Hanjin: the Lehman Brothers of the shipping sector?

The shipping bubble has burst. Hanjin, the large South Korean shipping firm, went bankrupt, fueling thousands of newspaper headlines about the profound crisis of the shipping sector. How will this story unfold? Will Hanjin’s fall have the same impacts for the shipping sector as Lehman’s Brothers’ had for the financial sector?

At first sight, the comparison seems absurd. If only because the blatant greed, the massive intellectual energy deployed to make money covering up bad risks, and the pervasive inter-relation of finance with businesses world-wide is unmatched by any other industry.

Banking is not shipping; but the similarities are striking. Shipping, like banking, is indispensable: too big to fail. Without shipping, half of the world would starve, and the other half would freeze, as Rose George put it pointedly. So a life without shipping is as difficult to imagine as a life without banks. Both sectors are perverted by speculative logics, losing out of sight their public functions. Both sectors are prone to underestimate down-side risks. A ship is to a shipping firm what sub-prime real estate was to banks: a guarantee devoid of value if based on unrealistic assumptions. Banks should have known that poor people cannot afford expensive houses, just as shipping should have realised that manically ordering ships in times of sputtering trade does not make sense.

We all know what happened after Lehman Brothers. Other banks were saved by states afraid of global meltdown of the financial system. Various banks were nationalised, worthless assets were written off and new global regulation was put in place (Basel III) to limit future exposure to irresponsible risks.

Shipping could well follow the same path. More shipping firms will sink, but some will be saved by their respective governments. This has been done before and will be done again: shipping remains a strategic sector for many nations and this crisis will increase the government’s stake in it. Orders will be cancelled and even more ships will be scrapped in order to create some more balance between supply of ships and demand for shipping.

One of the most interesting open questions is if shipping will get its Basel III. What is often overlooked is that government policy has enhanced the volatility of shipping. Think of government support of the shipbuilding sector, intensified during the global economic crisis. Think of the way shipping is taxed differently than other sectors, that – unlike shipping – pay more in good times and less in bad times. Yet, shipping crises are often depicted as inevitable and determined by some sort of hidden hand. This shipping crisis provides a unique opportunity for governments to mitigate the impact of the next shipping crisis.