Hanjin Shipping Collapse to Raise Freight Costs Ranging from Steaks to Furniture

ccording to federal agencies, shippers and retailers, consumers of a wide range of imported goods, from furniture and clothing to fresh fruit and frozen meat would have to pay more as the collapse of Hanjin Shipping will boost the cost to U.S. businesses.

Industry sources said that as retailers scramble to secure shipping ahead of the peak year-end holiday season, carriers have announced they will hike container freight rates by as much as 50 percent beginning next month with Hanjin’s future in doubt.

United Parcel Service Inc said it is working with customers in Asia to shift goods from Hanjin containers to other ocean freight operators or air freight services and is seeing a bump in demand for its freight services. The collapse of the seventh largest container carrier in the world resulted in about $14 billion worth of cargo getting stranded.

“Right now, there is much more (freight) demand than there is supply. People are scrambling to find a carrier with space,” said Peter Friedmann, executive director of the Agriculture Transportation Coalition shipping industry group.

“But the biggest challenge right now is for people with cargo on Hanjin ships,” he said.

To prevent perishable foods from spoiling and to avoid losing sales because goods are not available when customers want them, cargo shippers have been forced to pay thousands of dollars in fees to terminal owners and truckers.

As part of its freight services, Hanjin would normally pay the fees for port usage and container handling. It is unclear if shippers would recoup any added costs they pay out of pocket to retrieve their goods with the South Korean shipper in receivership.

As more shipping capacity comes on line, industry analysts expect the freight increases to be short-lived.

“The Hanjin ships are going to be off the market for the holiday seasons. It will take several months to sort through the legalities, but any rate increase will be temporary,” said David St. Amand, president of Navigistics Consulting.

As retailers shield customers from any more price rises in a hyper-competitive retail market, they are likely to take hits to their profit margins in the short term.

“We believe that (the Hanjin collapse) will likely increase our short to medium term ocean freight costs which will minimally impact product cost in all of our operating segments to varying degrees. However, inventory availability is good,” Paul Toms, CEO of Hooker Furniture, said on an earnings conference call.

The company does not expect a significant long-term impact on its business, said Joe Parsons, CFO for Michael Kors, at the Goldman Sachs retail conference. But “there is going to be some pricing pressure. At this point, we are continuing to evaluate it,” he said.

It expects gross margins to be pressured in the near term by the higher shipping prices and additional unloading fees, the American Apparel and Footwear Association said.

The U.S. Department of Agriculture said in a report that Hanjin’s collapse could impact trade between the United States and South Korea and could wreak havoc on port operations and shipping lines over the next two to three months.

The agency said that container freight charges could appreciate further after it more than doubled since May.

(Adapted from Reuters)


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