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When Your Shipping Company Files for Bankruptcy

It's never the news you want to hear: A well-known cargo shipping company, maybe one you use, has filed for bankruptcy, just weeks before the Christmas shipments need to go out.

Photo courtesy: Pixabay

Photo courtesy: Pixabay

That was the news that broke a few weeks ago, and the stress that comes with tracking products mid-route, dealing with multi-national legal entities, working around labor stoppages, organizing ways to get cargo off the boats, rescheduling containers, and problem-solving a way to keep goods moving has supply chain professionals frazzled.

Hanjin Shipping, one of the world's largest shipping container companies, filed for bankruptcy in South Korea the end of August, and then in early September filed for US Chapter 15, which provides protection for international insolvency issues, according various reports, including these MarketWatch and Wall Street Journal ones.

The domino-effect fallout and supply chain disruption management plans began rolling from there. Port workers, terminal operators, truckers and others stopped handling Hanjin cargo in North America, Asia and Europe for fear of not getting paid. Concern about freight rate increases for container shipments spark debate and speculation, and jockeying for space on other companies' ships begins. Companies, port officials and governments start running the numbers of what the Hanjin collapse looks like: an estimated $14 billion worth of cargo is tied up globally on Hanjin ships sitting idle outside ports that have restricted entry; approximately 400,000 containers are on stranded Hanjin ships, and about 8,300 cargo owners are impacted, according to a Fortune article listing various statistics and citing several sources. 

Photo courtesy: Hanjin Shipping

Photo courtesy: Hanjin Shipping

The impact is cross-industry, and the timing has everyone from high tech companies to retailers worried. This is the time of year companies ramp up inventory stocking and deliveries for the holiday-selling season. Samsung Electronics Co., for instance, has about $38 million worth of goods and parts on two Hanjin ships, according to reports, and, while it supports the Hanjin U.S. bankruptcy petition, it has filed court documents urging for a quick resolution. As Samsung points out, and as many other companies are calculating and mulling over, the costs related to leaving good on the stranded ships is as unpalatable as swallowing the high costs of transferring them off the boats and expediting shipments via other transportation means; alternative shipping methods could cost many companies millions of dollars and losses from goods stuck offshore may be hard to recoup. 

How quickly this disruption will fizzle out is questionable. Solutions were still being discussed during mid-Sept. Cargo owners, those who own the goods stuck on the ships, are petitioning to pay terminals and port workers to unload products and judges will have to rule how Hanjin's assets will be protected from creditors who may seek to seize assets. And US Customs and Border Protection has provided guidance to shippers about updated required documentation and shipping manifest.

As always, all of this begs the questions: How resilient is the electronics supply chain to these kinds of interruptions? How well do you know your entire supply chain, not just the key component suppliers but all the other parts that are needed to get your parts and products from A to B. 

Over the last few years, the electronics industry has had to improve its disruption and risk management practices, primarily out of necessity. Tsunamis, earthquakes, flooding, volcano explosions, conflict minerals reporting, and labor strikes at ports and airline companies have compelled greater accountability among supply chain organizations and ushered in creative problem-solving workarounds and longer-term process improvement projects. And, every year the supply chain, with the help of advanced technology and big-data algorithms and analysis, is shifting from a reactive solution to a more predictive and prescriptive response to disruptions, making the entire flow more flexible and resilient.

Still, where do things such as potential bankruptcy filings show up on the radar screen? When choosing which supplier activities to track and respond to do, where does the financial health of a freight operator – who may not be managed directly by your team but may be an outsourced third-party logistics provider's responsibility—fit into strategic decision-making?

How has the Hanjin bankruptcy affect you and what measures have you put in place to reduce the impact?

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