The Hanjin Shipping Crisis and Chinese Manufacturing

China manufacturing can present more than its share of challenges for U.S. companies. In this environment ignorance is never bliss.  One current example is the turmoil caused in supply chains worldwide as a result of South Korea’s Hanjin Shipping Co. filing for bankruptcy protection.

The international connectivity of global supply chains demonstrates the interconnectedness of the system when a situation such as the Hanjin situation presents itself.  Hanjin is the seventh largest container shipper and is responsible for approximately eight percent of overseas shipping crossing the Pacific for U.S. ports. Add into the equation this is the time of year retailers are preparing for holiday sales and expecting those important holiday merchandise shipments. Hanjin’s ships carry a sizable quantity of the electronics, sporting goods, fashion items, and other goods retailers offer to consumers during the holidays.

Shipping Rate Increases

Shipping cost increases were another result of the Hanjin situation.  The cost of shipping from China to the U.S. skyrocketed as much as 50% in one day recently. While Hanjin was not considered solely to blame for these sharp increases – other elements such as Chinese holidays also factor in – Hanjin’s financial troubles are seen as the major cause.

In a statement issued by South Korea’s maritime ministry, the prediction was made that Hanjin’s problems would have an effect on cargo exports for up to three months. This period, from August through October, is an extremely busy time for deep-sea routes. Delayed merchandise and higher shipping costs could severely impact U.S. retailers’ profitability for the entire year. The impact of this shipping nightmare will be felt not only by large retailers such as Target and Walmart but also by small mom-and-pop stores that depend on Chinese manufacturing products for a large portion of their annual profits.

The U.S. Bankruptcy Court Intervenes

Hanjin ships have been waiting to unload at U.S. ports but tugboat pilots and dock workers were unwilling to work because they feared they would not be paid.  On September 9th a U.S. Bankruptcy Court granted Hanjin protection under Chapter 15 which grants foreign companies time to reorganize in their home countries by shielding them from lawsuits by creditors in the U.S. This ruling prevented Hanjin’s assets from being seized and somewhat alleviated the shipping bottleneck resulting from Hanjin’s unloaded ships.

Shipping Alternatives Sought by U.S. Companies

Many retailers are nervous as a result of this situation and are seeking alternate shipping for their goods. Nine vessels from unidentified shipping companies have been deployed as of this writing to take on cargo intended for Hanjin’s ships in an attempt to partially resolve further disruptions to the global supply chain. Some shippers may squeeze additional containers onto vessels already scheduled but will charge a premium for doing so. However, most in the industry believe these remedies will not solve many of the problems the Hanjin situation has caused.

Experience and Knowledge Pay Off

The Hanjin bankruptcy caught the industry by surprise.  Shipments were affected based upon where they were in the chain when the problem surfaced.  Unfortunately, nothing could be done with the containers already loaded onto Hanjin ships when the crisis erupted.  The current issue is how to work around the consequences created by the Hanjin situation to get containers to their destinations as quickly and economically as possible.

Rely on Experience

ITI Manufacturing is an experienced China manufacturing partner that has helped American businesses take advantage of Chinese manufacturing services since 1974. During their more than 40 years working with Asian suppliers, they have guided their American clients through Chinese holidays, shipping company troubles, bureaucratic regulations, pandemics, tsunamis, and west coast dock strikes.  When a problem presents itself ITI immediately takes action to mitigate the issue, alert their American clients, and stay on top of the situation until resolution.

Contact ITI Manufacturing to chat with an expert and learn more about how to manufacture in China the smart way.

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