There is a lot of press coverage about the Hanjin bankruptcy, but very little of it provides tangible facts for traders to rely on. One thing we know for sure is Hanjin filed a Chapter 15 bankruptcy in the U.S. What that means is the U.S. bankruptcy court will defer to the Korean bankruptcy court regarding how the case will proceed. The U.S. court will limits its orders to cargo in the U.S. or touching the U.S. Most importantly right now, if you think you have a claim against Hanjin, you need to file that claim in the Korean bankruptcy proceeding, and you must do that between October 11 and 25, 2016. If you miss that claim deadline, you will be out of luck. There are a handful of Korean lawyers representing the interests of cargo owners and other potential claimants in Korea and they should be contacted immediately. Referrals are available.
Beside this one fact, there are a lot of pending questions. The Federal Maritime Commission is accepting consumer claims, but can only facilitate a discussion, as it has little jurisdiction in this context. It does have the bully pulpit, but seems reluctant to use it.
In court proceedings, Hanjin asserted it is owed $80 million in accounts receivables, about half of which is owed by its top 40 creditors. In that context, the bankruptcy carrier is typically invoking the lien provision in its bill of lading (Paragraph 11) which allows it to exercise a general lien, meaning it can hold cargo for any amounts owed, even if unrelated to the cargo being held. Of course, in doing so, it is ignoring any offsets due to its failure to perform and deliver goods are contracted. Even the judge chided Hanjin about its hard ball tactics.
It is impossible to get a clear picture of which ships are still at sea and when they might come into port and unload. Hanjin needs to raise more money, but it also needs to be clearer about its intentions. Also silent throughout all of this are Hanjin’s consortium partners. The party who issued the bill of lading remains liable to get it to destination. The consortium is the CKYHE Alliance, which consists of COSCON (Cosco), “K”Line, Yang Ming, Hanjin and Evergreen Line. The current betting is Hanjin’s assets will be sold so it will no longer be a member, but in the meantime, each of these carriers is coloading cargo with Hanjin. Just how much money those partners might be able or willing to put up to get the straggling vessels unloaded remains unclear.
At the same time, the single biggest headache one hears beside when will the remaining ships arrive in port and be unloaded is what happens to the empties? In a recent webinar about the Hanjin bankruptcy one self-described shipping expert said there is a glut of space so no real capacity downside to the Hanjin bankruptcy. He clearly has not been listening to the stories about chassis shortages, or the complete chaos being caused by the few places to which empties can be delivered where the delivery terminates all charges. Earlier today, Hanjin released the news that for the West Coast, Hanjin owned empties can be terminated at Terminal 46 in Seattle or Pier T in Long Beach. Hanjin also released information about its container lessors and provided their contact details.
The U.S. bankruptcy court has ruled that Hanjin will not be assessing demurrage charges for late containers. Whether that solves the problem remains to be seen. The best estimate right now puts the count at 20,000 containers looking for a home just in the Los Angeles/Long Beach area alone!
NVOCCs and others subject to tariffs continue to be confused about what charges being incurred with third parties to get containers to destination may be passed along to customers, and which will have to be absorbed because they are not provided for in the carrier’s tariff. NVOCCs and other carriers who have tariffs on file must operate within the limits of those tariffs and if the charges are not listed, the tariff must be updated. However, the rule is if a charge is being increased, 30 days’ notice is required. This is another situation where the FMC could have taken the position that so long as the NVOCCs promptly filed those charges, the 30 day waiting period will be waived due to the exigency of the situation.
At the same time, given that carriers and other service providers are charging cargo owners directly instead of waiting for Hanjin, there is every reason to think those with lower value shipments will abandon their goods rather than face staggering cost increases. When that happens, NVOCCs are stuck. Hanjin is really not operating to full capacity in the U.S. so how do you notify the carrier the shipment is abandoned? Even if you can get through to Hanjin and provide notice, no one at Hanjin is dealing with abandoned cargo right now. That means once the Korean equivalent of the bankruptcy trustee gets to considering revenue recovery sources, it is likely the container related per diem and the sizable charges associated with abandoned goods could be tempting charges to assess. At least in the U.S., when it comes to abandoned goods, when the carrier takes an unreasonable period of time to dispose of those goods, the defense of failure to mitigate damages can be raised. It is not clear that same defense applies under Korean law.
The U.S. bankruptcy court entered an order on September 9th that contained important benefits for cargo owners. One such provision recognized the right of beneficial cargo owners (BCO) to pay third parties to get goods to destination, provided Hanjin had been paid the full freight charges owed. Hanjin was ordered to fully cooperate. The court went on to order that any interest Hanjin had in any container was not to impair the right of the BCO to his goods. Any monies paid by the BCO to third parties is subrogated to the rights of those third parties, and all rights against Hanjin are reserved. However, if Hanjin paid all the charges, the court’s order does not apply, a conclusion which makes sense since the goods are ready to be released. Of course, the overlooked issue is if there are additional charges in the form of demurrage, etc., due to delays, the BCO will have to pay those charges and file his claim against Hanjin in Korea.
One of the longer term but potentially vexing issues is if a BCO has a service contract with Hanjin, despite the fact the carrier is in bankruptcy, there may be still be exposure under the liquidated damages provision of that service contract. The way this works is the service contract commits the BCO to ship a certain quantity of containers with Hanjin. Other cases have held that once the carrier is no longer able to perform, the obligation to tender containers to that carrier ends. Despite what seems like an obvious outcome, there is a bankruptcy case under consideration right now – The Containership Company – where the carrier argued its BCO contracting parties waited until late in the contract year and, in fact, waited so long that if all those parties tried to tender enough cargo to meet their volume requirements, the carrier could not haul it all in a timely manner. Therefore, the attempt is to have the court order each BCO to pay some proportionate share of what it owes based on having shipped some as yet undefined quantities of cargo sooner in the contract year. Where that ends up will be interesting for all concerned, but the original decision held once the carrier filed bankruptcy, shippers were relieved of their existing volume obligations.
On Friday, October 7th, the U.S. bankruptcy judge heard arguments on several issues but has yet to issue his ruling. Those issues included the claim by Ashley Furniture that is should be entitled to put the funds it is paying to Hanjin to get its goods into an escrow account so it stands some chance of getting its damages paid which arose when Hanjin terminated shipments before delivery. There was also an issue raised that Hanjin be obligated to clarify which ships are coming off charter and when. The concern being those vessels will be beyond the reach of creditors once they are returned to their owners. This is particularly vexing if the cargo is still on board the vessel. On the other hand, those holding maritime liens want to be able to arrest those vessels. They cannot do so now under the bankruptcy court’s stay order, but could once Hanjin no longer has them on lease.
One order that was issued last Friday was in favor of NVOCC GlobeRunner. The NVOCC was successful in expanding the court’s existing order to cover its shipments. If the container serial number starts HJCU, HJSU or SENU and is a container leased to Hanjin, Hanjin disclaims all rights and GlobeRunner is free to make other arrangements to get that cargo. If the container is owned by Hanjin, GlobeRunner is permitted to empty the container and return it without further charge. If it chooses to use the empty for other purposes, the relevant charges are stated. If the container is to be used to export a shipment and was tendered to the carrier, Hanjin relinquishes all rights to claim freight on these shipments provided they are shipped to destination by other carriers.
There are many more issues to be resolved, and the complexity of this bankruptcy can be expected to have ramifications for years to come, but get your claim filed now!