Hanjin Time

Hanjin, a major Korean shipping company, has filed for bankruptcy. What a mess. There are ports that won't let the ships in because they fear they won't get paid. Hanjin also has the fear the creditors will seize their ships if they do go to port.

This is not a small company. Imagine what it's doing to global supply chains. The just-in-time system is a very tightly choreographed ballet of incoming and outgoing materials and goods. Imagine a company that needs a certain widget to complete its product. Now imagine that it's sitting on a boat somewhere with no hope of unloading any time soon. Disruptions will work their way though the economic system.

The global system is very efficient but that efficiency comes at the cost of fragility. It's cost effective to not have a huge warehouses full of widgets and only get them delivered when needed. That's great until your stuff is sitting on a ship that can't unload. Almost nobody has those huge warehouses full of stuff anymore as their competitors who reaped the advantages of just-in-time would have eaten their lunch. Now I bet there are companies out there would are wishing they had a bit more redundancy in their system.

Then there's the issue of the sailors stuck on the ships. Eventually they will run out of food and fuel. Somebody's going to have to do something or we'll have large derelict ships abandoned by their crews.

Shipping runs on very thin margins on the best of days. It's a fragile system. Now we get to see how the whole global economic system responds to a major shock. The global economy suffers from the fragility that comes from high efficiency.

Usually it's not one blow that triggers major economic depressions. However, there reaches a point where the system experiences one last insult that it cannot absorb. This shipping crisis probably isn't strong enough to bring the house of cards down on its own, but it is a major stressor. A banking crisis, catastrophic weather, political miscalculation, war -any additional factors could send things into a tailspin.

Should that happen we'd get to see how the system is restarted -if it can be. We may see global trade reduced for many years to come.

I hope someone figures out how to keep the coffee coming.

-Sixbears