Hanjin Shipping Ltd Co enter receivership

On 31st August, Hanjin Shipping Co Ltd filed to the Korean Court for court receivership following the withdrawal of credit facilities by banks and other creditors. Hanjin has applied for a protection of assets in the Seoul Central District court.

Reports have been received of a number of vessels being denied access to ports from Shanghai to Los Angeles, no doubt due to a fear that Hanjin will not be in a position to settle outstanding port fees. The court are yet to decide whether to allow the company to continue as a going concern or to declare bankruptcy. Such a decision is usually made over 1 to 2 months however with such a vast global interest in the outcome it is believed that a decision will be made at an earlier date.

It is believed that the effect will be felt particularly by those involved in the CKYHE alliance (Cosco Container Lines, “K” Line, Yang Ming Line, Hanjin Shipping, and Evergreen Line) the severity of which will be dependent upon the action taken by those involved. Thus far, the 5300 teu Hanjin Rome vessel has been arrested in Singapore along with the 13,100 Hanjin Sooho in Shanghai. Evergreen Line have announced that loading of cargo onto Hanjin vessels is to cease with immediate effect with the remaining CKYHE members commencing contingency planning.

Similar to the consequences experienced in the 1994 CAVN (Venezuelan state shipping company) insolvency there is a potential for substantial losses where cargo is being carried on a Hanjin vessel for which the owners will inevitably look to their insurers. The concern lies with both cargo on board a vessel and cargo at a port that has not yet reached its destination. The potential risks include:

  • Hanjin failing to pay hire on chartered vessels: Shipowners may withdraw vessels from Hanjin’s service. Shipowners will still be bound by their bills of lading with cargo interests to deliver the cargo, but delays will inevitably be experienced.
  • Arrest of a Hanjin vessel: again, this will result in delays to the delivery of the cargo. Depending on the circumstances, it may justify transshipment, the costs of which might borne by insurers.
  • Container lessors seeking repossession of their containers and/or exercising a lien over the containers: This could also result in delay and possible transhipment costs. Costs could include payments to have cargo released.
  • Ports refusing Hanjin vessels to berth / or Hanjin containers to be received (for fear of Hanjin being unable to pay berth / port dues). We are aware ports turning vessels away in China and Spain due to these concerns:
    • Delay until finally allowed to berth;
    • Container demurrage;
    • Unable to berth at port of destination, and so must sail to another port: More delay and possible transshipment costs.
  • Hanjin terminate carriage contracts of contract of carriage is frustrated: Delay and probable transshipment costs.

The relevant insolvency exclusions that will apply are found at clause 4.6 of the ICC(A) clauses 2009 whereby the assured has actual or imputed knowledge of impending insolvency so as to prevent the normal prosecution of the voyage. Insurers must prove that the insolvency caused the loss (which does not have to be direct) and that the assured knew, or should have known, that the insolvency would cause such a loss.

It is likely that an assured will claim for forwarding costs where Hanjin are unable to deliver the cargo due to termination of transit. If this is the case, an assured will be able to rely on clause 12 ICC(A) under which the underwriters are bound to reimburse the assured for any such charges reasonably incurred.

The position is a moveable feast. Some 158 vessels in the fleet are potentially exposed.