The Hanjin Shipping bankruptcy in August of 2016 sent waves through the shipping industry after their primary creditor, Korean Development Bank, refused to restructure their loans. The bankruptcy (and subsequent liquidation) was seen as a way for the country to consolidate their shipping into a single firm, as KBD was also a financier to their rival, Hyundai Merchant Marine. Hanjin had been on a slippery slope since 2009, but no one expected for the world’s seventh-largest shipping fleet to fold the way it had: quickly, and with very little fanfare.

What Happened?

The cargo shipping industry had been suffering for years in the wake of the global financial crisis of 2008 and 2009, which resulted in a $15 billion loss for the industry overall (Hanjin Shipping took a  $1.1 billion hit in 2009). This contributed to rising debt, a plummeting of freight rates, and overcapacity across the sector as cargo ships tried to fit more containers on more ships. A guessing game eventually sprang up: Which shipping company would capsize first?

Hanjin Shipping’s declaration left $14 billion worth of cargo in limbo, including over 90 container ships, many of which were denied docking privileges. Lack of money kept goods and sailors marooned, for months in some cases, with some shippers doling out exorbitant fees to reclaim their cargo. While Hanjin took the biggest hit, remaining carriers lost a total of $5 billion that same year.

In spite of this collective loss, many sea cargo carriers watched the collapse of Hanjin with something akin to a sigh of relief.

What We Learned in the Aftermath

Ocean cargo carriers weren’t the only ones affected by the loss. Shippers had to grapple with the surprise of Hanjin’s collapse as well. As many as 540,000 containers were stalled.

Shippers who had not booked directly with Hanjin were shocked to discover that many of their containers were on Hanjin vessels through slot-sharing agreements (these agreements are between various container shipping lines that operate along specific routes using a specified number of vessels—space is shared among partners). Cargo container deliveries were stranded for months in some cases.

The collapse caused creditors $10.5 billion in losses, with many projected to receive only 2 cents for every dollar lost.

While Hanjin’s collapse dramatically reduced the overcapacity issue the industry was facing, Hanjin became a cautionary tale—for creditors to loosen their grip on failing carriers—while providing perspective for major players in the ocean cargo industry. Ocean carriers aren’t waiting the three years it is projected for the market to stabilize: Many are already working together to make sure the culling of Hanjin shipping is not repeated.

Coping Mechanisms for Sea Cargo Shipping

Importer-exporter companies are growing more discerning in their business practices by taking a fine-tooth comb to their carriers’ contracts. This has become an impetus for companies to rethink their contract language. If the overall financial health of a potential carrier does not meet the shipper’s standards, contracts will not be signed.

In response to this, sea cargo companies like THE Alliance have created emergency funds in the event of a partnership collapse. If one of their members folds financially, THE Alliance will be able to recover stranded cargo at no extra cost to their shippers. The details of THE Alliance’s particular emergency funds have not been made public.

In order to stave off overcapacity and maintain profitability, major ocean liners 2M Alliance, Ocean Alliance, and THE Alliance, all consolidated their shipping alliances from four to three. It lends to easier collaboration between big and small cargo companies, and more lanes between each. These companies found that combining their strengths provides a contingency plan that will protect shippers against the potential dangers a carrier bankruptcy could bring. They now represent more than seventy-five percent of all global container capacity.