Wednesday, August 31, 2016

Hanjin Announces It Is Bust

Well, the damage was not done in the bust, the damage was done in the boom.  What happened today is simply Hanjin starting the process of deciding who will pay for the damage done during the boom times.  
As Reuters reports, banks led by state-run Korea Development Bank withdrew backing for the world's seventh-largest container carrier on Tuesday, saying a funding plan by its parent group was inadequate to tackle debt that stood at 5.6 trillion won ($5 billion) at the end of 2015.
All false economy businesses operating today are busted, what is new is Hanjin has actually started the process of deciding who pays.  We learn a decision as to who pays is decided, so far, pensioners and insurance companies, corporate and small time investors.
Shares in Hanjin Shipping have been suspended after plunging 24% on Tuesday.
If it plunges to zero, then bondholders take a hit.  What is interesting is Korean Central bank has decided not to buy up the stock to keep it going.  This is great for the economy!

In essence, they are planning to get marked-to-market, which means they will be the first to recover and retake a #1 position. After 9/11, both Swiss Airlines and Las Vegas Casinos went bankrupt immediately.  They also recovered first.  The article says this is the largest bankruptcy since the 1986 bankruptcy of United States Steamship Lines.  Remember them?  No?  That's my point, life goes on.

This is misleading nonsense:
Making matters worse, Reuters adds that KDB's move to pull the plug was already having an impact on Hanjin's operations, with the company's various shipping assets already frozenPorts including those in Shanghai and Xiamen in China, Valencia, Spain, and Savannah in the U.S. state of Georgia had blocked access to Hanjin ships on concerns they would not be able to pay fees, a company spokeswoman told Reuters.
As if the cargo on the ships is being seized!  The cargo is not owned by the steamship line, it is owned by either a bank or the importer.  Neither is subject to seizure.  The ship may be impounded for docking fees, etc, but that will be an empty ship.

Next, this tidbit...
 Finally, while jarring Hanjin's bankrtupcy was inevitable: shipping industry economics have deteriorated. Charter rates for medium-sized container ships have dropped from around $26,000 a day in 2010 to $13,000 per day now.  Container rates from Shanghai to the U.S west coast have more than halved since then, from around $2,000 per 40-foot container in January 2010 to $596 per 40-foot box last week, data from the Shanghai Shipping Exchange shows.
1500 TEUs at $596 each = $894,000.  14 days times $13000 = $182,000.  Twice that is $364,000.  that leaves about a half million a voyage gross profit, even at the higher rates.  No wonder Aristotle Onassis was a billionaire from shipping, so rich he could marry Jackie Kennedy.  No wonder the governments ran all the private shippers out of business and took over with government run shipping lines.  And as usual, they ran them into the ground.

And this:
The global implications from the bankruptcy are unknown: if, as expected, the company's ships remain "frozen" and inaccessible for weeks if not months, the impact on global supply chains will be devastating, potentially resulting in a cascading waterfall effect, whose impact on global economies could be severe as a result of the worldwide logistics chaos.
No.  None of that will happen.  At worst some independent like Maersk will take over the ships and make a profit.  With overcapacity, ships are mothballed and others take up the slack, if and when the subsidies end.  For Hanjin, it appears they have ended.

This is the inevitable result of ex nihilo credit.

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Anonymous said...

Where there is chaos there is opportunity. I would wait until Hanjin stock bottoms and then buy some of their shares. Who knows how this will end up 5 years from now. Perhaps the new owners will offer Hanjin share holders preferred stock. Although I don't much like the stock market since it is a rigged system, maybe the long-term benefits would come in the form of reduced shipping rates for equity holders.

Anonymous said...

The only steamship line incident that I remember from the 80's is the Exxon Valdez debacle and even at that 99% of Americans have forgotten about it. Life goes on indeed.