Around 540,000 containers could be delayed by more than a month following the collapse of Hanjin Shipping

Around 540,000 containers could be delayed by more than a month following the collapse of Hanjin Shipping

As efforts continue to try to rescue cargo stranded in the wake of the collapse of Hanjin Shipping, the world's seventh-largest container shipper, fallout for apparel and footwear importers and exporters remains unclear.

South Korea's Hanjin Shipping, which represents around 7.8% of trans-Pacific trade volume for the US market according to the Retail Industry Leaders Association (RILA), filed for bankruptcy protection at the end of August after its banks withdrew their backing.

The move has left billions of dollars worth of merchandise in limbo, some of it sitting in Asia waiting to be loaded onto ships, some already aboard ships lying idle in the ocean and denied entry to ports, and some sitting at already-congested US docks waiting to be picked up. The inability to return empty containers is also causing backups and interfering with chassis availability.

According to the Wall Street Journal, around 540,000 containers will be delayed by more than a month, prompting fears that many apparel and footwear companies will miss deadlines for holiday deliveries, and that retailers will be counting the cost of missing merchandise and lost sales.

There are also worries of a repeat of the chaos of last year's West Coast port delays, which saw firms forced to take contingency action such as airfreight and re-routing to other ports.

The bankruptcy also has the potential to pile on additional pressure for US importers, including an increase in freight pricing amid growing concerns over a shortage of sea carriers. Indeed, the Korea International Trade Association (KITA) has calculated that freight charges for shipments from China to Long Beach in the US could increase from $1,200 per twenty-foot equivalent unit (TEU) in August to up to $2,200 this month.

There have also been repercussions across the wider 'CKYHE' shipping alliance to which Hanjin belongs, with some US ports refusing to transfer its cargoes to others in the network, including Cosco Group Container Lines, K Line, Yang Ming and Evergreen Line.

According to data released by Hanjin yesterday (12 September), some 93 vessels – or two-thirds of its fleet, according to Reuters – are not operating properly. Most are waiting in open sea, while others have been seized, barred entry to ports or terminals.

The news agency also estimates around $14bn in cargo is tied up globally as ports, tugboat operators and cargo handling firms refuse to work for Hanjin over fears they won't be paid. But it also appears some vessels are being allowed to dock and unload at US ports after Hanjin was granted provisional protection from creditors in the US.

Retail impact

Analysts at FBR Capital Markets say they see no current impact for the retail companies they cover. "We estimate approximately 40% of our companies have exposure to Hanjin, but most believe the direct impact will be minimal as they have scaled back shipments in the past few months leading up to the bankruptcy."

However, the picture is unclear when it comes to overall shipping pressure.

"The bankruptcy could lead to increased port congestion, which could ultimately delay inventory deliveries – [leading to] less full-price selling and increased clearance," they say.

"Also, there have already been reports of freight pricing going up 40% to 50%, which could pressure gross margin. Many retailers have locked in freight pricing into 2017; however, any last minute changes (like moving from Hanjin to another shipper) or additional freight could be higher.

"Overall, we believe most of our larger companies likely have some exposure but should avoid any direct material impact given more scale and diversified shipping."

Of the companies it follows, FBR notes that Gap Inc takes control of its inventory when it reaches the port as opposed to relying on third parties, "which we view as a positive." The analysts also believe Ascena Retail Group and Nike are "likely able to leverage their larger scale to avoid any material impact."

Many US apparel and footwear retailers, they believe, have no direct exposure to Hanjin, although the bankruptcy could affect the overall shipping industry.

While Abercrombie & Fitch and Chico's FAS are currently assessing the impact to their businesses, the former, with its large international footprint and supply chain may be the most affected by the bankruptcy.

"We also believe ANF may not be well positioned to effectively manage late deliveries as it continues to face pressure from declining traffic and is in the midst of a turnaround and new brand positioning at A&F and Hollister."

Some retailers, such as The Children's Place and Columbia Sportswear Company, have locked in freight rates in the near term, "which could prove to be beneficial if rates increase."

Columbia Sportswear Company's distributors also received the majority of autumn 2016 orders by 1 August, "leaving an insignificant amount of outstanding fall orders."

Efforts to resolve the crisis have most recently seen a KRW40bn ($36m) cash injection from the Hanjin Group chairman to help pay for unloading cargo and using port terminals, on top of an earlier KRW100bn pledge from the company. Korean Air Lines, Hanjin Shipping's largest shareholder, has also promised KRW60bn.

Reuters reports it could cost KRW173bn won ($154.5m) to unload all stranded cargo. And a bailout by the South Korean government looks increasingly unlikely. 

The just-released Global Port Tracker report from the National Retail Federation (NRF) and Hackett Associates says the Hanjin Shipping bankruptcy should not significantly affect import cargo volume at major US retail container ports in September since alternative arrangements to unload those containers or shift cargo elsewhere should be dealt with by the time the numbers are tallied.

"But millions of dollars worth of merchandise is in limbo at the moment, and retailers are working hard to make sure it ends up on store shelves in time for the holidays," says Jonathan Gold, NRF vice president for supply chain and customs policy.

US retail imports soar despite Hanjin bankruptcy

In a bid to prevent disruptions, US Customs and Border Protection has issued guidance on a number of scenarios for imported cargo being transported by Hanjin Shipping.

This includes the vessel diverted to foreign port and discharged, vessel diverted to foreign port but not discharged, vessel diverted to another US port and discharged, vessel diverted to another US port but not discharged, vessel rests at anchor and not diverted, and in-bond (IT and T&E) cargo already in the US moving under Hanjin's bond to US port for entry or export.

It also addresses what do if entry has been filed, cargo has been released by CBP but the terminal operator will not allow it to leave the terminal due to payment issues; or if cargo for export has been loaded on board a foreign flagged vessel at a US port, the vessel is now at a subsequent US port and to avoid issues, and the exporter/carrier is requesting permission to unload the export cargo in the US.