One of the biggest shipping corporations in the world, Hanjin Shipping, announced its bankruptcy on August 31, 2016, for a variety of reasons. Hanjin Shipping’s bankruptcy was not a surprising occurrence because there were indicators that the business was having financial problems (Kwon, 2021). This essay discusses the issue of overcapacity, debt, and lack of transparency in the shipping industry, and provides the analysis of the circumstances of Hanjin Shipping’s demise.
Starting with its background, Hanjin Shipping was founded in 1977 in the South Korean conglomerate Hanjin Group. With operations in more than 60 nations and a fleet of more than 150 boats, the company has expanded as the biggest shipping corporation (Kwon, 2021). Hanjin Shipping provided transportation services for a variety of items and played a significant part in the worldwide shipping business.
To fulfill the escalating demand for shipping services, Hanjin Shipping actively increased the size of its fleet. Yet, the 2008 economic collapse resulted in an excess of shipping capacity. When overcapacity decreased freight rates, Hanjin could not make a profit. Having significant debt load, Hanjin Shipping struggled to purchase new ships and equipment (Kwon, 2021). Hanjin tried to restructure its debt and find funding, but these actions were insufficient to prevent bankruptcy. This case has sparked questions about the sustainability of other shipping firms and the broader ramifications for international trade. The stranding of thousands of containers on Hanjin ships resulted in delays and anxiety for shippers and customers. Due to competing shipping businesses raising their prices to make up for the lack of capacity, the bankruptcy caused a rise in shipping prices.
The last important issue is the lack of openness in the shipping sector, with many businesses refusing to release their financial or operational information. Investors and other stakeholders may find it challenging to evaluate the financial health of shipping businesses due to this lack of transparency. Hanjin Shipping’s bankruptcy brought this problem to light because so many people were taken off guard by the company’s abrupt demise (Kwon, 2021).
Hanjin Shipping’s downfall was a complicated situation brought on by a number of issues. Hanjin Shipping’s bankruptcy has wide-ranging effects, upsetting the global shipping market and increasing worry about the stability of other shipping firms. Shipping businesses need to invest in new technologies and procedures to increase their operational efficiency if they want to avoid suffering a similar fate and be more open about their financial situation.
Reference
Kwon, C. (2021). Supply Chain Disruptions: Evidence from the Bankruptcy of Hanjin Shipping. Available at SSRN 3293272. Web.