Let market determine Hanjin fate

A crane lifts a container from the Hanjin Greece container ship as unloading begins at the Port of Long Beach, Calif., Saturday, after being stranded at sea for more than a week for fear that it could be seized by creditors. / AFP-Yonhap

By Kim Jae-kyoung

Nearly 90 ships from insolvent Hanjin Shipping remain stranded in international waters as they are being denied access to ports over concerns they will not be able pay docking, unloading and other fees.

The deadlocked situation shows little sign of improvement, although the world’s seventh-largest shipping firm was given provisional court protection in the U.S., Friday, to unload cargo at some ports without fear of creditors seizing its vessels. Four Hanjin ships that had stuck off the coast of Long Beach, California, began unloading Saturday, following the bankruptcy protection.

The cargo chaos started earlier this month after the Korean government refused to bail out the shipping unit of Hanjin Group as the financial support the latter offered fell short of major creditor banks’ expectations.

The government has come under fire for letting the shipping line go into court receivership without setting up programs to minimize the fallout of Hanjin’s collapse. But global experts say the Korean government took a step in the right direction. They said that additional funding won’t guarantee rehabilitation of the debt-ridden shipper and may expose banks to more losses, given the overcapacity of the global shipping industry.

They called for owners of the firm, including group Chairman Cho Yang-ho, to shoulder more responsibility for mismanagement by putting more of their own money into the company to help ease its financial woes.

This advice came at a time when the government is under growing pressure to save Hanjin Shipping with taxpayer money to contain adverse effects on the domestic and global economies.

“I'm not sure that the government has the responsibility to control the bankruptcy process. I would say that Hanjin (Group) has the responsibility to ensure a smooth exit,” independent economist Andy Xie said.

“I guess that they used the potential mess to threaten either banks or the government to force a bailout. And it didn't work. This is where you should look for responsibility.”

Mauro Guillen, director at the Wharton School of the University of Pennsylvania, said that government bailouts are justifiable only when systemic risks or very large employment shocks can happen.

“This is normally the case with financial institutions, and in some instances with industrial firms ― as with GM and Chrysler,” he said.

“Hanjin is a large company and its reorganization will be disruptive. But I am not sure it rises to the level of a systemic risk. The main issue is that global trade is not growing and there is excess transportation capacity worldwide.”

The experts believe chances are minimal that the Hanjin fiasco will turn into a systemic risk that can cripple financial markets and the entire economy, because a shipping company is not as intertwined with the rest of the economy as a bank is.

They said the government’s decision to let Hanjin go into court receivership may cause short-term pain, but will help put the country on a course to sustainable growth.

“The Hanjin fiasco may disrupt global supply chains and send out a negative ripple in the short term and I think the noise could last several months,” said Han Sang-yun, director at S&P Global Ratings monitoring Korean firms.

“Still, Hanjin’s global competitors are likely to absorb its capacity given the oversupply in global shipping. Also, both exporters and importers have already started diversifying their shipping sources, which might further normalize the situation after a few months.”

He said logistics is different from finance, and concerns over Hanjin and its ripple effects on the overall economy are exaggerated, adding that the financial damage on Samsung Electronics and other exporters would be “limited.”

Apogee Partner James Rooney called for the government to be more sophisticated in planning and executing the restructuring of Hanjin

“This corporate restructuring has been largely undertaken without any careful and thoughtful planning about how to execute it with minimum disruption to customers, counterparties and all of the service providers and vendors,” Rooney said.

Hanjin needs expert law firms that specialize in protective bankruptcy and insolvency actions for global companies that can still be restructured through legal processes, he said.

“Hanjin is obviously a case where the experts must have global perspectives so as to structure and arrange things ahead of time for protective conditions in every legal jurisdiction that Hanjin and its vessels may be exposed to.”

Han said any decision should be made on market principles, not emotions.

“This will be viewed as a case showing that the government sticks to the rules,” he said. “In this regard, I think that it will have a positive effect from the perspective of credit culture and market functioning.

“The government’s consistency and sustainability of its commitment to stick to the rules will be the keys for future credit culture improvement.”