What does Hanjin’s collapse mean for world shipping?

The world has just witnessed “by far the largest container shipping bankruptcy in history”, writes the JOC. But the collapse of the South Korean shipping line Hanjin, the world’s seventh-largest container carrier, should not come as a surprise.

The shipping industry is ripe for an overhaul. In the past quarter alone, 11 of the 12 shipping companies to publish results have announced heavy losses. Freight rates have been under pressure for some time, due to a combination of slow global trade and surge in capacity created by new cost-effective mega-ships.

So how can the industry find a route out of the crisis? While alliances between shipping companies have failed to reduce overcapacity, mergers might achieve this goal. Data-based systems, which improve interaction between ship and shore, offer cost reductions of up to 30%. But is it enough to significantly change market dynamics?

This chart shows the alliances created among shipping companies, and their share of worldwide capacity.

Image: Thomson Reuters

A lot is at stake: $14 billion in goods are currently marooned at sea on Hanjin ships. Container ships and bulk carriers are being denied access to ports and several vessels have been seized (or are likely to be seized) by charterers, port authorities and other parties. Around the world, Hanjin cargo ships are dropping anchor at sea to avoid losing more ships to creditors waiting on land.

South Korea’s maritime ministry expects cargo exports to be affected for another two or three months.

The collapse comes at a critical moment in the year, as retailers prepare for the holiday shopping season. The National Retail Federation in the United States fears a potential ripple effect throughout the global supply chain that could cause significant harm to both consumers and the US economy. British retailers, too, have voiced concerns about pre-Christmas supply.

Hanjin Shipping filed for bankruptcy protection on 31 August, after a long struggle to raise liquidity and restructure debt. Should shippers have seen it coming? In 2009, the container industry posted operating losses of close to $20 billion, but none of the shipping lines went under.

The shipping industry is a complex network of maritime alliances and relationships. Importers and exporters are currently finding their freight blocked on Hanjin ships – even though they booked with other lines. And Hanjin’s membership of the CKYHE alliance – which includes China COSCO, Yang Ming Marine Transport Corp and Evergreen Marine Corp Taiwan Ltd – has now been suspended. What this situation shows is that globalized trade requires new legal mechanisms to protect carriers, shippers and consumers.

What does this mean for global trade?

Short-term impact on the global supply chain will depend on the time needed to unload Hanjin ships. In the meantime, customers will have to seek alternatives while rolling out their contingency plans. Competitors will take on the additional cargo – but at a price. Hyundai Merchant Marine, for example, will deploy at least 13 of its ships to two routes once exclusively serviced by Hanjin, while the South Korean government plans to reach out to overseas carriers for help, writes Reuters.

Mid-term, the shipping industry might see healthy rates and revenues coming back. Prices have already surged upwards – by up to 50% for a 40-foot container from China to the US. The surge may be partly due to the forthcoming China National Day on 1 October, as well as the number of vessels made idle to reduce overcapacity. However, the Korea Maritime Institute has estimated that, in the near term, shipping rates will rise – by 27% between Busan and the US, and by 47% between Busan and Europe.

In light of these increasing risks and their impact on the global economy, there are two likely outcomes. First, the market and existing legal mechanisms will be left to clean up the failure. Alternatively, the South Korean government will find a way to support its struggling shipping industry.

For decades, South Korea’s shipping lines were engines of the nation’s export-driven economy. Their role going forward might depend on the assessment of their ability to significantly reduce costs and become competitive in the global market.

This blog was originally posted on the World Economic Forum Agenda.

From flying shuttles to rolling robots, automated supply chains are almost here

Emerging technologies prepare the ground for the autonomous world, including the unmanned supply chain with many benefits but also risks to be mitigated. The main challenge and responsibility for the leaders of today is to capture the benefits while finding meaningful activity for all of us.

From Amazon’s delivery drones to self-driving cars, autonomous factory equipment to Elon Musk’s 760 mph vacuum tubes – automated vehicles are on the rise.

Even beyond the grounds of private companies, tests of automated transport have been successful. A truck platooning system, in which groups of two or three “smart trucks” travel closely behind one another communicating wirelessly, arrived in Rotterdam in April. The Ministry of Transport in Singapore seeks proposals to develop something similar.

Also in Singapore, Airbus is pursuing an autonomous air taxi project to deliver parcels to ships in the port. On the water, the cargo ships of the future are expected to be crewless and remote-controlled.

The so-called “last mile”, delivery to the doorsteps of businesses and consumers, is probably the most complex task in the supply chain – especially in busy urban environments full of cars, bicycles and children playing in the streets. Intelligent self-driving vehicles can transport up to 100 pounds. In Paris, two entrepreneurs are building a flying river shuttle that will bypass traffic by travelling above the Seine.

Raw materials can now be extracted in automated mines; they then reach the smart factory 4.0 and are transported from there by wireless truck or delivery drone to the automated distribution centres of retailers or the smart boxes of individual consumers.

The point? The autonomous end-to-end supply chain is almost complete.

Automatic benefit

Automation in the world of logistics will create enormous opportunities when it comes to making the flow of goods safer, more efficient and more environmentally friendly. Self-driving cars alone would reduce accidents by 70%, improve fuel efficiency by 20%, and save about 1.2 billion hours of driving time over a period of 10 years. Less congestion will make the flow of goods and people faster – and those countries with driver shortages, such as the United States, United Kingdom and Germany, will find relief.

The improvements do not come without challenges, however. One key concern is cyber risk. We need to ensure that autonomous units cannot be hacked. Also ethical questions need to be answered – how to decide whom a vehicle is supposed to save in case of an accident, for example. Policy-makers also need to consider the impact on jobs: where to start, where to slow down the autonomous economy to avoid unwanted consequences, starting with unemployment.

The autonomous movement, which began in the early 1950s, is now in full swing. Of 1,433 consumers surveyed in the US, 70% think they will order the first drone-delivered package within the next five years. The majority of policy-makers (88%) expect autonomous vehicles to gradually become a reality within the next 10 years, based on a recent worldwide self-driving vehicle study by the World Economic Forum.

According to the same survey, 60% of policy-makers expect a ban on private cars in cities over the next 15 years. And this might not be limited to private vehicles: over time cities will further regulate goods deliveries, which are one of the main causes of daytime congestion. Therefore, not only transportation companies, but also shippers need to prepare for an autonomous future.

Capturing the full potential of the automated supply chain requires rethinking entire logistics systems. There will be an evolution from the fixed “collect in the evening and deliver during the morning” approach to a fluid system of continuous movement and supply. Platoons, drones, tunnels, tubes, rolling robots and automated warehouses make the constant flow possible.

But this requires flexibility and innovation on the operator level, as well as investments in technology and infrastructure. It requires close collaboration between not just manufacturers, retailers and developers, but policy-makers and the citizens themselves.

Image: REUTERS/Wolfgang Rattay

This blog was originally posted on the World Economic Forum Agenda.