Supply-Chain Costs Rise as “Nuclear Bomb” Hits Global Shipping

South Korea’s Hanjin Shipping, the world’s seventh-largest container carrier, filed for bankruptcy on August 31 after succumbing to weaker global trade and an oversupply of vessels in the industry.

The significance of the collapse to the wider global economy shouldn’t be underestimated, according to Gerry Wang, the CEO of container ship leasing company Seaspan.

“The fallout of Hanjin Shipping is like Lehman Brothers to the financial markets,” Wang told Bloomberg in an interview.

“It’s a huge, huge nuclear bomb. It shakes up the supply chain, the cornerstone of globalization.”

Around 90% of world trade is carried by the international shipping industry, with over 50,000 merchant vessels trading internationally, manned by over a million seafarers, according to the International Chamber of Shipping.

Hanjin’s demise left 93 ships stranded at 51 ports in 26 countries. And Reuters reports it also caused shipping costs to spike by 50% as the company’s customers scrambled to find alternative vessels.

Even so, experts told Reuters the price rise won’t be enough to remedy ills facing the industry, indicating that more volatility may lie ahead.

“All of Hanjin’s ships aren’t just going to sink overnight,” Clint Eisenhauer, vice president for external affairs at the South Carolina Port Authority told Reuters.

“We are going to see the same imbalance between supply and demand, and beyond a short-term spike the impact on rates shouldn’t be dramatic.”

Seaspan’s Wang is cautiously optimistic that Hanjin’s misfortunes could help the industry in the longer term.

“Freight rates have shot up like crazy over the short term, the long term I don’t know,” he told Bloomberg. “But one thing’s for sure: This fallout will help demand and supply.”