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Sept.19. 2016

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TRADING PLACES 54 THE JOURNAL OF COMMERCE www.joc.com Peter Tirschwell SEPTEMBER 19.2016 NVOS SAW IT COMING AS THIS COLUMN went to press, the industry remained locked in the throes of Hanjin Shipping's col- lapse. But there were noteworthy findings in the data that will pro- vide useful guidance for shippers trying to draw lessons from this experience. Among them, NVOs — those arg uably closest to the market — saw the writing on the wall, whereas benef icial cargo owners, in the aggregate, didn't. Of the 89 Hanjin vessels in ser- vice at the time the Korean company entered bankruptcy on Aug. 31, 39 as of last week were anchored out- side of port or aimlessly steaming around, vivid evidence of the sudden cessation of activiy that occurs when a shipping company goes belly up. Although Hanjin only accounts for 5 to 8 percent of deployed capacity on the east-west trade lanes, accord- ing to SeaIntel, the magnitude of its collapse was amplified by some 24 alliance and vessel-sharing partners' cargo rendered idle alongside its own as terminals and other cargo handlers refused to move freight for Hanjin without assurance of payment. That alone, which prompted alli- ance partners Evergreen and China Cosco Shipping to publicly renounce their erstwhile partner, differenti- ated this collapse from earlier ones such as Cho Yang in 2001 and U.S. Lines in 1986, and underscored the profound interdependence among container lines in the modern era. In coming weeks, the issues will slowly and painfully get sorted out. Inevitably, there will be lost sales, lost profits and strained trading rela- tionships, as there are any time cargo movements are suspended abruptly. A reported $90 million outlay from Hanjin Group, a kind of farewell ges- ture to the market, was intended to liberate an estimated 540,000 TEUs of cargo stranded worldwide. How quickly those funds will get deployed and the cargo sent on its way is unclear. But longer-term questions are being asked, and not just the inevitable ones like what the collapse means for the rapidly consolidating container shipping industry and the future of pricing. The questions are more tacti- cal. Should shippers have known that Hanjin was at dire risk of col- lapse, and should they have pulled cargo in advance? Unquestionably, there are logistics directors being blamed for the delays within their own organizations, as many were held responsible for the actions of West Coast dockworkers during the 2014-15 contract negotiations, some even losing their jobs. Will shippers, as seems likely, pay greater attention to carriers' financials and be quicker to divert freight away from carriers perceived as vulnerable? Could that, in turn, accelerate the process of consolida- tion already under way? The data points to NVOs as a group being clearly more nervous about Hanjin than BCOs were in the months leading up to the col - lapse, when the news was filled with reports of the "high-stakes game of chicken" between Hanjin and its creditors, according to SeaIntel. This would make sense because being close to the market is a full- time job for NVOs. It's what they do for a living. BCOs have logistics teams but their focus is retail, manufacturing, trading, or some other non-trans- portation line of business. It's not just that NVOs are plugged into the market, but the evidence may reveal they have different insights, perhaps ones more attuned to risk. The numbers speak volumes. Comparing the first six months of 2016 versus the same period in 2015, US trans-Pacific imports were up 3.1 percent, according to PIERS, a sister product of The Journal of Com- merce within IHS Markit. Hanjin's overall trans-Pacific business dropped 4.4 percent. But its business sourced from NVOCCs declined 15 percent while its BCO business grew slightly. And it was the company's largest NVO customers that showed the most concern. Hanjin's top 4 NVO cus- tomers (Orient Express, Translink, Expeditors, and Ramses) during the first half of 2015 accounted for almost 42 percent of its total first-half 2015 NVO volume. But by the first half of 2016, those same four NVOs accounted for just 28 percent of Hanjin's NVO volume. In 2016, each of these four NVOs drastically reduced the expo- sure to Hanjin, pulling between one-third and two-thirds of their first-half 2015 volumes. Toll Global Forwarding's import trans-Pacific volumes with Ha njin dropped 71 percent. Pyramid Lines' volumes dropped 86 percent. Those are just a few of many examples. "It is quite apparent in the data that several large NVOs were with- drawing import cargo from Hanjin in the months prior to the bank- ruptcy, given that their volume declines were significantly greater tha n Ha njin's overall declines and the overall increase in import trade," said Brian Cozzens, subject matter expert within the Maritime & Trade business of IHS Markit. One seemingly obviously lesson is that BCOs should place at least some of their cargo with a large NVOCC, assuming their rates are competitive, if only to gain access to the market intelligence that would come from a commercial relationship. JOC Contact Peter Tirschwell at peter.tirschwell@ihsmarkit.com and follow him on Twitter: @petertirschwell. In coming weeks, the issues will slowly and painfully get sorted out.

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