The Worst May Be Yet to Come
By Paul Rosenberg, Senior Editor
The bankruptcy announcement of South Korean shipping giant Hanjin on Aug. 31 sent shockwaves around the world. Outside of South Korea itself, America’s West Coast ports and workers associated with them were among the most profoundly impacted.
Hanjin is the eighth largest shipping company, with just under 4 percent of global capacity — roughly 626,000 twenty-foot equivalent units in about 100 ships, at least 61 of which are chartered, not owned — but it accounts for eight percent of trans-Pacific shipping. The bankruptcy comes in the midst of the pre-Christmas shipping cycle, the most economically crucial time of the year.
In a sense, the bankruptcy was long overdue. The shipping industry has been plagued with enormous overcapacity even before the Great Recession. Industry losses this year are expected to top $5 billion, only industry leader Maersk showed a profit in the first quarter of this year. Hanjin lost $221 million, a third behind COSCO and Hyundai Merchant Marine, in just those first three months.
The bankruptcy has caused a sharp spike in prices. This could boost industry leader Maersk Line’s 2016 net profit by as much as $760 million, according to a note from industry analyst Lars Heindorff, reported in Transport Times. But he noted the spike was unlikely to last, so Maersk’s gain would probably be less than $200 million.
The vast majority of parties involved are facing losses and growing uncertainty, including tens of millions of consumers, but even more immediately tens of thousands of workers, including misclassified port truckers.
At a Sept. 4 press conference, several local Congress members urged U.S. Secretary of Commerce Penny Pritzker to intervene. Rep. Janice Hahn (D-San Pedro) said she would ask Pritzker “to step in and start discussions with Hanjin and South Korea to come to an agreement that guarantees our ports and our workers will be paid.”
Hahn, who founded the Congressional Port Caucus, was the lead signer of a letter sent to Pritzker the day after Labor Day,
“Just as federal help was necessary for talks between ILWU and [Pacific Maritime Association], we need strong federal leadership to reach a solution in this situation,” the caucus wrote. “This crisis may be complicated, but U.S. workers and their livelihood are at the middle of it.”
On Sept. 9, U.S. Bankruptcy Judge John Sherwood signed an order granting Hanjin provisional protection from creditors in the United States, thus allowing some vessels to dock and unload at West Coast ports. Before that, Hanjin had received authorization to spend at least $10 million from a South Korean court. This allowed the Hanjin Greece to dock and begin unloading at the Port of Long Beach on the morning of Sept. 10.
But serious problems remain both for supply-chain workers and for the entire global economy, as local labor leaders and organizers made clear in a Wilmington press conference as the unloading began.
“There’s been a tremendous impact, with this bankruptcy, on all of the workers in the supply chain,” said Barbara Maynard, a spokeswoman for Justice for Port Drivers. “[From] the crew on those ships to the tug boats and…the port pilots who guide these ships in and out of the harbor—they haven’t had to work… [to] the longshoremen who should have been working all week, unloading that cargo, to the truck drivers who actually take those cans off of the docks and move them to Inland Empire warehouses and distribution centers as well as to rail yards, to the warehouse workers who would have otherwise have been taking everything out of these goods.
“Looking forward, from what we hear, the problem is only going to get worse. So the time to fix this, the time to focus on the impact on the workers, is now,” Maynard said.
The Teamsters’ particular concern is for the drivers, the vast majority of whom are still misclassified as independent contractors, meaning they’re not eligible for unemployment. They are liable for fixed costs of $150 to $200 per day, even when forced to be idle. For workers like these, the system didn’t break when Hanjin went belly-up. The system has been broken for decades.
Maynard also read a statement from Janice Hahn, first taking note of the ongoing efforts by Commerce Department.
“This problem was not created by American ports or American workers and they should not bear this burden,” she read. “I continue to believe that Hanjin’s parent company as well as the Korean government should take responsibility and cover the costs.”
But the Hanjin bankruptcy is itself just a symptom of a much larger problem.
“There’s a 30 percent overcapacity in shipping, and it looks like this is not going to be the remedy,” said Patrick Kelly, secretary-treasurer of Teamsters Local 952. “Just knocking out 10 percent, there’s another 20 percent excess capacity. The rates have skyrocketed. So we don’t know where this is going to go, we don’t really have a real clue. All we know is it’s going and it’s not going anywhere good.
“If the [Trans-Pacific Partnership] goes through, we’re going to be faced with an undermining of U.S. sovereignty and we don’t know exactly what that will do in terms of judicial relief on issues like this. There’s a whole bunch of things that need to be clarified. Because, again, it’s globalization, and it’s not at all clear what rules are going to apply.”
There’s been enough legal and financial confusion already with the Hanjin bankruptcy, with rules that haven’t just been negotiated in secret. But the bigger problem is that elite faith in market rationalism actually helped to create this crisis in the first place — just as it helped to create the Great Recession.
While workers and small business have been caught off guard, the global problem has been growing for years. Shipping industry capacity roughly matched demand as recently as 2005. It began growing faster in 2006, and hasn’t slowed down, even after the recession saw demand plummet. Then, in 2010, industry leader Maersk, which carries one-sixth of the world’s cargo, decided to order a whole new set of massive container ships, able to carry 18,000 containers, expecting the fuel efficiency and other efficiency gains to further strengthen its position. Instead, other companies quickly followed suit, and began forming “alliances” to share cargo space and shipping costs in order to stay up with Maersk. The increased ship sizes have also forced major expenditures by ports and terminal operators as well — again, just to keep up.
The entire system lacks long-term sustainability, but everyone’s solely concerned with not being the first to go under. With Hanjin’s bankruptcy, the jig may be finally up.