Hyacynth A. Olat Mr.

Michael Gibaga
BSBA-MA

Hanjin Shipping

I. Background of the Case

1.1. HISTORY
● In 1977, Hanjin Shipping Co., Ltd., a Korean global carrier, was established in
1977 by its family-run parent conglomerate, the Hanjin Group. In an industry that
requires significant investment and industry knowledge to compete successfully.
Hanjin Shipping surpasses expectations and proves to be an adaptable operation
when it is faced with a variety of political and economic challenges. Leading a fleet
of 123 vessels transporting containers, bulk cargo, liquefied natural gas, and oil,
Hanjin Shipping serves 70 ports in 35 nations. Since its inception, the company has
carefully weaved its way through influential industry conferences and powerful
strategic partnerships while maintaining an independent focus on corporate
priorities.
● For five years beginning in 1979, the Korean government provided its container
vessel operators, Hanjin Container Lines included, with annual grants supporting
their efforts. This assistance was critical as an international shipping recession
developed in the early 1980s.
● By 1985, Korean container vessels neared 2 percent of the total world fleet. In
1986, Hanjin Container Lines opened an exclusive container terminal in Seattle,
Washington. This facility was the first of what would eventually become a series of
ten dedicated terminals in strategic port locations around the world for the
company's fleet.
● While Hanjin Container Lines was not included in the government's initial
consolidation efforts, it did acquire Korea Shipping Corporation, which was suffering
from almost US$1 billion of debt in December 1988, to become Korea's largest
shipping company under the new name of Hanjin Shipping Co., Ltd. The company
began to compete based on service through its expanded operations, rather than
focusing mostly on price as it had done in the past. Hanjin Shipping's net profit for
1988 was W 1.5 billion Korean (US$18.3 million), a recovery from the previous
year's loss of W 800 billion.
● For 2001, Hanjin Shipping posted a W 230.4 billion operating profit, although after
taxes, charges, and exchange rates are considered, the company had a net loss of
W 78.3 billion.
● Cargo volume began to show signs of recovery along with the U.S. economy
during the spring of 2002. In May, the business media reported that the debt-
burdened Hanjin Group would break itself into four independent affiliate operations.
Hyacynth A. Olat Mr. Michael Gibaga
BSBA-MA

Hanjin Shipping responded to the speculation in June by explaining that the Hanjin
Group remained intact, although the company admitted that events over the next
year or two may result in the group's split as reported. Such a move would likely
affect shareholding arrangements of the group's affiliates without altering the
operations of Hanjin Shipping and its 123 vessels, as the company has run
independently of the Hanjin Group for years in its service of 70 ports in 35 countries.
● Although they are separate companies, Hanjin Heavy Industries and Construction,
the shipbuilding company, might have suffered reputational damage with the
bankruptcy of Hanjin Shipping Co. in 2017.
● A financial drama of decline and mismanagement/and corruption played out in
South Korea during 2016. Eventually in February 2017, the Korean courts declared
the company bankrupt and to be liquidated.

1.2. CASE BACKGROUND

● In the beginning of the 1990s, Hanjin ranked 12th in the world's container carrier
industry.
● In October 1990, Hanjin Shipping again exerted its independence by leaving the
TransPacific Westbound Rate Agreement. Hanjin Shipping's total fleet had grown to
25 container liners and 14 bulk vessels.
● While Hanjin Container Lines was not included in the government's initial
consolidation efforts, it did acquire Korea Shipping Corporation, which was suffering
from almost US$1 billion of debt in December 1988, to become Korea's largest
shipping company under the new name of Hanjin Shipping Co., Ltd. The company
began to compete based on service through its expanded operations, rather than
focusing mostly on price as it had done in the past. Hanjin Shipping's net profit for
1988 was W 1.5 billion Korean (US$18.3 million), a recovery from the previous
year's loss of W 800 billion.
● By September, the global shipping industry is already into what is its busiest time
of the year ahead of the Christmas season. • Other shipping lines were moving to
take over some of the Hanjin traffic but at a price, with vessels already are operating
at high capacity because of the season. The price of shipping a 40ft container from
China to the US jumped by up to 50% in a single day, said Nerijus Poskus, director
of pricing and procurement for Flexport. COLAPSE: • Hanjin’s collapse could also hit
the bottom line at several companies as it came during the peak shipping period
ahead of the year-end holiday season
● In 2008-2009, Financial Crisis, The container shipping industry lost $25 Billion as a
result of the Global Financial crisis. Hanjin lost $1.1 Billion in 2009.
Hyacynth A. Olat Mr. Michael Gibaga
BSBA-MA

● 2010, The Eurozone crisis prevented a rebound in trade between Asia-Europe

which was critical to Hanjin, representing 22.7% of the company’s revenue in fiscal
2010 before falling to 16.5% in fiscal 2015.
● In 2011, Hanjin slips into the red until 2015, Hanjin lost $487 million in 2011
erasing the progress from a profit of $229 million in 2010 that would have help to
offset losses of more than $1 billion in 2009. The company by 2016 will have
accrued more than $5 million in debt. Hanjin in 2015 posted a paltry profit of $6
million.
● Banks withdrew backing for Hanjin, saying a funding plan by its parent group was
inadequate to tackle debt that stood at 6.1 trillion won as of end-June.
● The company’s demise is largely due to overcapacity; wild growth in the number
and capacity of container ships has outstripped the amount of goods to be carried as
global trade has slowed. The industry as a whole will lose as much as $10 billion this
year.
● A weakened economy since the 2008 recession hurt global demand and trade at
the same time that steamship lines continued to build more and larger vessels. •
Immense ships that were conceived as cost-effective when freight costs were higher
several years ago.

II. POINT OF VIEW

● Cho Yang Ho, Hanjin Shipping’s CEO.

III. TIME FRAME

● The case happened in Year 2017
Hyacynth A. Olat Mr. Michael Gibaga
BSBA-MA

IV. STATEMENT OF THE PROBLEM

4.1. ROOT-CAUSE ANALYSIS

Hanjin Shipping posted a W 230.4 billion operating profit, although after taxes,
Year 2001 charges, and exchange rates are considered, the company had a net loss of
W 78.3 billion.

The business media reported that the debt-burdened Hanjin Group would
break itself into four independent affiliate operations. Hanjin Shipping
responded to the speculation in June by explaining that the Hanjin Group
remained intact, although the company admitted that events over the next
May 2002 year or two may result in the group's split as reported. Such a move would
likely affect shareholding arrangements of the group's affiliates without altering
the operations of Hanjin Shipping and its 123 vessels, as the company has run
independently of the Hanjin Group for years in its service of 70 ports in 35
countries.

During A financial drama of decline and mismanagement/and corruption played out in

2016 South Korea during 2016

Although they are separate companies, Hanjin Heavy Industries and

February Construction, the shipbuilding company, might have suffered reputational
2017 damage with the bankruptcy of Hanjin Shipping Co. in 2017. the Korean courts
declared the company bankrupt and to be liquidated.
MAJOR PROBLEM
● Over-diversification that led to mismanagement of Hajin Shipping’s Finances to
pay its increasing debts.
SUB-PROBLEMS
● Acquisition of corporations that is suffering from debt.
● Breaking of debt-burdened into independent affiliate operations.
● Hanjin’s bank decided to end financial support for the shippers.
V. STATEMENT OF OBJECTIVES
● To look for source of funds to finance the business and be able to pay its debts.
● To rebuild customer’s trust and be able to continue business operation.
● To make a sound decision in choosing and applying the solutions that will be soon
implemented in the Hanjin’s Company.
Hyacynth A. Olat Mr. Michael Gibaga
BSBA-MA

VI. AREAS OF CONSIDERATION

Strength Weaknesses
1. Surpassing expectations that the 1. Acquisition of corporations that is
business targets suffering from debt
2. Adaptable operation when faced with a 2. Over-diversification and Over Capacity
variety of political and economic
challenges
3. Can create powerful strategic
partnerships

Opportunities Threats
1. Optimize shipping routes and step up 1. Financial Crisis
expansion in emerging markets 2. Political & Economic Weakness
2. Expand customer base geographically 3. Bank Withdrawals
or through new services
3. Strategic alliances and joint ventures

VII. TOWS Analysis

External Opportunities External Threats

1. Optimize shipping 1. Financial Crisis
routes and step up 2. Political & Economic
expansion in emerging Weakness
markets 3. Bank Withdrawals

2. Expand customer base

geographically or through
new services
3. Strategic alliances and
joint ventures

Internal Strength S1 + O2 S1 + T2
1. Surpassing expectations S2 + O1 S2 + T1
that the business targets
S3 + O3 S3 + T3
2. Adaptable operation when
faced with a variety of political
and economic challenges
Hyacynth A. Olat Mr. Michael Gibaga
BSBA-MA

3. Can create powerful

strategic partnerships

Internal Weaknesses W1 + O3 W1 + T3
1. Acquisition of corporations W2 + O2 W2 + T2
that is suffering from debt
2. Over-diversification and
Over Capacity

Strengths and Opportunities (SO) – How can you use your strengths to take
advantage of the opportunities?
● Strength #1 Surpassing expectations that the business targets + Opportunities #2
Expand customer base geographically or through new services.
● Strength #2 Adaptable operation when faced with a variety of political and
economic challenges + Opportunities #1 Optimize shipping routes and step up
expansion in emerging markets
● Strength #3 Can create powerful strategic partnerships + Opportunities #3
Strategic alliances and joint ventures
Strengths and Threats (ST) – How can you take advantage of your strengths to
avoid real and potential threats?
● Strengths #1 Surpassing expectations that the business targets + Threats #2
Political & Economic Weakness
● Strengths #2 Adaptable operation when faced with a variety of political and
economic challenges + Threats #1 Financial Crisis
Weaknesses and Opportunities (WO) – How can you use your opportunities to
overcome the weaknesses you are experiencing?
● Weakness #1 Acquisition of corporations that is suffering from debt +
Opportunities #3 Strategic alliances and joint ventures
● Weakness #2 Over-diversification and Over Capacity + Opportunities #2 Expand
customer base geographically or through new services
Hyacynth A. Olat Mr. Michael Gibaga
BSBA-MA

Weaknesses and Threats (WT) – How can you minimize your weaknesses and
avoid threats?
● Weaknesses #1 Acquisition of corporations that is suffering from debt + Threats #3
Bank Withdrawals
● Weaknesses #2 Over-diversification and Over Capacity + Threats #2 Political &
Economic Weakness
VII. ALTERNATIVE COURSES OF ACTION
● ACA 1. Divestment in a way that Hanjin Shipping Co. Ltd should focus on their
stronger profit generating businesses and using the asset of their other businesses
that incurred debt already for a possibility of at least a return of investment
● ACA 2. Retrenchment as means of reducing Hanjin Shipping Co. Ltd’s operational
cost or spending on their businesses that incurred lost in order for them to possibly
generate income
● ACA 3. Liquidation is Hanjin Shipping Co. Ltd last resort as they would be needing
to sell their assets in order to pay off their debts and distribute it to their claimants.

Legend:

3 VERY GOOD

2 GOOD

1 POOR

ACA MATRIX

ACA 1 ACA 2 ACA 3

EASE OF
2 3 3
IMPLEMENTATION

TIMELINESS 3 1 1

EFFICIENCY 3 2 3

TOTAL 8 6 7
Hyacynth A. Olat Mr. Michael Gibaga
BSBA-MA

VIII. RECOMMENDATION
ACA 1:Divestment is the most effective strategy that Hanjin Shipping Co. Ltd might be
able to have a look in to doing. Considering that the company already have a variety of
business portfolios, the acquisition of some company’s that was left with debt might
already need to be returned back to the market or sold to the market in order for Hanjin
to focus on much stronger, income generating businesses that they originally focused
on. The strategy also makes way of minimizing more future risk for other company
losses, even operational costs for their weaker portfolios for maximum return for their
main business ventures.

IX. DETAILED ACTION PLAN