In the wake of the maritime mayhem brought about by the Hanjin Shipping Co.’s bankruptcy, automotive supply and logistics managers are being urged to proactively seek high-seas shipping alternatives. However, additional freighter firms can be expected to struggle because there are too many vessels and too few cargoes to keep all of the global shipping lines afloat.
“They are not the last to go down,” warns Steve Hughes, vice president of supplier development, government affairs and logistics at Centric Parts, a California-based supplier of aftermarket and original equipment brake components. “The shipping industry is going through a huge struggle right now. All of these companies are losing hundreds of millions of dollars.”
“Companies have been struggling to fill their ships,” says Tom Lehner, vice president of public policy at the Motor Equipment Manufacturers Association (MEMA). “As a result shipping fees are low, but it puts a squeeze on smaller shippers.”
Shipping industry executives over the past few years had been projecting a worldwide cargo growth rate ranging from 6 percent to 8 percent; in reality the loads rose just 2 percent.
“They overbuilt and they did not scrap the legacy ships because they figured they still had some life left in them – so now they have overcapacity,” says Hughes, who additionally serves as a shipping expert for organizations such as MEMA, the Auto Care Association, the Brake Manufacturers Council (BMC) and the California Automotive Wholesalers’ Association (CAWA). He is also a member of the Department of Commerce/U.S. Trade Representative Industry Trade Advisory Committee for the automotive industry, known as ITAC2.
“The Hanjin issue is not just Hanjin,” according to Hughes. “That’s part of the lack of education in our industry. This thing has turned into a real mess.” The overall precarious position of the shipping industry calls for logistics planners to be ever-alert for signals that your chosen shipper may not be able to complete your contracted voyage.
“There’s not a lot you can do to find out if your carrier is financially solvent or not,” Hughes says, but cautions can be found by perusing an assortment of shipping industry reports. “Read the Journal of Commerce and stay educated on the market.” Container News is another helpful publication.
Maintain relationships with several shippers to avoid venturing into uncharted waters. “Spread out your risk – that’s what we do,” says Hughes, noting that the Korean-based carrier’s financial difficulties were visible on the horizon. “At the beginning of the year I saw the information about their troubles. I said, ‘There’s no way I’m doing a contract with these guys.’ We dodged a bullet because we didn’t have any of our containers on a Hanjin ship.”
Echoing Hughes, Lehner stresses that “you’ve got to make other arrangements with some of the other shippers right away. You need multiple options set up with multiple shipping companies in the event something like this happens again.”
Hanjin accounted for 2.9 percent of the worldwide shipping container market – amounting to cargoes valued at $14 billion – serving ports in Korea, the U.S., Japan, Belgium, Spain, Taiwan and Vietnam.
The shipper, whose assets are expected to be sold under the bankruptcy proceedings, carried 3 percent of the entire auto industry’s waterborne trade.
“Most of their milk runs were back and forth to Korea,” says Lehner. American OE and aftermarket manufacturers annually export more than $900 million in parts to Korea.
Hanjin’s other international ports-of-call were impacted as well, prompting MEMA to steam full-speed ahead to help navigate a solution.
Along with its Automotive Aftermarket Suppliers Association (AASA), Heavy Duty Manufacturers Association (HDMA), Motor & Equipment Remanufacturers Association (MERA) and the Original Equipment Suppliers Association (OESA) divisions, the organization joined numerous other industries as a signatory to a September letter to U.S. Secretary of Commerce Penny Pritzker urging a quick international resolution to the crisis.
A conference call in conjunction with the Auto Care Association was arranged with U.S. Federal Maritime Commission (FMC) Chairman Mario Cordero, who encouraged the participants to make multiple alternative arrangements with other shippers to avoid future problems.
“Eighty-five companies dialed into that call, so it was broadly attended,” Lehner reports. The exact scope of industry product delays remains unclear as most companies keep those details confidential.
“A lot of our members and our aftermarket manufacturers definitely felt the impact,” says Lehner. “Anytime the supply chain is disrupted it can be felt throughout the industry.”
Orphan containers
In early November Korea’s Maritime Ministry was reporting that 94 freighters from Hanjin’s container fleet of 97 ships had finally finished unloading at various global wharves after 15 cargo-filled vessels had spent several weeks either aimlessly adrift or anchored off-port. Of the remaining three ships, one was preparing to soon discharge its cargo at an undisclosed foreign destination while the other two had been seized by creditors in China and Canada.
“It’s likely that someone in our industry still has a container stranded on a Hanjin ship,” says Hughes, adding that “orphan containers” and the chassis upon which they sit were creating yet another set of problems.
“Because of the bankruptcy a lot of the terminals won’t accept the empties back,” he explains. “Who’s going to pay the longshore labor to move them? Who’s going to pay for the land to store them? That impedes their operations.”
Dockside drayage firms – the trucks that deliver the containers – were equally inconvenienced. “They are now saddled with empties.”
Automotive industry buyers and sellers had fears that they could be left high and dry as Hanjin’s economic woes were becoming apparent. Dock operations were impacted across the globe, idling tugboat pilots and stevedores awaiting payment for their services.
“It affects every single industry and company that imports and exports on the West Coast,” says Hughes.
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