Hanjin, one of the world’s largest shipping lines, stopped taking new shipments in the wake of the filing, according to a customer advisory sent to freight brokers in Asia. The carrier faced the possible detention of its ships under threats of seizure by creditors.
The filing with the Seoul Central District Court came just a day after the company’s creditors cut off a lifeline, as financial assistance of more than 1 trillion won ($896 million) failed to keep it afloat. It is the latest domino to fall as shipping companies world-wide grapple with overcapacity amid a slump in global trade.
The news sent freight brokers and shippers scrambling to find space with other carriers as Hanjin was immobilized in the midst of the busiest season for exports out of Asia. Asia-based freight brokers estimate Hanjin’s daily capacity at 25,000 shipping containers.
Hanjin’s filing follows announcements by several shipping companies last week of general rate increases scheduled to take effect this week in an effort prop up long-depressed prices.
Nina Luu, a California-based importer of towels, bathrobes and other home textiles, said as Hanjin’s financial troubles have come to light, other ocean carriers have been announcing surcharges to their rates, citing scarce capacity on trans-Pacific routes. “It’s crazy today, pricing is pretty bad,” Ms. Luu said.
While she said it could add some cost to ocean freight, particularly in the short term, Ms. Luu said, “we’re more concerned about capacity.” Hanjin accounts for around 7% of the Asia-U.S. cargo trade, according to an industry source.
The South Korean court will soon determine whether Hanjin, the country’s largest container operator by capacity, should be liquidated or given a chance to survive after restructuring, the company said.
Hanjin’s receivership, which is a form of creditor protection, comes as shipping companies world-wide have been hit by years of weakening demand—particularly from China—as global trade has slowed. Some companies have been forced to sell vessels at a discount while a handful of smaller operators have gone bankrupt.
Hanjin, the world’s seventh-largest shipping line by capacity, would become the biggest company in the industry to go under if it is ordered to fold.
State-run Korea Development Bank, the company’s main creditor, on Tuesday withdrew its support, saying a funding plan by Hanjin’s parent group wasn’t sufficient to tackle the shipper’s debt, which stood at $5.5 billion at the end of June.
Hanjin—a unit of the conglomerate that controls Korean Air Lines Co. 003490 5.39 % —has faced an acute credit crunch after posting a loss each year from 2011 to 2014 amid depressed freight rates. It has been under a creditor-led debt restructuring program since May.
The Korean government said it wants Hanjin’s domestic rival, Hyundai Merchant Marine Co. 011200 -2.57 % , to buy healthy assets from the troubled company. It rejected the idea of a merger.
Government officials said Hanjin’s receivership could also lead to the company’s exclusion from a global shipping alliance, reducing its chances of survival.
Hanjin is part of The Alliance, a six-member group that was formed in May to rival the dominance of global giants Maersk Line and Mediterranean Shipping Co. Hanjin said its relations with the alliance would end if the company ended up in bankruptcy.
Wednesday’s filing, however, is already having an impact on Hanjin’s operations.
Ports—including those in Shanghai and Xiamen in China, Valencia, Spain, and Savannah, Ga.—had blocked access to Hanjin ships because of concerns that they wouldn't be able to pay fees, according to a Hanjin spokeswoman.
The U.S.’s two largest container ports, in Los Angeles and Long Beach, Calif., were each expecting the arrival of a Hanjin ship on Wednesday. According to the director of the Marine Exchange of Southern California, which keeps tabs on vessels arriving and departing and directs ship traffic, both vessels have dropped anchor off the coast and canceled plans to berth in the ports.
Singapore port officials said the Hanjin Rome, a relatively small container vessel in regional service, was seized after a request by a creditor on Tuesday. Another, the Hanjin Sooho, a larger ship with capacity of more than 14,000 twenty-foot equivalent units, or TEUs, was stopped from entering the Port of Shanghai as creditors sought to have ports either deny entry or impound Hanjin-operated ships.
“I expect more ports in Europe the U.S. and Asia to do the same,” said one ship broker. “If you deny access you avoid having ships arrested inside ports when legal claims by creditors are filed. Idled ships take space and ports want to avoid this.”
Hanjin is the most prominent casualty yet in South Korea’s sprawling but troubled shipping industry. The shipping business plays a big part in the country’s export-focused economy and has been hit especially hard by the downturn in international trade.
STX Offshore & Shipbuilding Co., South Korea’s fourth-largest shipyard, last week detailed steep cutbacks as it seeks to restructure after filing for receivership in May. Korean shipbuilding firms, including the world’s three largest— Hyundai Heavy Industries Co. 009540 -1.09 % , Daewoo Shipbuilding & Marine Engineering Co. and Samsung Heavy Industries Co. 010140 0.21 % —are under sweeping restructurings led by creditor banks.