Smooth Sailing Seen for U.S. Ports Despite Shipper Bust

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DALLAS – The bankruptcy of South Korean transportation giant Hanjin Shipping last week is causing delays in cargo movements in and out of U.S. seaports as major retailers scramble to get their merchandise off the ships and into stores.

Hanjin filed for bankruptcy last week in South Korea when the Korea Development Bank and other creditors rejected a rescue plan by the company that is $5.4 billion in debt. The company, part of a conglomerate that also includes Korean Air, has filed or plans to file for bankruptcy protection in 43 counties.

Hanjin sought bankruptcy protection in the U.S. on Sept. 2. The move allowed its container ships to enter U.S. ports without being seized by creditors.

The South Korean government said the bankruptcy filings were necessary because "Hanjin Shipping's vessels are being seized in foreign countries." Hanjin said Sept. 4 that 68 of its 141 vessels have been stranded, seized, or were not operating normally. Several Hanjin container ships declined to enter ports on the West Coast last week to prevent potential seizure by creditors.

The company accounts for almost 8% of the trans-Pacific trade volume for the U.S. market.

The possibility of transportation bottlenecks that could affect shipments of goods and commodities is the biggest potential problem facing ports from the Hanjin bust, said Moses Kopmar, an analyst with Moody's Investors Service.

"The overall financial impact to port revenues is probably going to be minimal to minor," Kopmar said. "It could be a short-term negative, but most U.S. ports are pretty well insulated from the Hanjin problem with their business model."

Ports such as Seattle and Long Beach are not directly involved in ship loading and unloading because the ports lease container terminals to Hanjin and other shippers that operate them, Kopmar said.

Hanjin said it will use its majority share in a large container terminal at the Port of Long Beach as collateral to borrow $54 million, part of the $540 million it must pay service providers to unload cargoes already on ships.

On the other hand, some Atlantic Coast ports such as Norfolk and Charleston with their own ship loading-unloading operations could be more vulnerable to a slowdown in shipping, Kopmar said.

"Their operations and revenues depend more on ships docking, loading, and unloading," Kopmar said.

"This is a Hanjin problem. U.S. ports did nothing wrong," he said. "It was not a productivity problem."

The Hanjin bankruptcy could present short-term challenges to seaports if congestion builds at the docks and disrupts the supply chain, Kopmar said.

"If container terminal sheds are locked up, if ships cannot be loaded or unloaded because there's no more room at the dock, and if goods cannot move freely, the ripples will run backward and then run forward," he said.

"Retailers wouldn't get the shipments they need to fill their shelves, and then manufacturers won't be able to find the empty containers they need to ship their goods," Kopmar said. "That may be the biggest impact on ports of the bankruptcy."

The port situation needs to be solved quickly as retailers scramble to prepare for the Christmas season, said Jonathon Gold, vice president for customs policy at the National Retail Federation.

"Retailers' main concern is that there is millions of dollars worth of merchandise that needs to be on store shelves that could be impacted by this," he said. "Retailers are working with all of their service providers to find ways to get their cargo moving to ensure that there is no or limited interruption in the supply of merchandise."

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