When we reported on the stunning collapse of South Korea's Hanjin Shipping, the country's largest shipping firm and the world's seventh-biggest container carrier, which earlier today was granted court receivership after losing the support of its banks, we speculated that "the global implications from the bankruptcy are unknown: if, as expected, the company's ships remain "frozen" and inaccessible for weeks if not months, the impact on global supply chains will be devastating, potentially resulting in a cascading waterfall effect, whose impact on global economies could be severe as a result of the worldwide logistics chaos."

We did not have long to wait for the aftershocks to emerge. As we first reported last night, just hours after the insolvency news hit the tape, three Hanjin ships promptly found themselves stranded off the California coast, stuck - together with the hundreds of tons of cargo - in legal and financial limbo.

That was just the beginning and as Reuters updates this morning, more Hanjin vessels have been seized at Chinese ports, "further roiling the industry as freight rates jump and manufacturers scramble for alternatives."

The Korea International Trade Association said on Thursday that about 10 Hanjin vessels in China have been either seized or were expected to seized by charterers, port authorities or other parties. That adds to one other ship seized in Singapore by a creditor earlier this week.

After Hanjin's banks decided to end financial support for the shipper, which immediately catalyzed its insolvency proceedings, many of its vessels have either been denied entry to ports or unable to dock as container lashing providers worry that they will not be paid. This includes the port of Busan, South Korea's largest.

Seeking to contain the fallout, a South Korean court said it would soon begin proceedings to rehabilitate the carrier - which would allow Hanjin to take legal action in other countries to keep its ships and other assets from being seized. So far it appears to have failed, as reports of "frozen", and stranded container carriers emerge by the hour. Furthermore the task is moot: the court's move to rehabilitate the world's seventh-largest container shipper is seen as mainly procedural, and an eventual liquidation of assets is most likely.

"Unlike dry cargo, liner shipping is all about marketing and service reliability - we haven't seen any large carriers come back from collapse," said Rahul Kapoor, a director at maritime consultancy Drewry Financial Research Services. "There is a loss of faith among customers. It's very unlikely Hanjin can come back from the ashes."

Realizing a major global trade vacuum has opened up, rivals such as Hyundai Merchant Marine announced they would deploy at least 13 of its ships to two routes exclusively serviced by Hanjin, while the South Korean government also plans to reach out to overseas carriers for help.

However, a lengthy period of time will pass before the Hanjin void is filled. In the meantime, freight rates routes where Hanjin operates have surged. The cost of shipping a 40-foot container on the Busan-Los Angeles route has jumped about 55 percent, from $1,100 to around $1,700, according to South Korea-based freight forwarder Pantos Logistics. Rates between South Korea and the U.S. east coast via Panama have risen about 50 percent to $2,400, it added.

The most direct impact of this price surge will be borne by South Korean exporters: state-run think tank Korea Maritime Institute estimated that shipping rates on Busan to U.S. routes would rise 27% and Busan to Europe routes would rise 47% in the near term, causing Korean exporters additional shipping costs of about 440.7 billion won per year.

For South Korea, where approximately 50% of GDP is in the form of net exports, the hit would be substantial.

Soaring transportation costs are just the start, as South Korean conglomerates are now scrambling to find alternatives. LG Electronics, the world's No.2 maker of TVs, told Reuters it was cancelling orders with Hanjin and was seeking alternatives to ship its freight. It is also making contingency plans for cargo already on board Hanjin ships in the event the vessels are seized.

But, the most troubling outcome is that, as we predicted yesterday, "the impact on global supply chains will be devastating, potentially resulting in a cascading waterfall effect." This is already manifesting itself in the quietly creeping chaos that has gripped the global logistics industry, as operators realize what has happened.

South Korea's maritime ministry said on Wednesday that Hanjin's woes would affect cargo exports for two or three months, with about 540,000 TEU of cargo already loaded on Hanjin vessels and facing delays. Unfortunately, in a "just in time" delivery world, 2-3 months of cargo delays will result in havoc, as countless tolling, and intermediary operations suddenly find themselves without critical components to engage in production, bottlenecking overall production indefinitely.

As expected, Reuters says the Korea International Freight Forwarders Association said it has been inundated with calls from cargo owners worried about the fate of their shipments in transit to the United States and Europe. Since many of the ships have been seized and are now in legal limbo, nobody can provide an update. And while mobile phones and semiconductors are carried by air, other electronics like home appliances are shipped by sea.

Finally, putting the bankruptcy in context, according to Alphaliner, Hanjin accounts for 7% of Far East-North America container trade, or, in dollar terms, hundreds of billions of dollars. According to its website, Hanjin served 60 routes in 35 countries, connecting more than 90 major ports and 6,000 destinations around the globe. The company's complete route atlas can be found here.



"This will have an impact on the entire industry," said Cho Kyung-kyu, a director at the Freight Forwarders association. Judging by the panicked response by cargo owners, the impact has already arrived, now the only questions are i) how to quantify it, and ii) how long until corporations and economists use the supply-chain logjam as a scapegoat to justify the "unexpected" swoon in Q3 economic and profitability metrics.