High Shipping Costs Are Here to Stay, Says Bloomberg
By Henry Ren (Bloomberg) Stubbornly high shipping expenses for businesses are getting sealed into contracts for the next 12 months, forcing companies to pass the extra costs on to consumers....
By Kyunghee Park and Sohee Kim
(Bloomberg) — More than a week after South Korea’s biggest container line filed for bankruptcy protection and disrupted cargo movements worldwide, exporters such as Samsung Electronics Co. and LG Electronics Inc. are finally getting some relief.
Hyundai Merchant Marine Co., the nation’s No. 2 liner, will flag off a vessel to Los Angeles from Busan late Friday to help ease a squeeze after many Hanjin Shipping Co. ships were left stranded, unable to unload or pick up shipments. Bookings for the ship have reached more than 90 percent, of which the two electronics makers accounted for about 60 percent, according to Hyundai Merchant.
Many more are planned. Hanjin’s Seoul-based rival has proposed a total of 13 extra services, four to the U.S. and nine to Europe, as freight ranging from computer monitors to apparel pile up at various ports, with desperate suppliers to brands such as Polo and Nike rushing to meet delivery deadlines and obligations ahead of the year-end holiday season. A.P. Moeller-Maersk A/S is introducing more services on the trans-Pacific route as well.
“It will help restore the supply chain,” said Rahul Kapoor, a director at Drewry Financial Research Services Ltd. in Singapore. “But it’s going to take several weeks for this disruption to be cleared. You can’t mend it overnight.”
About $14 billion worth of goods are stuck on 89 of Hanjin’s 97 container vessels that are floating off 51 ports in 26 countries, according to Hanjin and court documents. Some cargo owners have managed to unload their cargo from Hanjin ships and are looking for alternative ways to transport them, Busan Port Authority said.
Representatives at Samsung and LG declined to comment.
Hyundai Merchant, which is itself in the midst of a creditor-led restructuring program and counts state-owned Korea Development Bank as its biggest shareholder, has 63 container ships and 57 bulk carriers in its fleet. It plans to use some of its idled vessels and some chartered for the extra services. The one set to sail Friday to Los Angeles has the capacity to carry 4,000 20-foot boxes, according to the company.
Maersk Line, the world’s largest container line that’s part of A.P. Moeller, will introduce a new service between Asia and U.S. West Coast with six vessels, responding to increased demand, the company said Wednesday. The service will make calls to ports in China, South Korea, Los Angeles and Long Beach.
“The industry is increasingly interwoven with carriers sharing slots on vessels, so what we are currently seeing is huge disruptions in the global container supply chain,” said Peter Sand, chief shipping economist for BIMCO, a Bagsvaerd, Denmark-based association representing owners and operators in about 130 countries. “Despite difficulties at individual carriers, we expect the fundamental imbalance to remain a problem in the industry in the longer term.”
It’s not just the major trade lanes that are affected by Hanjin’s troubles. Hyundai Merchant said Thursday that it plans to form an alliance with three other South Korean lines to offer services to Southeast Asia to minimize disruptions in the region.
Exporters in Asia have been feeling the pinch after Hanjin’s collapse. Samsung said this week that $38 million of its goods were stuck on two of Hanjin’s ships off Long Beach, California. Though a U.S. bankruptcy court in an interim ruling shielded Hanjin’s assets from creditors, there’s no guarantee that a berthing at the port will ensure unloading of the items, as tug operators, stevedores and other handlers doubt if they will be paid by the distressed comp
Samsung has said if those parts and goods don’t reach its factory in Mexico in time, it may be forced to spend a lot of money to ensure it meets its contractual obligations.
The squeeze caused by Hanjin Shipping pushed up freight rates on a key route to their highest level in more than a year. The Drewry Hong Kong-Los Angeles container rate benchmark surged 40 percent to $1,743 per 40-foot box in the week ended Wednesday.
“Globally, there’s a lot of cargo that is still languishing,” said Ryu Je Hyun, an analyst at Mirae Asset Daewoo Co. “The freight charges will maintain an upward trend for up to three months, especially when there’s not enough capacity to meet peak demand.”
© 2016 Bloomberg L.P
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