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Supply Chains Vulnerable Following Hanjin Administration

Posted by David Tate 16 September 2016

South Korean shipping company Hanjin announced it was entering administration in August, following financial difficulties. A confusing picture has subsequently emerged, as creditors have taken action to arrest vessels in some ports around the world, while other vessels have been refused permission to enter ports to offload or take aboard new containers because of uncertainty about who would pay port and pilotage fees. While the situation is still developing, it is clear that today’s “just-in-time” supply chains could be vulnerable to significant disruption as uncertainty and bottlenecks follow. To compound matters, August to October is generally the busiest time of the year for the shipping industry, as companies stock up for the holiday season.

Who Could Be Affected?

About 95% of the world's manufactured goods and components, from dresses to televisions, are transported in shipping containers. Although Hanjin is said to account for slightly more than three percent of global container capacity, the complexity of the modern supply chain could leave retailers, manufacturers, and logistics operators exposed to potential disruption. With cargo stuck on ships, suppliers to fashion brands and electronic manufacturers are reported to be making alternative arrangements with logistics companies to move raw materials to factories.

South Korea's maritime ministry has said that Hanjin's troubles would affect cargo exports for two to three months, given that August-October is a high-demand season for deep-sea routes, with the ministry estimating that 540,000 TEU of cargo already loaded on Hanjin vessels would face delays. With today's complex container movements and alliance relationships, an importer or exporter could see its freight moving on a Hanjin ship, even though the move was booked with another carrier. The potential for cargo to be stranded, perhaps indefinitely, is therefore an unnerving concern for many. Although retailers and manufacturers always have robust contingency plans in place, this degree of uncertainty will make it challenging for organisations to know when to put those plans into action.

Understanding Your Supply Chain and Managing New Risks

A failure to assess and manage the risks in your supply chain could have a negative impact on your business objectives, reputation, and market share, as well as damaging shareholder value. Companies today therefore need to ask themselves:

  • Are your suppliers managing their risk as carefully as you do?
  • Do you fully understand the terms and conditions applying to marine cargo shipments?
  • What contingency planning do you have in place for events similar to the Hanjin situation?

These circumstances reinforce the need for rigorous supply chain identification, resilience, and mitigation.

David Tate

Retail, Food & Beverage Practice Leader, UK & Ireland