The Hanjin Shipping Company bankruptcy is starting to have ripple effects for others in this transportation sector. Hanjin is in competition with dry bulk carriers such as Safe Bulkers, Inc. (SB), Diana Shipping Inc. (DSX), and Scorpio Bulkers Inc. (SALT) who all lease cargo containers like that of Hanjin. Those competitors along with container leasing firms like Textainer (TGH) are all going to see major business impacts from Hanjin’s collapse.

The shipping sector is likely to see both short-term disruption push prices higher, while in the longer term the fight for Hanjin’s previous customers could erode pricing discipline. For firms like Textainer that rely on strength in container pricing, the bankruptcy can only be interpreted as bad news. Even if Hanjin is ultimately restructured rather than liquidated, the uncertainty in the sector is going to hit container prices and demand hard.

On the basis of the Hanjin bankruptcy, Scorpio Bulkers Inc. has seen its stock soar 12 percent over the past month. Scorpio reported a financial loss for the second quarter with a drop of 48 cents per share, so any tailwind from Hanjin can’t come soon enough. The company is currently trading around $3.60 per share versus a one year ago the company’s shares were trading at prices near $20. Similarly, Safe Bulkers Inc. reported a second quarter loss which included net revenue decreasing by $9 million or 18 percent. Even traditional powerhouse Diana Shipping Inc. has recently faced falling share prices and has enlisted financial advisors to assist in negotiating loan and amortization payments.

The entire drybulk sector is largely a mess – Hanjin is simply the first domino to fall. Credit risk across most of the firms is high due to all of the refinancing work being done, and the uncertainty in the sector. Shipping requires long-term debt which is covered by relatively short-term leases – often a recipe for financial distress in times of market dislocation. If Hanjin is the first domino, it certainly won’t be the last. The industry is crucial to global trade and can’t be effectively financed without public equity, but like so many other capital intensive industries, capacity has gotten away from demand and ROIC has lagged for years now. Stocks in the sector today are at best an attractive trade rather than a good long-term investment. That will change eventually, but the industry has to be rebuilt from the ground up. Related: The Hidden Costs Of Obama's Cheap Gas

All of the most prominent container shipping companies’ negative reports and earnings are a reflection of the current transportation sector’s trouble. Global trade in the past few months has slowed dramatically, and Hanjin’s bankruptcy is a byproduct of that declining industry traffic. Investors should watch how competitors of Hanjin fare, but remain cautious about investing given market volatility.

The drybulk sector brings to mind two interesting parallels among other industries – airlines and offshore drilling. Like drybulk shipping, both airlines and offshore drilling are capital intensive industries highly dependent on capacity and rational pricing. Airlines famously made no money for investors for decades, but that started to change a few years ago thanks to consolidation in the industry and a slew of upstarts focused on costs and turning a profit. Airlines are the success story that drybulk investors should hope firms aspire to become. Offshore represents the other side of the coin – too much capacity and a vicious cycle of higher prices leading to overcapacity followed by an industry bust until capacity is right-sized and prices begin rising again.

Only time will tell which model the drybulk industry will follow, but investors should be monitoring it closely, with the Hanjin bankruptcy being a symptom of wider problems across the space.

By Michael McDonald of Oilprice.com

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