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Why billions of dollars of goods are stuck at sea
- _rpd 10y ago> In late August, Hanjin Shipping, South Korea’s biggest container line and the world’s seventh-largest, filed for receivership. Some 66 of its ships, loaded with $14.5 billion of goods, including quantities of electronics heading for America, were left stranded at sea. Ports around the world did not want to let Hanjin’s vessels dock because the bankrupt line had no money to pay unloading fees.
- sickbeard 10y agohmm 14.5 billion, 270 million in fees. Math isn't hard here.
- aristus 10y agoHanjin doesn't own the goods; they're just transporting them. The owners of the goods are also by now creditors of the bankrupt company (for late fees if nothing else). That's why it's a snarl.
- lojack 10y agoWonder if it'd be feasible and/or make sense for the owners of the goods to pool their money together in order to pay the docking fees so they could receive their goods.
- aristus 10y agoIt'd be a neat resolution, but that's basically telling one set of creditors to make a second set of creditors whole out of their own pockets. And there's likely thousands of them with multiple layers: eg, your new iPhone 7 is stuck on one of these ships. Are you the owner, or is Apple? or Foxconn? etc.
- bwilliams18 10y agoThe answer to that question is not complicated. It's either Apple or Foxconn, and it's clearly determined in their contract. One of them has it on their books as current inventory, not both.
- thesehands 10y agoYep, one would expect a quick consult of incoterms on the b/l would quickly clear up ownership per container.
- urazen 10y agoThat would be a quite naive solution for the owner of the goods. The owners do not have to pay anything essentially. Hanjin is still responsible to unload the goods at any cost (e.g. selling their ships to someone else).
- squozzer 10y agoHuh. For some reason I thought cargoes had bonds that would allow them to make port and unload. OTOH, some enterprising sailors could make some money relieving stranded ships of their contents.
- nickff 10y agoThese ships would be incredibly expensive and slow to unload at sea. Container shipping is very dependent on dock-side infrastructure. One of the reasons why shipping switched to containers (and away from break-bulk) is precisely because it is difficult to steal from containers.
- sandworm101 10y agoExpensive, slow and dangerous. Not all containers will be accessible at sea. Getting to some of them may require removal of cables used to steady tall stacks. And unloading any containers haphazardly risks unbalancing the ship.
- brudgers 10y agoProbably some cargo has bonds and other cargo does not...even on the same ship. While just about anything from the delivery of a container full of Pokemon to the water tightness a new metal roof for the next twenty years can be bonded, it will only get bonded if someone is willing to pay the cost of bonding. It is common for businesses to assess risks and forgo adding the cost of bonding to a contractual transaction.
- bbcbasic 10y ago"enterprising sailors", sounds like a euphemism for pirates.
- erikpukinskis 10y agoThis seems like a really good sign. We can only hope global shipping continues to shrink until we can get down to a level of consumer purchasing that is sustainable for the ecology of the planet.
- jfoutz 10y agoThat's one way of looking at it. Of course, the more expensive shipping is, the less likely it is to ship inexpensive items, like food.
- namdnay 10y agoWouldn't it do more to encourage local food production and consumption? Thus reducing pollution while at the same time boosting farm economies in poorer countries which were previously flooded by lower-cost imports from richer highly efficient food-producing countries?
- mhurron 10y agoAnd leading us back to a time of poor nutrition for large parts of the world that currently rely on shipping to bring fresh and varied food.
- namdnay 10y agoWhich parts of the world would those be? From what I've read the problem is often the opposite - cheap grain imports from the USA destroying agricultural economies in Africa for example. I really don't think there are large parts of the world that would not be viable through local agriculture. Obviously, there will be islands etc for whom this isn't viable, but I doubt they were getting food by massive ships anyway.
- mhurron 10y agoMost of the northern hemisphere. You know, all those places where nothing grows for 6 months out of the year where prior to shipping food we had to rely on canned and preserved foods.
- yes_or_gnome 10y agoIt'll be interesting to see this play out. If the bankrupt company is unwilling or unable to unload their cargo, could another company start repossessing the ships? I'd imagine it would have to on the behalf of several companies; likely, the most heavily invested insurance companies act as a group.
- marme 10y agoyes but that is the major fear the docks have. No debt holder is going to repossess a ship at sea they are going to wait for them to dock then file a court order to prevent them from undocking until the repossession proceedings finish. This means they are stuck at the dock taking up space the dock owners want to use to unload other ships so they just ban these ships from their docks letting another dock deal with it and basically every dock yard does the same thing so there is no where for them to dock
- wmil 10y agoI don't understand how they can legally do that. When you repossess a truck you don't get to leave it at someone else's loading dock for free. Wouldn't it be the creditor's obligation to pay the fees or move it somewhere else to be moored?
- URSpider94 10y agoIt's probably the bankrupt party's responsibility until the title is transferred. Just like if the city boots and tows your car, you pay the fines. Also, the ports don't want the money from extended docking fees, they want a flow of ships. Docking fees alone won't compensate all of the teamsters, longshoremen, etc. idled while the berth is blocked.
- dragonwriter 10y ago> When you repossess a truck you don't get to leave it at someone else's loading dock for free. "Repossess" is an inaccurate term here. Arrest of a vessel is a different (though conceptually related) process [0]. Notably, the creditor does not take ownership or possession of the vessel, and so can't be responsible for fees; the ship is taken over by the government and its operation restricted unless it is either "bailed out" by the owner providing alternative security, the underlying litigation resolved, or the ship ordered sold by the government while the litigation proceeds. If its sold, the costs incurred will be paid out of the sale proceeds, but they may take some time. [0] http://www.maritimelawcenter.com/html/arrest_of_vessel.html http://www.maritimelawcenter.com/html/arrest_of_vessel.html
- deleted 10y ago[deleted]
- mathgenius 10y agoAmazing that this happens on top of such low prices for crude oil. What's going on? EDIT: Yes I read the article. Seriously, oil is so cheap and this still happened? It's just mind boggling to me.
- jonknee 10y agoYou should read the article, it's exactly about the question you asked. > Hanjin’s bankruptcy—and the abysmal performance of so many lines—is the result of overcapacity in the shipping industry. Since the financial crisis, too many vessels have been built and not enough scrapped, while the growth in global trade has decelerated.
- deleted 10y ago[deleted]
- narrator 10y agoA lot more cargo is getting shipped by rail to Europe from China with new tracks being opened up through Central Asia. Also, energy pipelines are getting set up between Russia and China, reducing the need to ship crude oil. This is largely due to the "One Belt, One Road" initiative that China is working on. It's basically a plan to build transport infrastructure all throughout Asia.
- walrus01 10y agoThe amount of cargo that moves (in terms of number of TEUs per month) from China to Europe via rail is minuscule compared to the ocean cargo capacity. A train full of double stacked containers is a tiny fraction of the capacity of one medium sized 8000 TEU ship.
- frandroid 10y agoThis has nothing to do with oil, it has to do with over-capacity in the industry.
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- slv77 10y agoThis bankruptcy means that companies shipping goods are no longer going to be able to treat shipping as a fungible commodity and instead are going to have to price in a risk component as well. That suggests that the largest and best financed players are likely to be able to command a premium which will accelerate losses at smaller players. This would increase the spreads further and create a viscous loop. Does anybody have visibility into shipping rates to see if larger players are getting a bigger premium?
- mathattack 10y agoPerhaps the largest might have the most debt too. It should be priced based on CDS spreads on the shippers, no?
- shambala 10y agoThey will just buy insurance, and the insurance companies will figure it out.
- Veratyr 10y agoThat will have the same result. Insurance companies will price based on risk, with the safer carriers having lower risk and hence lower prices. The less safe carriers will have more expensive insurance and be at a disadvantage to the safer carriers. Lack of customers will put them closer to bankruptcy and the circle continues.
- Animats 10y agoInsurance against late delivery is available but very expensive. Ordinary marine insurance does not cover this. The cargo isn't lost, just late.
- yourapostasy 10y agoHow does insurance treat the use case where creditors seize the cargo and liquidate it to pay themselves back?
- AstroJetson 10y agoIt's not just retail goods on those ships. There is also a great deal of parts that are needed by US manufacturing lines. That creates a ripple effect down the line as missed parts causes snags in the lines. Businesses have gotten pretty good with Just In Time building, so the loss of a few containers will put a snag into it. Some places may have predicted this and gotten alternative parts flows, but that puts a strain on the people making the goods to go into the containers to come here. Third quarter reporting should be very interesting for the markets.
- honkhonkpants 10y agoIf someone needed those parts to keep their assembly lines running, why wouldn't they just put up the money to have the ships unloaded? We're only talking about a few million to move these goods.
- thesehands 10y agoPorts are reluctant to let the vessels unload as creditors would impound the vessels tying up valuable mooring space.
- amluto 10y agoIt seems like the receiving ports and their respective authorities should consider creating a process by which the ship can unload and cannot be seized while unloading or prior to leaving the port.
- dragonwriter 10y ago> It seems like the receiving ports and their respective authorities should consider creating a process by which the ship can unload and cannot be seized while unloading or prior to leaving the port. That's already happening in the U.S. (well, not "creating a process" so much as "using an existing process, to wit, Chapter 15 bankruptcy protection".) [0] [0] http://www.bloomberg.com/news/articles/2016-09-09/hanjin-wins-u-s-bankruptcy-shield-allowing-cargo-off-ships http://www.bloomberg.com/news/articles/2016-09-09/hanjin-win...
- ThrustVectoring 10y agoLow interest rates definitely explains part of it. The one-year treasury bond rate is at 0.6%, which means that unloading the goods now instead of next year is worth only $87M if you assume no losses from business disruption.
- vegabook 10y agonitpick -> I see 0.006 * 14.5bn as 87m? Or am I doing something wrong? Also you have to factor in that a large proportion of the goods might have sizable negative time value, especially if they're perishable, but also if there is any (highly likely) proportion of obsoletable tech in there. Perhaps that's what you mean by business disruption?
- ThrustVectoring 10y agoThat was really fail mental math. Editing to fix. And yeah, obsolete tech is a business disruption, as is perishable goods. I wanted to also include things like having to pay a premium to expedite replacement inventory so that your store or factory keeps working while the goods are stuck on a ship.
- khuey 10y ago"No losses from business disruption" is doing a lot of work there. These containers aren't full of fungible raw materials, they're largely full of products meant to be sold this fall.
- honkhonkpants 10y agoWhat's the typical value of goods afloat?
- keebEz 10y agoFlexport did a great blog post on the situation: https://www.flexport.com/blog/on-hanjin/ https://www.flexport.com/blog/on-hanjin/ Also of interest, they also did a game theory analysis of ocean liners: https://www.flexport.com/blog/game-theory-ocean-carrier-competition/ https://www.flexport.com/blog/game-theory-ocean-carrier-comp...
- Bluestrike2 10y agoTheir analysis of the impact of recent increases in shipping capacity and the impact on price today is also an interesting read: https://www.flexport.com/blog/why-are-ocean-freight-rates-so-low/ https://www.flexport.com/blog/why-are-ocean-freight-rates-so...
- ndesaulniers 10y agoGreat reads, thanks for sharing!
- Animats 10y agoThis is a mess because Hanjin's top management was in denial about the possibility of bankruptcy. Just like the typical startup. They've been trying for months to get a bailout deal from somebody, anybody - a merger, loans, their parent chaebol, their stockholders (Korean Air is the largest), or the S. Korean government. Everybody turned them down. There's too much container ship capacity right now; nobody needed Hanjin's fleet. Management didn't have a plan for an orderly shutdown, so when the company went into receivership, everything just stopped. Just like many failing startups, the web site continued to indicate nothing was wrong. They've now put up a spreadsheet with current vessel status, but that took weeks. The status has entries such as "Arrested", "Unpaid Canal Fee (Suez)", "Arrested by Bunker Supply Co. (Panama Canal)", and "Port labor rejected" (they're way behind on their payments)". There are about 500,000 containers stuck with Hanjin. Admiralty law is especially harsh on bankrupt shipowners. In many jurisdictions, ships can be seized regardless of bankruptcy status. Some Hanjin ships have been seized. Some are waiting offshore until somebody puts up the money for unloading and refueling. There were four stuck off the coast of California. Hanjin has come up with enough money to get two of them into the port of Los Angeles and unloaded. Those appear to be ships Hanjin leased, rather than owned, and a court in Korea has told them to unload and return all their leased ships ASAP. Courts in about 15 countries are involved, trying to untangle this mess. The US Maritime Commission is trying to get cargoes unloaded, but they don't have much authority. Ports are unwilling to let Hanjin ships in unless they have enough money to fuel up, pay a crew, and leave - they don't want them stuck at their docks. Meanwhile, some of the ships are running low on food and water. Then there's the empty container mess. In the container business, you pay a per-day fee when you hold someone else's container, so everyone tries to return their borrowed empties quickly. But most of Hanjin's empty container return points are shut down, and are not taking empties back. Many of those empties are on trailer bodies, and are tying up trailers needed to move freight. Truckers are angry about this. Shippers are having trouble getting enough empty trailers. This will all get unwound, but it's going to take weeks or months. There are going to be really big post-Xmas sales as the delayed cargo is unloaded.
- wehadfun 10y agoWhat does this "Arrested by Bunker Supply Co. (Panama Canal) mean?
- wehadfun 10y agoCould they just have an "accident" and get insurance money?
- simonh 10y agoI'm sure the insurance companies would be fine with that......
- vit05 10y agoWe have overcapacity that could lead to the formation of cartels if profit margins remain small. We need more companies in this game, not less, but with overcapacity, who would like to join?
- Confusion 10y agoNone, and preventing cartels is one of the clear cut examples of why we need a government. To uphold laws against such anti-competitive behavior.
- fennecfoxen 10y ago> We need more companies in this game, not less Unsupported assertion. There are both positive and negative aspects to more companies. Consolidation isn't just profitable because it turns an industry into a cartel, but because there are real economies of scales in some industries, especially logistics. This could go either way. > with overcapacity, who would like to join? No one needs to join until the overcapacity goes away, do they?
- josscrowcroft 10y agoI'm curious - and surprised nobody seems to have mentioned or asked - what happens to all the sailors working aboard the ships, which are now stranded offshore? Do they continue working aboard, knowing that they probably won't be paid (because the company is bankrupt)? What's morale like? Can they leave, and how would they logistically? What kind of laws and rights (if any) apply to them in these circumstances? It's funny to me to be thinking about how our Christmas may be "ruined", meanwhile hundreds or thousands of workers may be out of jobs and effectively indefinitely stranded at sea.
- bigiain 10y agoI suspect they're all polishing up their "Our incredible journey" blog posts... ;-)
- deleted 10y ago[deleted]
- cyberferret 10y agoI wondered about that too. What if they all decided to simply abandon ship and head for land, leaving a ship to flounder and possibly become a hazard to other vessels or cause an environmental problem when it crashes into a reef or similar?
- GavinMcG 10y agoThe officers, at the very least, would be criminally liable.
- themoogle 10y agoSo these ships are just sitting there off shore? What stops pirates from taking over the ships? What about the crews just taking what they want and leaving?
- astrodust 10y agoWhat are you going to steal from these ships? Everything's in containers and those are packed really tightly together, there's no accommodation for opening these doors while the ship is loaded. If you have another self-loading container ship you might be able to pull off a big heist, but who has one of those just kicking around?
- ethanbond 10y agoAs a thought experiment... let's say your pirate crew has an unloading port someplace. Why not take the ship and get going to said port? Would the crew alert the navy/coast guard? Probably. But then what? The navy kills the pirates and liberates the vessel... And Hanjin refuses to take it back? The navy now has the responsibility of getting it to port and unloading it, despite ports not wanting to do that?
- ghostly_s 10y agoThis seems like a rather pointless thought exercise, but the Navy has a responsibility to enforce law and order (...in addition to extra-legal responsibilities), and impact on "bottom line" is not really a factor considered directly in military operations.
- deleted 10y ago[deleted]
- x1798DE 10y agoYou occasionally hear about immigrants being smuggled into (a) country in shipping containers. Is that common enough that it's likely that one or more of the stalled containers has a bunch of people stuck in it? That seems like a really unfortunate scenario...
- macintux 10y agoMost depressing thought I've read all day, and like most days in 2016 there's been plenty of depressing news.
- throwaway049 10y agoI hope and suspect smuggling in shipping containers is mostly done in the overland phase of the container journey: SE europe to NW europe for example.
- bkor 10y agoThat doesn't happen on container vessels, but shipping containers on trucks. On a container vessel you might have a stowaway. Meaning: someone sneaking onboard. They usually run out of food and are then discovered. Due to all the anti terrorist rules, it's not easy getting onboard of a container vessel.
- ceejayoz 10y agoIt very much happens on ships. http://www.cnn.com/2014/08/16/world/europe/london-shipyard-stowaways/ http://www.cnn.com/2014/08/16/world/europe/london-shipyard-s... http://www.bbc.com/news/uk-28827133 http://www.bbc.com/news/uk-28827133 http://www.nytimes.com/1994/09/02/nyregion/11-stowaways-found-on-ship-in-container.html http://www.nytimes.com/1994/09/02/nyregion/11-stowaways-foun... http://abcnews.go.com/US/story?id=93659 http://abcnews.go.com/US/story?id=93659 http://articles.latimes.com/2000/jan/12/news/mn-53272 http://articles.latimes.com/2000/jan/12/news/mn-53272
- gbin 10y agoWhat about this idea of a business plan ? buy 5 of those ships very cheap, get rid of/deliver the goods, merge them in international waters nearby San Francisco, make a top notch/self sustaining mix of offices and Corp housing on top of them. Anybody could work there waiting for their H1B or just simply contracting or bootstrapping their companies.
- NTDF9 10y agoYou mean something like Alcatraz prison?
- bbcbasic 10y agoHow about we find a way to transmit data packets across the globe so that people who do digital jobs can work from a nice place that suits them, anywhere in the world.
- fennecfoxen 10y agoYou know what would probably be both cheaper (in terms of capex and opex) and also more convenient than welding a few old cargo boats together? Building this office park on land, in Gilroy. There's a train line down there and everything - bet it'd be cheaper to bribe Caltrain to beef up the service than to set up transportation to the open ocean.
- seanmcdirmid 10y agoI shipped my stuff from Beijing to LA a month and a half ago, without seeing it on this side yet (takes 1-2 months). Hoping it is not stuck on one of these boats!
- contingencies 10y agoHrrm, best of luck with that. Are you finally bailing on China, Sean?
- seanmcdirmid 10y agoBailed out awhile ago. Still waiting for my stuff though!
- contingencies 10y agoEnjoy LA. I really miss LACMA! Still enjoying peaceful Yunnan.
- fspeech 10y agoDoes Hanjin do most of their work shipping from Korea? If so your stuff is likely safe. Good luck!
- grapehut 10y agoFWIW the person you're replying to represents everything that is bad about HN. If you read his post history you'd be lead to believe he's an industry insider in: Shipping, Irrigation, Crypto Currencies, Genetics, Nano Technology, Manufacturing, Microkernels and a lot more if you keep going back. There was a time I believed his posts, until I read one of his mini-essays on a topic I happened to know about (cryptography) and it was painful obvious that it was someone who spent 10 minutes googling the topic and took it upon themselves to give a dangerously incorrect "authoritative" lay of the land. Since then I've tagged those people as "faux experts". I don't blame him, I did the same thing for high-school essays, albeit with a more jilted writing style. Just be careful who and what you believe
- tptacek 10y agoI read every comment 'Animats writes --- he's probably forgotten more about computing than I'll ever learn --- and while I've disagreed with a lot of things he's said, I've never come across a crypto comment that made me feel he was channeling Wikipedia. I think I'd have noticed. That aside: comments like this are extremely inappropriate for Hacker News. We don't write comments whose sole purpose is to take down other commenters. I'd be embarrassed to have written something like this in public. Maybe you were just having a bad night or something.
- prawn 10y agoAnd all written on HN for karma. They should write it on their own blog and try monetising it.
- Animats 10y agoI think he's annoyed because I criticized the poor auditability of Bitcoin. Yes, you can tell if someone received Bitcoins at some address. What you can't tell is whether they still have exclusive control of them. If someone else has a copy of the private key, the coins can disappear at any time. This happens in practice all too often. (Yeah, multi-sig, etc.. Not that it helped Bitfinex.)
- grapehut 10y ago
- L_226 10y agoThe Hanjin California was seized and moored down the road from my house in Sydney. I was actually down at the water to see it before I knew about the parent firm's collapse. It's pretty interesting seeing such a big ship in what's otherwise (contemporarily) a small recreational/transport channel (Glebe Island, Sydney).
- ninja-wannabe-7 10y agoPaging Mark Cuban or Mr. Jack Ma ... complete some deliveries and liquidate assets at the right time for a good price, either when the economy picks up or steel prices climb.
- rhaps0dy 10y agoThey raced to the bottom for prices and number of ships, and now neither of them is profitable. Moloch who kills shipping companies!
- yrro 10y agoEven the Economist are not immune to the temptation of clickbait headlines...
- Animats 10y agoToday's news: Hanjin has now raised enough money to unload their ships and shut down properly.[1] But it may take until the end of October to unload 90% of the ships. [1] http://fortune.com/2016/09/23/hanjin-shipping-cash-unload-cargo/ http://fortune.com/2016/09/23/hanjin-shipping-cash-unload-ca...