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What happens to alliances and their customers when a partner like Hanjin files?

What happens to alliances and their customers when a partner like Hanjin files?
As with the airline industry container shipping alliances and service agreements have proved a great way for lines to expand their geographic scope and offer a far greater frequency of calls. One question that not many beyond lawyers probably really thought too much about was: “What happens if one of the carriers goes belly up?”

With Hanjin Shipping filing for court receivership last week both the industry and shippers have quickly found out.

Hanjin was one of five member lines of CKYHE alliance, and also had five joint services with CMA CGM, no doubt some other smaller agreements. As result of the receivership filling an awful lot of cargo from other lines is suddenly stranded on vessels in various parts of the world.

Fellow CKYHE members K Line and Evergreen have already publicly distanced themselves from Hanjin saying they will not load boxes from the South Korean line on their vessels or load cargoes on Hanjin vessels – although the latter is hardly a realistic scenario at the moment. Its membership of the CKYHE alliance has also been suspended.

French line CMA CGM went further on 31 August terminating all its five joint services with Hanjin effectively. “Please be assured that we are actively monitoring the situation to address any issue that might occur and ensure flawless continuity of service,” CMA CGM said in an advisory to customers.

While certainly the line will not want any disruption to its customers - ensuring this is really the case is extremely difficult in practice.

Shippers and retailers are already expressing serious concerns about shipments stranded on Hanjin vessels stranded outside ports, or on the high seas around the world.

Holman Fenwick Willan partner Craig Neame said in a briefing note: “Serious disruption to supply chains is anticipated over the coming weeks as a result of delays and uncertainty caused by Hanjin’s position.”

That serious disruption includes its alliance and service partners, and their customers with cargo on Hanjin ships.

“Hanjin’s partners are likely to be concerned about recovery of freight and termination of their slot sharing arrangements, given the overlap between the governing law of the contracts and the rights of the receiver in the rehabilitation to cancel such contracts,” Neame said.

As is happening he noted partner lines would be looking bar Hanjin cargoes being loaded onto their vessels, and unload their own boxes from the Korean line’s vessels.

“Hanjin’s vessel partners may begin efforts to have containers re-delivered so that alternative shipment can be arranged. This could lead to complications arising between Hanjin’s partners and other interested parties, in particular other Hanjin creditors.

Indeed legal actions have already been taken by creditors looking to seize Hanjin vessels via ship arrests. The 1998-built Hanjin Rome was actually arrested in Singapore the day before the company filed for receivership.

Reuters reported that a judge in California ordered the arrest of the Hanjin Montivideo over $488,750 in unpaid bunker costs owed to World Fuel Services. Anyone who followed the OW Bunker bankruptcy will no this will not be the last such legal attempt to arrest assets.

Hanjin has been slow steaming its vessels or anchoring them just outside 12nm territorial limits as the consequence of possible vessel arrests that will make the whole process even more complex for other parties, including unloading cargoes on the vessels.

In some good news there are some solutions in sight in some cases. According to the Port of Prince Rupert agreement has been reached with terminal operator DP World and CN Rail had established a procedure for handling containers from the Hanjin Scarlet which has been sitting outside the port since 30 August. DP World will, however, require pre-payment for the handling of all Hanjin containers.

An agreement that once enabled lines to serve a lot more destinations from Korea than they could on their own is now set to become a very complex legal and logistical problem impacting not just the partner carrier but also their customers.