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This 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 pr
by slv77 10y ago
This 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?
- robrenaud 10y agoHow does that work? Presumably the shipping company doesn't own the cargo.
- thesehands 10y agoNope the shipping company issues a bill of lading as the goods are received for shipping that sets out who owns the container.
- yourapostasy 10y agoThe shipping company doesn't own the cargo, but I've read speculation that the creditors can seize the ships, then demand payment to unload the cargo, and if they don't receive payment seize the cargo to discharge the "debt". I don't know how a bill of lading would work in that situation, where the creditor wasn't the original party that the customer signed a contract with, and I'm curious how much latitude a creditor has in situations like these to abrogate previously-entered contracts.
- Animats 10y agoIt's really complicated. There are articles by lawyers.[1] There are many countries involved, with very different bankruptcy laws. Much of this involves admiralty law, which has a very different order of priority of creditors than regular bankruptcy law. Lawyers are struggling to figure out all the conflicts of law.[2] [1] http://www.chinalawblog.com/2016/09/hanjin-shipping-and-arresting-vessels-in-china.html http://www.chinalawblog.com/2016/09/hanjin-shipping-and-arre... [2] http://www.mondaq.com/unitedstates/x/528816/Insolvency+Bankruptcy/Emergency+Appeal+In+Hanjin+Shipping+Case+Highlights+Disconnect+Between+Bankruptcy+And+Maritime+Law+In+The+United+States http://www.mondaq.com/unitedstates/x/528816/Insolvency+Bankr...
- PeterisP 10y agoObviously if the cargo has any value, then the result is simply a higher freight cost than originally expected. Yes, it is likely that cargo owners will have to pay extra to get their cargo delivered where they want - they have paid for a service, Hanjin won't provide that service, and anyone else will require payment for that same service. Even if the service (or a part of it) is practically unavoidable e.g. the cargo is at a ship and needs to be unloaded, so someone needs to pay for the loading. Maybe they have insured that, maybe not, but they can get their cargo anyway if they want.
- gumby 10y ago> They will just buy insurance, and the insurance companies will figure it out. It's not that simple. Yes, premiums will adjust depending on the finances of the carrier but the cost of insuring the risk itself is quite variable and can be ruinous. The value of a delayed shipment of iPads is much higher than a delayed shipment of board games, yet Apple can tolerate the former while the latter could sink a company. The board game company might not be able to afford to insure the risk, even though the premium could be lower. The fact is an Apple can manage the risk by spreading the load (they already do it multi modally, and probably already do it for ships too). A small company with one container or less of goods, cannot.
- rabidrat 10y agoMaybe it will become cheaper for small board game companies to produce their games domestically, once shipping insurance is factored in.
- brian-armstrong 10y agoYou're talking about a change that takes years to complete, not something that will happen overnight. And production of any good requires some materials which quite likely will need to be shipped in anyway.
- ghostly_s 10y agoDoesn't Apple famously use overnight air for all their shipping needs? Or is that only for devices?
- gumby 10y agoThat's what I meant by "multi modal": they put most of it on ships but buy up enough air capacity to make the early deliveries. Once the ships start arriving they can abandon the air.
- ghostly_s 10y agoHmm, I've never heard this. All the coverage a few years back was that they use air for everything, so they can scale their production operations in near-real-time as demand fluctuates. That was supposed to be Tim Cook's whole crowning achievement when he was COO. Do you have a source that shows this has changed?
- AndyMcConachie 10y agoWe're talking about the industry(shipping) that insurance was invented for. No industry has more experience with calculating risk than the shipping industry. This will undoubtedly have some effect, but I doubt anyone on Hackernews can reliably predict it.
- bdcravens 10y agoThe folks from FlexPort probably have expertise in this area, and they're often on here.
- contingencies 10y agoI smell a promotional blog post...
- rolltack 10y agoThis is an overly sensational piece. It might slow things down for a few people temporarily, but there's no way this is making retailers worried about sales this Christmas. In response to slv77: The bankruptcy means (1) demand has substantially decreased for shipping services, or (2) large established shipping companies are not lean enough to survive and losing market share. In no way could this accelerate losses for 'small players'. In fact, this should grow their business. I also have no idea what this vicious loop is you are talking about. Shipping costs may go up slightly, but it will likely already be priced into current the market. I think this is not as big of a deal as the article is making it out to be.
- SwellJoe 10y agoHanjin doesn't really qualify as a "smaller player", do they? So, it seems to indicate any shipping company could end up in trouble, if the sixth largest in the world can fail so catastrophically in such a short time. Given the size of the expenses involved, and how thin the margins are (particularly in a market that has more capacity than cargo), it seems like it's not easy to predict who will be solvent six months or two years out; I imagine the contracts are negotiated on a relatively long time-scale, since these voyages take weeks in the best of cases.
- dmoy 10y ago7th largest, like a couple percent of all shipping. Idk what your definition of small player is.
- SwellJoe 10y agoI don't either. I have no familiarity with the industry. Are there only eight companies doing it? I guess it's just that there's no such thing as a small company operating in this business. The scale just seems massive, to me; a single ship costs millions in operations alone.