In early September of 2016, South Korea’s Hanjin Shipping Co., one of the biggest shipping companies in the world, filed for bankruptcy. They carry cargo for a number of important companies, including Samsung. As a result of this upheaval, around $14 billion in electronics and other cargo became stranded at sea. Not only was this a problem for the shipper, and the corporations they work with, but it’s a warning for all of us.
Overcapacity in Shipping
First, this problem serves to exacerbate another problem in the shipping industry that’s been going on for several years: overcapacity. Companies find themselves with far more shipping containers than they need and not nearly enough business to fill them. This issue has caused decreased growth for a number of businesses, and it’s a large factor in what caused Hanjin’s bankruptcy.
Cargo ships have grown in size by about 40% over the last ten years. This has led many shipping companies to combine services with one another, to make better use of the extra space, particularly when dips in the economy lead to fewer items being shipped.
Many of these business alliances subsequently ended up scaling back services that they can’t afford to keep going anymore. Unfortunately, this in turn leads to a decrease in revenue, leaving them unable to pay for new ships—resulting in more alliances and creating a vicious cycle that allows the problem to continue to grow.
Experts predict that now, in the wake of the Hanjin bankruptcy, the problem will only increase further.Overcapacity will continue for at least the next couple of years, possibly more, according to some industry insiders. Meanwhile, shipping capacity is expected to continue to expand by the end of the year. As a result, more shipping lines will suffer financial losses and possibly go under.
Hanjin, the Holidays and Beyond
The bankruptcy of a South Korean shipping company is unfortunate, both for the business and for their clients, but how does it affect you? If you did any shopping this holiday season, you may have been impacted.
All of the products stranded at sea must be recovered, which cost Samsung and other companies a significant amount of money. That will likely be reflected in their prices going forward, as those costs are inevitably passed on to you.
Hanjin’s services only accounted for around 3.2% of shipping around the world. However, even for companies that weren’t directly affected by the bankruptcy and didn’t have their goods stranded at sea, there are repercussions.The cost of shipping their merchandise around the world is going up as a result of Hanjin’s failure, which means higher prices for a variety of products, both during the holiday season and into 2017.
95% of all the world’s manufactured goods are transported in shipping containers from one place to another. This will serve to drive prices up for just about everything else you might want to buy, as corporations try to offset these extra costs.
In an economy driven by shipping, the Hanjin bankruptcy and the ensuing worsening of overcapacity could have disastrous financial consequences all over the world. Prices for all sorts of goods will increase; fewer people will be able to afford them, potentially affecting markets as well. It’s another good reason to start thinking about buying local whenever you can.