Lessons from Hanjin and how to move forward

A container terminal of South Korea's Hanjin Shipping in the southeastern port city of Busan.
A container terminal of South Korea's Hanjin Shipping in the southeastern port city of Busan.PHOTO: AFP

The stunning collapse of South Korea's Hanjin Shipping last year has been a wake-up call for container shipping players worldwide, with several lessons learnt, said a top industry executive.

Mr Rene Pedersen, council member and international committee chairman of the Singapore Shipping Association, noted that shippers are now more focused on a carrier's financial stability when it comes to procurement.

After all, Hanjin - once the world's seventh-largest container line - went under precisely because of "unsustainable low rates", he said. Global freight rates sank to historic lows last year as shipping lines waged a brutal price war for market share. "For the first time in many years, we actually saw a big container line go bankrupt... We saw US$14 billion (S$19.5 billion) of cargo stranded at sea and in ports. So it has really changed the agenda."

Mr Pedersen, who is also Maersk Group group representative for the Asia-Pacific and managing director of AP Moller Singapore, said another lesson was that governments "do not just automatically bail out companies that do not perform".

Companies have also learnt that to survive, they need to be able to offer a global product - a key rationale that drove the wave of consolidation in the industry last year. Maersk, the No.1 global line, is buying German carrier Hamburg Sud in a deal expected to be completed this year.

Speaking at a press briefing ahead of next month's Sea Asia trade conference, Mr Pedersen said that there is still room for consolidation. "We're talking about the top 20 companies becoming the top 12, so there are still a lot of players out there."

He believes this year will be better for the industry, coming from "a very difficult 2016" and given the improving supply-demand balance, with growth for global container volumes to come in between 2 per cent and 4 per cent, up from 1.8 per cent last year.

"But we're not out of the woods yet... A lot will depend on how the market is actually picking up and how capacity coming into the market is being managed."

Mr Murali Pany, managing partner at law firm Joseph Tan Jude Benny, who also spoke at the briefing, said firms should re-evaluate their business models in terms of risk management.

"When times were good, nobody ever thought about risk management. Everybody was just chasing the dollar," he said.

"There has to be a fundamental rethink of how business is going to be done in terms of managing the risk... It's a question about whether to take on the risk blindly, or taking it on in a measured way, where you're prepared for when things go wrong."

He added: "Rather than chasing every dollar, businesses should be chasing the good dollar. Don't just focus on volumes, focus on creating a more solid business."

Maritime and Port Authority of Singapore assistant chief executive for development Tan Beng Tee noted that even big names like Hanjin can fail. Firms must also keep an eye on the future, given the increasingly digitalised global landscape, she added.

Jacqueline Woo

A version of this article appeared in the print edition of The Straits Times on March 31, 2017, with the headline 'Lessons from Hanjin and how to move forward'. Subscribe