Transportation Update: Container Shipping Rocked by Hanjin Insolvency
On August 31, 2016, Hanjin Shipping Co. Ltd. ("Hanjin") filed insolvency proceedings in South Korea, which has shippers, trucking companies and transportation intermediaries searching for solutions. Hanjin is one of the world’s top ten container carriers, transporting over 100 million tons of cargo annually by water. Its fleet consists of some 150 containerships and bulk carriers.
Recently, U.S. container terminals have declared they will no longer accept delivery of Hanjin imports or exports because of the insolvency. To make matters worse for Hanjin, its vessels are being arrested in the United States due to unpaid charter contracts. As a result, many containers of cargo are stuck in transit on Hanjin vessels. The following are a few brief pointers for shippers, motor carriers and transportation intermediaries to consider.
Shippers, freight forwarders and Non-Vessel Operating Common Carriers ("NOVCC") should consider how this development could affect arrival schedules for anticipated cargo. Although the answer will not be clear, they should at least advise their customers of the potential impact Hanjin's insolvency could have on the arrival of anticipated cargo.
Next, prudent shippers, freight forwarders and NVOCCs should withhold payment to Hanjin until the goods have actually been delivered to their intended destination.
Now is also a good time to dust off and examine contracts to determine how costs associated with required movement of the respective cargo to points of destination will be borne by the parties. Under certain circumstances, a party could be forced to pay for these additional costs. In the contractual context, it is anticipated that Hanjin and others will try to invoke the force majeure/act of God clause to try to excuse and/or mitigate damages for non-performance of their respective obligations.
There is also an increased chance of litigation in the wake of the Hanjin insolvency so shippers, freight forwarders and NVOCCs should gather and retain all contracts, shipping documents, emails, telexes, etc. arising out of, or related to, any service being provided by Hanjin. Proceeding with business as usual could result in a loss of critical evidence.
On Friday, September 2, 2016 Hanjin filed for bankruptcy protection in the U.S. Bankruptcy Court for the District of New Jersey. If granted, the Petition will protect Hanjin vessels scheduled for arrival in U.S. ports from collection and enforcement actions by its creditors.
Why is this important?
- The Hanjin insolvency will have a ripple effect throughout the transportation industry.
- Preserving documents and other evidence to defend and/or prosecute claims arising out of the Hanjin insolvency should not be overlooked.
- The Hanjin bankruptcy filing in New Jersey could shield Hanjin vessels scheduled to call in U.S. ports from being detained by its creditors.
- It is important to spot and understand options and/or paths forward as the fluid circumstances unfold.