HANJIN SHIPPING SINKS IN KOREA
With the bankruptcy filing of Hanjin Shipping having just occurred on the 31st, many of their shipping customers are only now beginning to feel the disruption to their supply chains and are trying to sort out how to get their goods moving. It would be reasonable to expect similar bankruptcy filings in some major countries such as the U.S. and at least one in Europe, but until that happens, here are some tips for getting your goods moving.
- Figure out where your goods are – if you are moving goods on a Hanjin bill of lading on a Hanjin vessel, you are the most vulnerable. It’s not that those shipping on Hanjin vessels on bills of lading issued by other carriers are in all that much better a position. The difference is those co-loading carriers should be motivated to keep their customers happy and so, it is reasonable to anticipate they will shell out money to get Hanjin’s vessels into ports and unloaded. Stay in close contact with your carrier and freight forwarder to keep track of your shipments.
- There are no good legal solutions right now, so it’s all about what are you willing to pay to get your goods? But keep in mind you may pay twice! While one would hope the Federal Maritime Commission (“FMC”) would step in to keep everyone operating properly and not price gouging or taking advantage of the situation, past action strongly suggests the FMC is simply not able to be pro-active, so, what should shippers do?
- First, keep in mind you still need to properly endorse and tender the original bill of lading. In doing so, make sure it gets to Hanjin. If you typically surrender it to a third party (for example, the terminal operator), make sure it gets to that usual third party. If not, bankruptcy trustees don’t really understand admiralty issues any more than bankruptcy judges, so we are likely going to see odd claims being asserted, which will need to be litigated at great expense before the bankruptcy gets finalized. If the bankruptcy trustee thinks he or she can gain a financial advantage for the Hanjin bankrupt estate, especially if exporters complain goods were released improperly, there could be litigation long after the goods move in, which you will have to defend how you processed the original bill of lading. Anticipate this as likely, particularly if Hanjin did not get paid in full for any charges owed it.
- Similarly, we are hearing rumors that ports in some locations are working a deal to accept the full freight owed to Hanjin, will deduct the local port charges and then hold the remaining funds for the benefit of or pay them over to Hanjin. Again here, the bankruptcy trustee can be expected to object if Hanjin is not paid in full and shippers can expect claims from the bankruptcy trustee, which will again happen long after the fact. If so, you may end up paying the freight charges twice, or at least that portion which Hanjin was not paid.
- Supply chains do not and cannot stop, so if you find your cargo stuck in the middle of this mess, first, make sure you pull together a small team of experienced staff to address the issues. Their goal will be to get your goods released with the least amount of fallout arising later. To that end, you want to make sure you have:
- Accurately determined where your goods are and their current availability;
- The charges you are being assessed are clearly and completely transparent, i.e., what are they for and how was the amount calculated; if you think the charges are wrong, try negotiating, but if that fails, are you willing the pay that amount, get your goods, and seek recovery directly from the party demanding the improper payment later? If not, court action is costly and will take days or weeks, can you wait?
- Tendered your duly endorsed OBL to the correct party;
- As much as possible, exchange the charges being paid for the goods being released. It is true that in many cases, the terminals are holding goods and will not provide appointments for pick-up unless payment is made in advance. If you find yourself in this situation, you will have to decide whether you trust the terminal in question. However, before picking up the cargo or otherwise making arrangements, be sure you/your trucker know where the empty container is being returned, and then make sure it gets back promptly so additional charges are avoided. If not, more charges will accrue and only make matters worse.
- Despite taking reasonable steps to protect yourself in the process, you may still find some or all of your original freight charges, while paid in full, will have to be paid a second time. There are indications that shipments already unloaded and in transit by rail or truck may be declared subject to force majeure, meaning Hanjin will disavow any responsibility to move the goods from their current location despite the existence of a through bill of lading and payment in full of all charges. If that is the case, the terminal or carrier with possession of the goods may demand payment in advance to move them to their final destination. Be prepared to make that payment, assuming the amount is reasonable, to get your goods, but do not expect any luck getting that money back. Until we know whether Hanjin is reorganizing or liquidating, how the bankruptcy case comes out is unclear. Even if Hanjin is reorganizing, under American law, any claims for duplicate payment of freight or similar charges would be considered an unsecured debt. Those have the lowest priority, and seldom see any return in bankruptcy cases.
- Most importantly, keep cool during all of this. Everybody is stunned at the suddenness with which this happened, especially given the long weekend in the U.S. Even once Hanjin files bankruptcy in the U.S., it will take several weeks for things to settle down to a routine, so pull out your negotiating skills and do your reasonable best to get your cargo to its destination as quickly and inexpensively as possible.
- Next, if you are a freight forwarder whose customers’ goods moved on your house bill of lading and a Hanjin master, you, too, can only pass through those charges which appear in your tariff or are provided in your service contracts. One tip specifically for you, get your best people on the team, make sure your customer service is at its highest level, explain clearly to your shippers what is going on, and most importantly, clearly explain the charges which will be assessed and get their pre-approval in writing. No one needs arguments later over what the charges were for and whether or not they were approved at the time.
- Finally, if you have a service contract with Hanjin, you are a major shipper or part of a shipping consortium. Even so, there is nothing in any service contract that will help you in terms of getting ships into port and unloaded. You, too, will need to think about where you want to spend your money and political capital.
The fallout from the Hanjin bankruptcy will have characteristics of any typical company going out of business. But what will add to the complexity is the bankruptcy court does not understand supply chain issues. The bankruptcy court is going to need a lot of educating as to who owns the cargo, what legal interest Hanjin has in any given shipment, the difference between Order of Shipper and direct consignments and other basic admiralty principals. All of that will come, but right now, it’s all about what you are willing to reasonably spend to get your goods released as promptly as possible. This comes down to a combination of patience and pocketbooks and will not be easy on anyone. We can talk about claims and lawsuits against third parties later for those that improperly hold cargo or charge excessive amounts. For now, let’s start with the basics: where are my goods? what are the delays going to cost my business? how do I minimize that damage? Most importantly make sure you let your customers know what is going on, and then calmly put together your team and go to work to get those goods located and released.