Korea had no Plan B for Hanjin Shipping

By Yoon Ja-young

The government adhered to the principle of the market determining the fate of a company regardless of the size by allowing Hanjin Shipping to go under.

While the administration made it clear that the “too big to fail” mantra won’t work anymore, it is receiving criticism for having been negligent in taking steps to minimize the adverse side-effects from the collapse of the world’s seventh largest shipping line.

The shipping company is facing a flurry of lawsuits from its customers worldwide for failing to meet delivery deadlines and other contracts.

A ship owning affiliate of Singapore-based Eastern Pacific reportedly lodged a lawsuit in a federal court in Los Angeles alleging that the shipper started missing payments on a containership charter in June. Hastay Marine, the registered owner of the Hanjin New Jersey, is seeking to seize Hanjin assets in California to recover unpaid fees, according to U.S. media TradeWinds.

Hanjin is also taking legal steps to prevent its vessels from being seized; but it faces rough sailing ahead as many port authorities and service providers are demanding Hanjin pay in cash to work on its ships.

Bae Sang-kun, vice president of the Korea Economic Research Institute, said the government overlooked the operations of the shipping industry.

“Basically, it is right to look into the financial condition of a business and hand it over to court receivership if necessary,” he said. “However, for a shipping company, going under court control means all operations will come to a halt. The government should have thoroughly prepared a backup plan for this.”

The government estimated that the effect of court receivership on the financial market and employment wouldn’t be huge, but the industry now faces the risk of losing around 10,000 jobs.

Bae pointed out that the fallout is having a global impact.

“If Hanjin was a logistics company operating only in Korea, it would have been relatively easy to handle the receivership. However, shipping is a global business,” he said.

“With Thanks Giving approaching, global logistics operations will increase. It is not an issue limited to Hanjin. The government should do something to normalize the situation.”

While the government says it is sticking to principles, some point out that it had already arranged for trillions of won to be poured into Daewoo Shipbuilding and Marine Engineering. “The government is losing credibility as it works with principles only when it wants to,” an analyst said.

With Hanjin Shipping’s filing for court receivership throwing the economy into confusion, the government is at the center of criticism for its handling of the corporate restructuring.

The government and major shareholders of the company are engaged in a blame game.

Financial Services Commission (FSC) Chairman Yim Jong-yong said the Hanjin Group and its major shareholders should solve the problem.

“It is the responsibility of Hanjin Shipping to transfer cargo safely, and it is still a subsidiary of Hanjin Group,” he said.

As of Sunday, 68 ships of Hanjin Shipping are stuck in ports around the world as the authorities there fear that the shipper will be unable to pay fees. Some creditors are even seizing the ships. As operations of the world’s seventh largest shipper are de facto suspended, exporters and importers within and out of the country are in a chaotic situation.

Yim pointed out that Hanjin Group Chairman Cho Yang-ho had said that he would make every effort to ensure the recovery of the shipping company, pressuring him to take responsibility.

“Hanjin Shipping received payment and loaded cargo onto its ships. It is the responsibility of the company to ship the cargo appropriately and it is related with the credit of the whole Hanjin Group. I am not only talking about ethical responsibility here.”

The financial regulator chief said that the FSC abided by the principle of corporate restructuring when it sent Hanjin Shipping to court receivership.

“If anyone criticizes us for that, it would be difficult for us to stick to principles. We try to minimize the pain of corporate restructuring, but the burden should be shared among those related to the company.”