[SINGAPORE] As lenders halt all support to Hanjin Shipping Co this week, the Korean container mover is emerging as a symbol of the slump that has plagued the industry since the global financial crisis.
The board of South Korea's largest container-shipping company on Wednesday voted to file for court receivership after lenders rejected a restructuring proposal saying it was insufficient to tide over a cash shortage. The firm may still need as much as 1.3 trillion won (S$1.64 billion) in cash to roll over debt in the wake of losses in four of the last five years, main creditor Korea Development Bank said Tuesday.
Hanjin's woes show the container-shipping industry is still in bad health, limping from one exigency to another since the 2008 crisis brought trading to its knees. Helped by cheap loans, container lines have hung on even as freight rates to move sneakers to Barbie dolls from Asia to Europe and US plunged. From AP Moeller-Maersk A/S to Hapag-Lloyd AG and France's CMA CGM SA, companies have tried all - mergers, acquisitions and cost cuts - while demand revival remains elusive.
"We have been seeing some reorganisation in the container industry and hopefully it can lead to fewer container lines with healthier balance sheets," said Espen L Fjermestad, an analyst at Fearnley Securities AS in Oslo, Norway."
It could be healthy for the industry as a lot of companies have been stimulated with outside money for a long time to still exist despite heavy losses."
Headed for another year of losses, Hanjin Shipping has been trying to reschedule debt under a voluntary programme led by creditors since May while rival Hyundai Merchant Marine Co has been taken over by the creditors after meeting conditions, including adjustments in charter rates on vessels it leased from shipowners.
Hanjin Shipping said Monday that it could generate 1.27 trillion won in additional liquidity for the company. That included extending maturities of some debt with foreign lenders and charter rate adjustments with shipowners on vessels. It's biggest shareholder, Korean Air Lines Co, also planned to provide 400 billion won to the shipping company.
"Creditors found it difficult to accept Hanjin Shipping's plan," Korea Development Bank said.
"The plan was insufficient and it's uncertain whether the company could turn around."
Hanjin Group - the parent with businesses from airlines to shipping to mineral water - said it will put in all efforts to revive the industry. The shipping company plans to file for court receivership Wednesday afternoon, according to a spokesman.
Hanjin Shipping is the world's seventh-biggest shipping line by capacity and has a market share of 2.9 per cent, according to Alphaliner, a maritime consultant. The company has 132 container and bulk ships on its fleet, including 59 it owns.
Shares of the company plunged 24 per cent to 1,240 won on Tuesday, the lowest closing price since Dec 2009, before trading was halted in Seoul. They have tumbled 66 per cent this year, compared with a 3.9 per cent gain in the benchmark Kospi index.
Mergers, Job Cuts
The global shipping industry has been operating at a loss since the end of 2015, and it's set to lose about US$5 billion this year as cargo rates fall amid an oversupply of vessels, according Drewry Maritime Research. That has prompted companies to consolidate, cut jobs and sell assets.
CMA CGM, the world's third-biggest container shipping company, bought Singapore's Neptune Orient Lines Ltd for S$3.38 billion this year in the industry's biggest acquisition since 2005.
Hapag-Lloyd and United Arab Shipping Co said in June they agreed to merge to become the fifth-largest container shipping company. That comes after the German company agreed tobuy the container business from Chilean rival Cia Sud Americana de Vapores SA in 2014.
China last year merged China Ocean Shipping Group and China Shipping Group to form China Cosco Shipping Corp as part of the government's efforts to shrink industries beset by overcapacity while creating globally competitive businesses.
Shipping isn't the only industry that's struggling. Shipbuilding and the oil and gas sectors are also in the midst of restructuring after a slump in oil prices over the last two years caused energy projects to be delayed and shrank shipping demand.
The weekly China Containerized Freight Index, which tracks cargo rates on major shipping lanes, fell to the lowest level in April this year since the data was first set in Nov 2010, according to the the Shanghai Shipping Exchange.
"The M&As and restructuring we're seeing right now is more about survival," said Rahul Kapoor, a Singapore-based director at Drewry Maritime Services Pte Ltd.
"They don't lead to pricing power coming back. The number of ships is still the same. Pricing power comes with demand."