South Korean shipping firm Hanjin Shipping – one of the world’s largest - has filed for bankruptcy.
The company announced last week that it would enter receivership after creditors refused to provide further funding.
This announcement had the immediate effect of causing a large portion of Hanjin’s fleet to become stuck at sea.
Port operators were concerned that Hanjin Shipping would be unable to pay large docking fees, and thus refused to give permission for these ships to dock.
Yesterday the South Korean government offered to extend the company a low-interest loan in order to help bail the Hanjin out of its financial woes.
This loan would total 100bn won ($91m) but would be conditional on the company also raising funds from other sources.
The parent company, Hanjin Group also announced that it would provide 60bn ($55.1m) won to help prevent cargo from being stuck at sea. In addition, the company’s chairman, Cho Yang-ho announced that he would contribute a further 40bn ($36.7m) won of his own private funds.
Currently it is unclear if this money, combined with the provisional bail-out by the South Korean government, would be enough to resolve the problems facing Hanjin’s fleet.
In the meantime, the ships have only enough food and fuel on board to stay at sea for another few weeks, meaning that fast action is critical.
Further complicating matters, even if ports did allow Hanjin’s ships to dock, the company itself may be unwilling to let them, as Hanjin’s creditors could reportedly claim the vessels.
Shipping industry in trouble
The problems that have caused Hanjin to declare bankruptcy are market-based and are effecting the entire shipping industry.
Global trade has still not fully recovered from the Global Financial Crisis, and shipping has also been hit by the slowdown of the Chinese economy.
This has created conditions where shipping companies own far more ships than they need, leaving them with high upkeep costs and debt burdens.
Within this environment, it will be very difficult for Hanjin to find a way out of their financial woes.