Hanjin containers and cargo, or will only do so on payment of large fees. Haulers are also refusing to truck the line’s boxes and some ports will not receive the company’s ships.
     Customers able to secure their cargoes are now urgently scrambling for space as they seek to reach key markets in Europe and the U.S. in time for the holiday season.

Rates Impacted

     The World Container Index reported that spot rates from Shanghai to Los Angeles in the U.S. and Rotterdam in Europe increased by 42 percent and 39 percent respectively on September 1 against the previous week. Transpacific spots rates have also spiked in recent days.
     The knock-on effect for air cargo markets could prove lucrative, with some $14bn worth of goods thought to be stranded at sea.
     “Many shippers and forwarders are looking for alternative slots from others carriers, but space is tight,” said Paul Tsui, managing director of forwarding and logistics operator Janel Group and the immediate past chairman of the Hong Kong Association of Freight Forwarding and Logistics and the Federation of Asia Pacific Aircargo Associations.
     “Additional air movements are quite possible as some of the cargo delayed due to Hanjin’s problems will now need to be flown, or replacements for cargo stranded at docks will need to be air lifted.”

Customers Scrambling

     Stifel’s John Larkin said Hanjin’s customers were scrambling to reposition cargo and ensure timely delivery of freight, but due to the web of vessel-sharing agreements in which Hanjin is involved repositioning was no easy feat.
      “With peak season looming, and with echoes of last year's West Coast port strike still fresh in shippers’ minds, we believe many will be turning to freight forwarders and air cargo capacity providers, if necessary, to find options and alternatives,” he added.

Kerr Sees The Light

     Indeed, tentative early signs suggest the air freight sector is already benefitting. Etihad Cargo Senior Vice President David Kerr told FlyingTypers the carrier had received a number of charter enquiries in recent days. “We are responding to these with options for full and part charter of freighters, with increased aircraft gauge and frequency to accommodate demand on existing scheduled main deck and bellyhold routes,” he said.
     “Slot constraints in China for new operations, both scheduled and charter, are creating an artificial bottleneck.
     “We already have medium-term commitments in place with key retailers, which will limit short-term availability. In general, though, we anticipate oversupply of capacity—especially in marine shipping, but also to an extent in air freight—will absorb much of the demand.”

Lufthansa Reinforcing

     A spokesperson for Lufthansa Cargo said the carrier was ready to reinforce routes at short notice if there was high additional demand in the weeks ahead. “The U.S. port strike in 2015 generated additional air freight business,” he added. “However, it should be distinguished between no ship leaving any harbor across a huge region, and one single potentially leaving a market characterized by overcapacities.”

Korean Air Glad To Be Happy

     The main air freight beneficiary of the chaos engulfing Hanjin Shipping is likely to be Korean Air, not least due to new product launches planned by leading Korean companies that have been hit by the line’s entry into receivership. Samsung alone is reported to have some $38m worth of freight sitting on Hanjin ships and is understood to be considering chartering multiple freighters to meet its commitments to customers.
     A spokesperson for Korean Air said due to internal regulations she was unable to comment about the impact Hanjin’s demise has had on demand—KAL is also part of the Hanjin Group. KAL has, however, already pledged to increase flights to Europe and the U.S.
     Yet any short-term gains in air freight shipments are likely to be dwarfed by KAL’s exposure to Hanjin Shipping due its 33.23 percent stake in the company. The airline’s losses on its loans and equity stake in the line are forecast to total $344m, around a third of the carrier’s projected operating income this year.

Lehman Brothers Scenario

     Hanjin Shipping’s bankruptcy continues to have far-reaching implications for the container shipping industry and global supply chains as retailers gear up for the holiday season. The extent of the disruption was succinctly captured by Gerry Wang, chief executive of Seaspan Corporation, a shipowner with multiple vessels on charter to the Korean line.
     “The fallout of Hanjin Shipping is like Lehman Brothers to the financial markets,” he said. “It’s a huge, huge nuclear bomb. It shakes up the supply chain, the cornerstone of globalization."
     Some 93 Hanjin vessels—79 of them container ships—are currently stranded at 51 ports in 26 countries. Although Hanjin’s owners (including Korean Air) are injecting funds to help the company offload cargo and dock at terminals, it will take some time, and potentially many lawsuits, before all the freight in Hanjin’s supply chain is returned to its rightful owners.
     “You are talking about $120bn worth of goods on ships that are stuck . . . there is a material impact to the supply chain and people are suffering from the consequences,” said Wang.
     Shippers and forwarders are understandably seeking alternative shipping slots for their cargoes and this has seen freight rates on East-West trades into Europe and the U.S. spike. Lines including Maersk and MSC have also launched new Trans-Pacific services to fill the gap left by Hanjin.

Keeping Customers Informed

     Cas Pouderoyen, SVP of Global Ocean Freight at Agility, said the logistics specialist was taking special measures to ensure customers with cargo stuck in Hanjin’s network were kept fully informed.
     “We are proactively providing updates on cargo location and status twice a day to customers eager for information,” he said. “Offloading and transshipping are options for those who require shipments urgently, but due to the additional cost, not all customers are choosing to stop cargo at transshipment ports.
     “We are also assisting clients with moving containers from the discharge port to the final destination via expedited truck services.”
     So far reports from the airline and forwarding industry about the impact of Hanjin's demise on air freight demand out of Asia are mixed, although demand does appear to be generally tilting upwards.
     "The run-up to the holiday season is a crucial time for retailers and, in some cases, we are working with customers to provide them with air freight options to ensure their deadlines are met,” said Pouderoyen.
     Indeed, he said time- sensitive customers were already moving to air, although this was not expected to be a long-term trend and would be diluted as more vessel options and capacity came on stream over the coming weeks and months.
     "If this crisis does continue beyond September, we believe our customers will look for alternative shipping models, however, the general consensus for now seems to be ‘wait and see,’” he said.
     “Customers still need time to assess their individual situation and see if they have enough stocks to replace the Hanjin stranded containers and goods. If they do, they might still have enough time to use alternative solutions such as sea-air or rail-air to Europe, and if they don’t have enough stock and need to manufacture first, then a rush on airfreight may well happen to bring the goods to Europe and the U.S. in time for the end year business."

More Air

     A spokesperson for Cargolux said the freighter giant had not seen a significant increase in charter demand related to the Hanjin Shipping situation specifically, but there had been an overall healthy increase in demand both for regular flights and charters. “It might still be too early to gauge the immediate effect of the Hanjin receivership,” he added. “The Korean government seems to have regulated the capacity and also has taken care of the port congestion.
     “We are now in the Korean thanksgiving holiday period that will last until September 18. Maybe we can see more developments after that.”
     A spokesman for China Airlines said the collapse of Hanjin Shipping had seriously disrupted sea freight services. “Though a few cargo owners needing to ship from Asia to the U.S. switched to air freight, most of these have been absorbed by existing capacity on the market,” he explained.
     “Q4 has traditionally been the peak season for freight and for U.S. retailers building up their end-of-year inventories. While China Airlines had existing plans in place to adjust capacity and fees, if the shortage of sea freight capacity persists this may prevent merchandise traveling from Asia to the U.S. being delivered in time for the Thanksgiving and Christmas shopping season for retailers.
     “In other words, there may be a significant increase in demand from urgent freight traveling by air rather than by sea.
     “China Airlines will continue to monitor changes in cargo volumes and hold utilization on U.S. routes and trends in air freight rates in order to adjust our capacity and rates based on market demand.”
SkyKing