The Bankruptcy Of A Company You’ve Probably Never Heard Of Could Make Christmas More Expensive

Image courtesy of Max Feingold

Unless you’re a stevedore or are involved in logistics, you’re probably not terribly familiar with Hanjin Shipping out of South Korea. So news of the company’s bankruptcy filing on Wednesday may have been slightly off your radar. But when one of the world’s largest shipping companies goes belly-up, it can have ripple effects that may mess with your holiday.

When Hanjin filed for bankruptcy protection on Aug. 31, it left the company’s dozens of mega-freighters targets for potential seizure should they reach ports. As Reuters notes, a number of Hanjin ships have already been seized at ports in China, while Bloomberg points to ships stranded at sea, and at least one port where dock workers refused to do anything with a Hanjin ship.

We’ve all seen those huge containers stacked up high at ports or railyards, but we might not give much thought to the fact that those hulking metal boxes contain just about everything we buy: electronics, furniture, clothing, food, cars, books, you name it.

If those containers don’t get to port — whether it’s because the ship it sitting idle off the coast or because a ship has been seized and can’t move on to its next destination — the items in them can’t be offloaded, broken down, trucked, railed, flown, or droned to warehouses, and then on to stores or customers.

It’s particularly troubling for these delays to occur now, as many retailers are beginning to stock up their warehouses in time for the holidays. Christmas might seem like it will never come, but with main retailers now starting holiday promotions in early to mid-November, companies have only a few weeks to get all these items imported and ready for customers. For entirely new product lines or models, there is no existing inventory to protect against shortfalls.

Korean electronics biggie LG has already canceled its shipping orders with Hanjin and is looking for another carrier to, quite literally, pick up that load.

Samsung, which has its own problem with shipping delays related to possible product safety concerns, has also reportedly been scrambling for new shipping options, primarily to the U.S.

There are other competitors willing to step in to fill the gap left by Hanjin. Hyundai says it is deploying 13 ships on two routes that had previously been exclusive to Hanjin.

“This will have an impact on the entire industry,” a director at the Korea International Freight Forwarders Association tells Reuters, adding that companies have been flooding the organization with calls from companies worried they won’t be able to reach the U.S. in time. Meanwhile, Korean government officials said this week that the Hanjin collapse will impact ports in the country for the next two to three months.

The bankruptcy has reportedly had an immediate effect on the costs of shipping, notes the Wall Street Journal, which reports that the per-container cost of shipping from the main Korean port of Busan to Los Angeles has nearly tripled since Monday.

“We expect freight rates to the U.S. and Europe to continue rising in coming days,” said one freight broker.

A VP with one California shipping and logistics company tells the Journal, “There’s going to be exorbitant costs,” because of the Hanjin bankruptcy. “Everything is unraveling.”

His company expects to only have to write off around $7,000 in unpaid invoices from Hanjin, but says there others in his business that “had all their eggs in one basket with Hanjin” and “may go under.”

So if those transportation companies go under, then that could mean higher costs from the remaining companies that move in to scoop up their business. Meanwhile, when the shipments that Hanjin should be delivering finally do make it to port, retailers may have to pay extra for expedited service.

It remains to be seen if any of these expected additional costs or hassles will result in higher prices or stock shortages — or if retailers and manufacturers will wait until after the holiday to try earning back these unexpected expenses — but this definitely is not a good way to kick off the holiday shipping season.