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Hanjin Shipping: Slow-Steaming Into Bankruptcy Causes and Effects

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Hanjin Shipping: Slow-Steaming Into Bankruptcy Causes and Effects ! ! ! ! ! Master Degree Project in Logistics and Transport Management ! ! ! Hanjin Shipping: Slow-Steaming into Bankruptcy Causes and Effects Jonna Pauli and Mathias Wolf Supervisor: Kevin Cullinane Graduate School ! Abstract Container shipping is vital to and a driving force behind global economic growth. One of the industry’s largest carriers collapsed in August 2016, an event of unprecedented magnitude and predicted to cause major disruptions for world trade. Hanjin Shipping was Korea’s main container shipping line and played an essential role for the country that is exceedingly dependent on seaborne trade. The carrier collapsed at a time when market conditions had gotten progressively worse and market participants believed that a bankruptcy would be imminent. The causes and effects of Hanjin Shipping’s demise were not only exceedingly complex but also highly debated. Thus, the purpose of this paper was to investigate the contributing factors to Hanjin Shipping’s insolvency and its effects. A qualitative case study was conducted by means of in-depth interviews with seven respondents with extensive knowledge of the container shipping industry. The findings suggest that Hanjin Shipping’s demise was a combination of a number of interdependent factors. The carrier’s managerial decisions played a decisive role in its collapse and can be traced back to its operational, investment and financial strategies. These decisions were implemented over the course of several years and were based on developments of the changing, external market conditions the carrier operated under. The actors closest to Hanjin Shipping, in particular its fellow alliance members and customers, as well as the international shipping industry did not suffer too severe consequences from the carrier’s bankruptcy, but the Korean economy at large has been affected more profoundly. Keywords: Hanjin Shipping, Container shipping industry, Maritime, Container liner shipping bankruptcy, Shipping management, Shipping finance, Korea, CKYHE i! ! Acknowledgement ! We!would!like!to!express!our!gratitude!towards!our!supervisor!Kevin!Cullinane,!at!the! School!of!Business,!Economics!and!Law!at!the!University!of!GothenBurg,!for!his!input! and!support!during!the!writing!process!of!this!thesis.! ! We!would!also!like!to!thank!each!of!our!interview!respondents!for!providing!invaluaBle! insights.! ! ! ! ! ! ii! ! Abbreviations ! General ! BAF Bunker Adjustment Factor BBC/PO Bareboat Charter with Purchasing Option BBCHP Bareboat Charterhire Purchase CAF Currency Adjustment Factor CCFI China Containerised Freight Index CSL Container Shipping Line CTO Container Terminal Operators DWT Deadweight Tonnage HPH Hutchison Port Holdings KDB Korea Development Bank LSCI Liner Shipping Connectivity Index M&A Mergers and Acquisitions MOF Ministry of Oceans and Fisheries OECD Organisation for Economic Co-operation and Development PA Port Authority PSA Port of Singapore Authority SPV Special Purpose Vehicle TEU Twenty-foot Equivalent Unit THC Terminal Handling Charges TOC Terminal Operating Company UNCTAD United Nations Conference on Trade and Development VLCS Very Large Container Ship WMU World Maritime University iii! ! Carriers, alliances and agents ! APL American President Lines CKYH(E) Alliance of COSCO, K-Line, Yangming, HJS (and Evergreen) CMA CGM Compagnie Maritime D'affrètement - Compagnie Générale Maritime COSCO China Ocean Shipping Company CSCL China Shipping Container Lines DSR Deutsche Seereederei HJS Hanjin Shipping HMM Hyundai Merchant Marine K Line Kawasaki Kisen Kaisha KSC Korea Shipping Corporation MOL Mitsui O.S.K. Lines MSC Mediterranean Shipping Company NOL Neptune Orient Lines NYK Nippon Yusen Kabushiki Kaisha OLA Overseas Liner Agencies OOCL Orient Overseas Container Line P&O Peninsular and Oriental Steam Navigation Company UASC United Arab Shipping Company iv! ! TABLE OF CONTENTS 1.#INTRODUCTION# 1! 1.1#Background# 1! 1.2#Problem#Discussion# 2! 1.3#Purpose#of#the#Study# 4! 1.4#Research#Questions# 4! 1.5#Delimitations# 5! 1.6#Disposition# 6! 2.#METHODOLOGY# 7! 2.1#Research#Approach# 7! 2.2#Research#Design# 8! ! 2.2.1!Literature!Collection!..............................................................................................................................!9! ! 2.2.2!Data!Collection!.......................................................................................................................................!10! ! 2.2.2.1!Interviews!................................................................................................................................!11! ! 2.2.2.2!Selection!of!Respondents!..................................................................................................!12! ! 2.2.3!Data!analysis!...........................................................................................................................................!13! 2.3#Validity#and#Reliability# 14! 2.4#Summary#of#Methodology# 15! 3.#LITERATURE#REVIEW# 16! 3.1#The#International#Shipping#Industry# 16! ! 3.1.1!Shipping!Cycles!and!Uncertainty!...................................................................................................!17! ! 3.1.2!Supply!and!Demand!.............................................................................................................................!18! ! 3.1.2.1!Demand!.....................................................................................................................................!19! ! 3.1.2.2!Supply!........................................................................................................................................!20! ! 3.1.3!Freight!Rates!...........................................................................................................................................!22! ! 3.1.4!Owner!Structure!and!Contracts!......................................................................................................!23! ! 3.1.5!Market!Developments!.........................................................................................................................!24! ! 3.1.5.1!Alliances!....................................................................................................................................!25! ! 3.1.5.2!Mergers!and!Acquisitions!(M&As)!................................................................................!27! ! 3.1.5.3!Geographical!Concentration!............................................................................................!27! ! 3.1.6!Finance!and!Investments!...................................................................................................................!29! ! 3.1.6.1!Impact!of!the!Financial!Crisis!..........................................................................................!30! ! 3.1.7!Operations!................................................................................................................................................!32! 3.2#The#Korean#Maritime#Sector# 34! ! 3.2.1!Korea’s!Economy!and!Shipping!Industry!...................................................................................!34! ! 3.2.2!The!Korean!Shipping!Sector!and!Governmental!Action!.......................................................!35! ! 3.2.3!Corruption!................................................................................................................................................!37! ! 3.2.4!Deregulation,!LiBeralisation!and!the!Asian!Financial!Crisis!..............................................!38! ! 3.2.5!Port!Governance!....................................................................................................................................!39! ! 3.2.6!Shipyards!..................................................................................................................................................!42! ! 3.2.7!Container!Shipping!Lines!..................................................................................................................!46! 3.3#Hanjin#Shipping# 48! 3.4#Summary#of#Theories# 51! v! ! 4.#FINDINGS# 53! 4.1#Contextual#Background# 53! ! 4.1.2!Developments!Between!2003\2016!.............................................................................................!54! 4.2#Results# 58! ! 4.2.1!External!Factors!....................................................................................................................................!59! ! 4.2.1.1!Market!Conditions!................................................................................................................!59! ! 4.2.1.2!Preferential!Treatment!......................................................................................................!60! ! ! 4.2.1.3!ChaeBols!and!the!government!........................................................................................!62! ! 4.2.1.4!Corruption!...............................................................................................................................!62! ! 4.2.1.5!The!Korean!Maritime!Sector!–!A!PuBlic!Good?!........................................................!63! ! 4.2.1.6!Cho!Yang!and!HJS!..................................................................................................................!64! ! 4.2.1.7!National!CSLs!..........................................................................................................................!65! ! 4.2.1.8!The!Role!of!the!KDB!.............................................................................................................!66!
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