One of the world's largest shipping companies is sinking in a sea of red ink, leaving sailors and cargo stranded in vessels anchored offshore and merchants worrying they won't get goods in time for holiday shopping.
South Korea's Hanjin Shipping, the world's No. 7 shipping company, is in bankruptcy and has more than 40 massive container ships stranded at sea. It's estimated they're carrying $14 billion worth of goods -- everything from Samsung electronics and Nike sneakers to furniture and food.
“Our ships can become ghost ships,” Kim Ho Kyung, a manager at Hanjin Shipping’s labor union, told Bloomberg News. “Food and water are running down in those ships floating in international waters.”
The ships are barred from entering many ports where Hanjin hasn't paid the workers who unload cargo and the truckers and railroads which bring the goods to markets.
“Merchandise is in limbo at the moment and retailers are working hard to make sure it ends up on store shelves in time for the holidays,” National Retail Federation Vice President for Supply Chain and Customs Policy Jonathan Gold said, according to the shipping blog gCaptain.com.
In the U.S., unpaid fuel companies had one ship seized, near the port of Long Beach, Calif.
Last week, a federal bankruptcy judge in Newark ruled no additional Hanjin ships could be seized by creditors in the U.S.
Hanjin now says it has $18 million set aside to unload four ships in the U.S., and the judge told the company to make whatever deals it can to get the cargo into stores on time. Korean Airlines (KAL), Hanjin's biggest shareholder, is giving $54 million to get ships docked and unloaded. One ship unloaded in Long Beach over the weekend. But about a dozen other ships are waiting to enter American ports.
The International Transport Workers Federation (ITF) said, at least for now, it believes all marooned ships, worldwide, have enough fuel, and enough food and water for their crews, but Hanjin is asking crews to conserve. Hanjin's union leaders say they're working with the South Korean government to guarantee the delivery of supplies for ships running low.
Mike Radak, chief operating officer for Hanjin Shipping America, headquartered in Paramus, New Jersey, says the company needs a lot of money to solve the global problem. Under normal circumstances, he said he could easily spend "100, 200 million in a few hours."
Hanjin has too many ships and not enough cargo to make them profitable.
Radak say the whole industry is overcrowded.
"You don't need 20 or more different ocean carriers," said Radak.
"This had to happen to one of us."
He said container shipping was a good business until the great recession of 2008. World trade slumped, then recovered more slowly than shippers expected. Container ships take six years to build, and vessels which were under construction before the recession are now underutilized.
Older ships are getting scrapped earlier.
The situation is "unprecedented," in the opinion of Richard Salz, a veteran maritime lawyer who's been following the Hanjin case for Mitsui Sumitomo, the Japanese insurer.
Salz says bankruptcy laws in some countries allow governments to auction the ships they seize, to pay local creditors.