Lessons from Hanjin- What to do if another carrier declares bankruptcy or ceases operations
Lessons of the Hanjin Bankruptcy
The Hanjin bankruptcy provides AgTC members with an opportunity to be prepared for the next one.
How do I avoid shipping with a carrier that might declare bankruptcy? We have spoken with the Presidents North America of five ocean carriers. They agree that it is virtually impossible to predict if a carrier will be bankrupt and when. For instance, the most informed sources believed that Hyundai would be the one on financial thin ice, which might have to cease operations. Only two weeks later, Hyundai survived; Hanjin did not. Some exporters have claimed credit for avoiding shipping with Hanjin, but generally those exporters were more lucky than prescient.
Could another carrier declare bankruptcy? It is certainly possible that another carrier could declare bankruptcy, although there are no immediate candidates visible at this time. What is more likely is that carriers which are subject to deteriorating financial conditions, could be sold to another, healthier carrier. This is the scenario that a number of well-informed ocean carrier executives expect, instead of an outright bankruptcy.
Once a carrier declares bankruptcy and I have my cargo in its network, what should I do first? The advice that we gave to exporters and importers who posed this question in the days immediately following the first news of the bankruptcy was the following: get possession of your cargo and your container as fast as possible and by any means possible.
Should I pay the ransom to the terminal to get my container, even though I’ve already fully compensated the carrier and terminal operator? The unequivocal answer is an emphatic yes. Negotiate with the terminal, but if it doesn’t budge, then pay whatever ransom is demanded (as long as it is less than the value of your cargo) in order to get your cargo and container. The longer you wait the less likelihood that either you or your customer will ever see that cargo again.
What is the likelihood that I will recover damages for my losses resulting from failure of Hanjin to deliver to my customer on a timely basis pursuant to my service contract? In short, nil. There are many creditors of the ocean carriers whose rights, before the cargo owner. These include the owners of the vessels that are leased to the carrier, the owner of the containers that are leased to the carrier, the marine terminals that have served the ocean carrier at all ports globally, the providers of fuel and other services to the carrier. All of those will it immediately attached the two the assets of the carrier. The carrier has declare bankruptcy because it does not have the revenue or savings in order to pay all those claimants. The state most certainly will not have anything available to pay additional claimants such as the cargo. Cargo owners under maritime law tend to be the very last interest to be protected and in fact this is why our advice has been when a carrier is teetering on the edge of bankruptcy or has declared bankruptcy, to immediately gain possession of your cargo and container, because otherwise it will be disposed of as it in a manner to benefit any higher priority creditors. And under practical application of maritime bankruptcy law, every creditor has higher priority than the cargo.
Click here for the latest P3 Press Release (31 October)
Click here for list of Hanjin containers accepted at Terminal 46 (Seattle) and Pier T (Long Beach)
Click here for a list of leasing agents to contact about leased Hanjin containers
Where is my Hanjin Cargo? September 30 (Click here to read update)
AgTC Signs multi-industry letter to Secretary of Commerce Penny Pritzker (Click here to read it.)
Hanjin Customer Advisory (9/21) Click here to read; Hanjin Informal Cargo Status Chart (9/21) Click here to read
Some terminals worldwide charging shippers huge fees to release containers, as they are worried that they will not be paid by Hanjin. The news that Hanjin was getting $90 million infusion in order to clear the cargo out of the system was encouraging, but at present it appears that some of the service providers – marine terminals and railroads – are not convinced they will get full payment, and are thus demanding that the cargo interest (shipper) pay (even if the shipper has already paid Hanjin).
The FMC has been informed and has established a mechanism for reporting specific instances (see the FMC form below). Meanwhile, a European court has intervened to prevent some terminals from holding containers for “ransom”.
In any case, our advice to our Agriculture Transportation Coalition members (ag, forest products and resins exporters) is, whether we like it or not, to pursue and gain possession of their cargo by any means possible, including if there is no other choice, even paying the “ransom”. The alternative of waiting for the bankruptcy process to run its course, and/or to file a formal claim in the bankruptcy case, is generally not going to produce a desirable result, for several reasons. Bankruptcy is a slow and orderly process, assets are frozen; the condition of the cargo will be compromised by the delay, and customers will cancel if delivery commitments are not met. Frankly, under admiralty and maritime bankruptcy law and precedent, the cargo interest is generally lower in the priority line of creditors. After the vessel owners who leased the ships to Hanjin, after the terminal operators, after the shipboard labor, after other subcontractors claims are addressed, there won’t be much for the cargo interests. So gaining possession now, even at an “extra” cost, may be the best of the poor options currently available to the exporter.
Despite the lower priority of the cargo interest in the bankruptcy proceeding, it may be worthwhile to file a claim: you may wish to consult with one of the Attorneys below.
Federal Maritime Commission Announcements
The Federal Maritime Commission has stepped forward to attempt to protect shippers’ interest. While the authority of the Commission is somewhat limited in maritime bankruptcy actions such as this, it has asked shippers who feel they have been treated unfairly by regulate parties such as marine terminal operators, ocean carriers or an NVO, to report it. The commission statement sets for specific information it will need.
Examples of unfair activity might be if a port or terminal operator is holding a Hanjin container with your cargo and refuses to release it to you so that you can book it on another carrier. Or the terminal operator is charging you an exorbitant fee before it will release the container. Or if you have cargo moving under a Hanjin bill of lading but on the ship of another carrier in the Alliance, and that other carrier will not release the container to you or deliver to your foreign customer without an exorbitant ransom being paid.
We have been asked for referrals to attorneys who may be able to assist in protecting exporters cargo interests that are being impacted by the Hanjin bankruptcy. While the AgTC does not recommend any particular attorney, the following individuals have indicated that they have capabilities in this area.
Click here for Hanjin bankruptcy claim alert from MSK law firm.
Roberts & Kehagiaras LLP
One World Trade Center, Suite 2350, Long Beach, California 90831
PHONE: (310) 642-9800 x 7002, FACSIMILE: (310) 868-2923, DIRECT: (310) 448-2997
R. Isaak Hurst
International Maritime Law Group PLLC
601 Union Street, Suite 4200 | Seattle, WA 98101
(Office) 206.992.0710 | (Fax) 206.707.8338