Firm Principal Steve Simms recently outlined the circumstances leading up the collapse of the world’s seventh largest container line, which occurred just after the collapse of OW, one of the world’s largest bunker traders and providers. Many players in the maritime industry thought that both OW and Hanjin were unsinkable because they were simply too big to fail.
Right before the collapse of Hanjin, there were warning signs to which some paid close attention. The arrest of the M/V HANJIN PARADIP, the downslide of the world economy, and its increased dependence on the Korea all pointed to serious troubles for Hanjin, yet they remained largely ignored. While the collapse of OW seemed a bit more sudden, there were actually indicators over years of troublesome risk management and greater amounts of unsecured credit than OW could ever maintain.
The popular line of thinking that entities as large as OW and Hanjin were simply incapable of failing is called the “Titanic Effect.” What we have learned in both of these situations is that the unthinkable can occur in this industry. It is important to take clues from competitors, meaning that it is worth noting how large competitors of the entity that you are doing business with are operating and noting what they are doing differently. In these scenarios, the increase in debt levels of both OW and Hanjin in comparison to their competitors should have been a major clue that the unthinkable may just happen.
For any creditors of Hanjin, such as those how have provided bunkers or other maritime goods or services to Hanjin, looking to be as proactive as possible in this situation, they should be ready to accelerate accounts immediately (subject to any restraining / insolvency orders), apply funds received to non-arrestable amounts, track vessels to favorable arrest jurisdictions, attach receivables otherwise due Hanjin, put owners of ex-Hanjin vessels and their P&I clubs on notice of your claims, assess possible insolvency voidable preference claims and defenses, and check with your credit insurer to see whether it changed policies because of the Hanjin insolvency.
Maersk is a strong example right now of a major player in the industry who is making the hard decisions so that it is ready to weather a storm coming. Rather than falling into the popular line of thinking that it is simply too big to fail, Maersk has been transforming its internal structures in responses to changes in the market.
If you are interested in reading more about how the maritime industry is reacting in the wake of the post Hanjin and OW insolvencies, a full version of the article is available at Ship & Bunker or The Maritime Executive. For information and advice on how your business can develop a strategy for collecting on debts owed by Hanjin or OW, or preparing for the next major insolvency in the industry, contact Steve Simms.