Shipping Rates Skyrocket After South Korean Company Declares Bankruptcy

As if fashion and footwear needed one more thing to worry about for the upcoming holiday season, the bankruptcy of Hanjin Shipping earlier this month has sent shock waves through the market.

Hanjin’s bankruptcy declaration last week has disrupted supply chains and sent brands scrambling ahead of the peak holiday shipping season, when warehouses stock up on goods for the busy fourth quarter. The firm is the seventh largest carrier globally.

Analysts are eyeing margins carefully and said that as other shipping giants step in, they’ll likely be gouging brands looking to move product.

“The amount of product specifically affected is very small. But that said, what is much more impactful is that spot rates are going up significantly in the near term,” said analyst Steve Marotta, who is with CL King & Associates. “The West Coast port issue of a year ago was much more serious. That bottleneck affected significantly more product from a consumer soft-goods standpoint than what was currently represented from ships at sea.”

But it doesn’t mean the situation isn’t coming at a bad time. Retailers and brands have already been walking a fine line in profits this year, fighting unfavorable weather trends and a tepid shopping environment. The increased cost is definitely a headache many were not prepared for, especially when warehouses are stocking up for the holiday season.

“Longer-term, the issue is that global trade is not growing as fast as shipping capacity has grown,” said Jeff Van Sinderen, an analyst with B. Riley & Co. “One less player — we think Hanjin will be liquidated — actually makes the environment slightly healthier, but there is still too much shipping capacity and that will likely mean that container rates revert back down closer to pre-Hanjin-bankruptcy levels.”

Most industry experts say they expect rates to normalize sometime in Q1 next year, but industry groups say that the Hanjin bankruptcy’s ripples are extending well beyond brands exposed to the shut down.

According to American Apparel and Footwear Association SVP Nate Herman, he’s heard other shippers are using the Hanjin situation to renegotiate contracts and demand additional fees.

“There’s concern that what happens when ships come to port and who unloads them and who will pay them to be unloaded — and then will the ships leave or be stuck in dock and prevent other ships from docking?” said Herman. “We’re hearing rumors that nothing will happen until the next bankruptcy hearing.”

Another frustration? Hanjin has been charging as much as $4,000 for brands to access their containers in port. While the Federal Maritime Commission has stopped that stateside, it’s expected the practice could continue in Asian ports.

Matt Priest, president of the Footwear Retailers and Distributors of America, said that besides the immediate concerns, the Hanjin bankruptcy underscores the need for brands to be smart in their sourcing strategy and to get active trying to get their product moving off the ships.

“We want members to apply pressure through the channels they can, because a lot of this is going to be case by case,” said Priest. “For some, this is their predominant carrier. I think there is a light at the end of the tunnel. It’s another reason why it’s important to diversify carriers so you don’t have too much exposure if this happens.”

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