Learn from Hanjin to avoid supply chain risk

Why, if Hanjin Shipping’s collapse was anticipated far in advance, did it have such a profoundly negative impact on global supply chains and how can you protect yours in the future.

The effects of the 2016 Hanjin Shipping collapse are still reverberating and its impact will continue to shape global container shipping for years to come.

The immediate aftermath of Hanjin laid bare the fragility of many shippers global supply chains, underlining everyone’s biggest fear; uncontrollable risk.

While the collapse compelled lines and shippers to take a close look at the financial health of the industry, the massive losses that continue to be recorded threaten another collapse, which could shatter global supply chains.hanjin

Given the highly integrated and constantly shifting nature of global supply chains, it is extremely difficult for any shipper to fully insulate itself from the risk of another carrier collapse.

However, there are a few actions that could mitigate some of that risk.

Spread the risk
The easiest way to avoid uncontrollable risk from another carrier collapse is to do what MIQ Logistics have always done and spread your cargo across the alliances and carriers.

However, because of the new structure of the industry and its reliance on vessel/slot-sharing, this strategy is not without its limitations and requires careful planning.

It’s particularly difficult for bigger shippers to insulate themselves from a particular carrier because there are now fewer carrier choices and it is not always obvious on which alliance partner’s ship their cargo has been placed.

THE Alliance and 2M Alliance have instituted fail-safes in their vessel sharing agreements so that that should a member fail, cargo will be retrieved and delivered to its final destination as expeditiously as possible.

Stay informed
You don’t need to be a trained accountant or economist to track the financial well-being of your carriers and protect yourself.

Many forwarders, 3PLs and NVOCCs identified the accelerating risk surrounding Hanjin, leading many to stop booking with the line as its financial situation became more precarious.

Because so many of the top global container lines do not provide public updates of their financial performance and debt levels you will need an informal intelligence system.

Carriers missing payments to suppliers and service providers, renegotiating contracts with business partners, or charging higher rates for the same level of service may suggest financial struggles, but it unlikely such insights will become public knowledge before it is too late.

Set up google alerts, monitor our trade alerts and follow reliable news sources like The Loadstar to be forewarned.

It is important to note that while many container lines have financial support from their national governments, this should not be considered a guarantee against financial failure, as amply demonstrated by Hanjin.

Insure the risk
This strategy incurs additional cost that needs to be weighed against the opportunity cost of your supply chain failing.

If you have specific concerns about the financial state of your carrier, or the resilience of your supply chain, you may consider the additional premiums of extra insurance a worthwhile investment.

For low-value cargo it is unlikely to be worth it, but in some cases the additional of insurance might safeguard your financial well-being.

Marine insurance policies offer bare bones coverage for cargo that is routed to another port because of carrier insolvency, but this will be inadequate for stranded shipments if port service providers or authorities refuse to handle cargo on the carriers vessels

Specialist insurance advice is recommended as you will need to be very specific in the language used in insurance contracts to ensure they provide adequate coverage in the case of a carrier collapse.