SEOUL, South Korea – South Korea's top ocean shipping company, Hanjin Shipping Co., is in bankruptcy proceedings following years of losses, as its family-dominated controlling conglomerate struggles to adapt to an era of slowing growth.
Founder Cho Choong Hoon started a trucking business in 1945 and made a fortune hauling supplies for U.S. forces during the Vietnam War. The conglomerate, or chaebol, he built helped drive the country's ascent as a major economy, Asia's fourth-largest. Among other businesses, it owns South Korea's biggest airline, Korean Air Lines.
To many South Koreans, Hanjin's woes are typical of the difficulties chaebol are facing as offspring of the founding generation fumble in their attempts to keep control of their fathers' and grandfathers' business empires.
Since Cho's son Yang-ho took over in 2014, Hanjin Group has spent 1.2 trillion won ($1.07 billion) trying to save the troubled shipping company, which has foundered as freight rates have tanked due to weak demand and soaring global capacity.
The younger Cho took over management of Hanjin Shipping from Choi Eun Young, the wife of his younger brother, who ran the shipping firm until his death in 2006. After a brief respite following the global financial crisis, the company slid back into the red in 2011.
"Without expertise or understanding of the industry, she was appointed as the CEO only because she was a relative," Lee Ji-soo, an attorney at Law & Business Research Center in Seoul, said of Choi's time at the helm. "It is a typical chaebol story."
Earlier this week, creditors led by the Korea Development Bank rejected a plan by Hanjin Group to spend another 500 billion won ($447.2 million) to rescue the shipping firm, way short of Hanjin Shipping's more than 6 trillion won ($5.37 billion) in debts. Some commentators urged the Cho family to sell off some of their own properties to help save the company.
A report on the company's financial status is due by Sept. 28, the local Yonhap News Agency reported, citing the Seoul Central District Court.
The Hanjin group suffered a severe blow to its reputation in 2014 when Cho Hyun-ah, Cho Yang-ho's daughter and a vice president of Korean Air, threw a tantrum over how macadamia nuts were served to her on a flight and ordered the plane she was on to return to the gate at John F. Kennedy Airport in New York.
Cho Hyun-ah was given a suspended sentence for assaulting a crew member. She resigned her post at Korean Air.
Apart from troubles with its management, Hanjin is operating in a brutally competitive, consolidating industry, where profits are being squeezed as shipping rates fall while capacity continues to climb.
Even the biggest ocean shipping company, A.P. Moller-Maersk, is seeing its profits fall, and scrambling to cut costs.
Smaller operators like Hanjin, which with 618,133 TEUs, or Twenty-foot Equivalent Units, of container capacity is in the lower tier of the top 10 shippers, cannot muster the scale needed to get by.
"Korean shipping companies have suffered large losses, largely because charter rates on leased vessels were fixed in 2010 at a high level while actual shipping rates have fallen," Nomura International analyst Young Sun Kwon in Hong Kong said in a research note.
Weak global trade volumes mean shippers are hauling fewer containers, he said.
"Virtually all shipping lines worldwide are incurring losses. Every box moved is at a revenue negative cost, i.e. it is cheaper for a ship to sit at anchor than to operate and carry any boxes on any corridor," said Roberto Giannetta, an industry representative who is also secretary-general for the Hong Kong Liner Shipping Association, which counts Hanjin as a member.
"Hanjin is a very solid company with a long history - the biggest shipping line in Korea and one of the top biggest shipping lines worldwide," he said. "Shipping freight rates have been unsustainably low for far too long."
As Hanjin has stepped closer to bankruptcy, other shippers and ports began turning its ships away, leaving some vessels stranded and many customers stuck without their merchandise. It's too early to know what the broader fall-out might be. But the disruptions are bound to be costly.
Major Hanjin customers, like Samsung Electronics, said they were striving to minimize the impact on their own businesses. Hanjin reportedly handled nearly half of Samsung's cargo destined to North America.
LG Electronics said it expected some delays on home appliance shipments, since Hanjin was handling about a fifth of its North America-bound cargo.
LG was seeking alternatives among other shippers including, Hyundai Merchant Marine, South Korea's second-largest container line.
Analysts say shipping rates are recovering somewhat, with the approach of the pre-Christmas rush. But without a longer-term fix, Hanjin may be just the first to founder, Giannetta said.
"This situation has come as a result of tremendous downward pressure on freight rates for the past several years," he said. "Under such conditions, a disastrous situation of this magnitude was unavoidable sooner or later."
AP Business Writer Kelvin Chan in Hong Kong contributed to this report.