In 2015, 8.2 million TEUs (twenty-foot equivalent units, a standardized maritime industry measurement for counting cargo containers) passed through the Port of Los Angeles (Port of Los Angeles). Few people consider the economic impact when a trade supply chain this large is disrupted. However, cargo theft is a growing problem that can have major effects on local, national and even global economies.

The FBI defines cargo theft as, “the criminal taking of any cargo including, but not limited to, goods, chattels, money, or baggage that constitutes, in whole or in part, a commercial shipment of freight moving in commerce.” (FBI) Cargo theft can happen at any point on a supply chain from origin to final destination. This can manifest itself in a variety of ways such as stealing containers from a warehouse, hijacking a truck or even attacking a container ship at sea as Somalian pirates have done.

Cargo theft has both direct and indirect economic effects. In 2014, 29 U.S. states reported 547 incidents of cargo theft to law enforcement with losses from the stolen goods totaling $32.5 million. (FBI) However, losses go far deeper than the goods stolen. Manufacturers who have goods stolen lose customers to competitors as they cannot keep up with demand, potentially long-term due to lack of trust. Owners of the affected part of the supply chain also risk losing business. Insurance premiums also rise after cargo theft incidents, forcing companies to either spend more on security or run the risk of paying high insurance.

Brazil’s recession has led to an increase in cargo theft, as organized criminals capitalize on a weakened police force and residents who cannot afford mainstream goods in the face of 11% unemployment and 8% inflation (Bloomberg). Brazil’s mountainous regions, such as Rio de Janerio, are being hit particularly hard as trucks are more susceptible to theft in such unprotected areas. In June 2016, a truck 25 miles outside of Rio carrying $440,000 in goods was swarmed by a rifle-toting gang and forced to drive to a local favela (Bloomberg). The goods were unloaded onto another truck and sold to locals at much lower costs than conventional retailers. According to Brazilian police, the state of Rio alone is on track for more than 8000 cargo thefts this year that could total anywhere from $100 million to $1 billion, depending on estimates (Bloomberg). These are significant losses, especially in a struggling economy.

Cargo theft is a difficult issue to deal with because goods can pass through many different countries with different regulations and law enforcement capabilities. For example, a container originating in the United States can be stolen with less effort in Brazil. This could potentially deter manufacturers from selling their goods in Brazil. Companies and supply chain managers should take initiative and invest in security measures. This takes away responsibility from federal governments, who may not have the resources or willingness to fight cargo theft.

Sources:

https://www.portoflosangeles.org/maritime/stats.asp

https://ucr.fbi.gov/cargo-theft-user-manual

http://www.bloomberg.com/news/articles/2016-10-28/rio-s-drug-gangs-squeezed-by-recession-go-on-hijacking-spree

https://www.fbi.gov/news/stories/statistics-on-2014-cargo-thefts-released

Trade: the transfer of ownership of goods and/or services from one entity to another.

A slow-down in trade seems improbable at a time when the United States seems to rely more and more each year on cheaper Asian and European manufacturing processes; however, this is no longer the case.

What happened?

Back in late-August/early-September, the Hanjin Shipping Company filed for bankruptcy in South Korea, forcing many of their ships to be stuck at sea. To show how much damage this filing can make, Hanjin Shipping Company is one of the world’s top ten largest shipping container carriers in respect to capacity. The company transports over 100 million tons of cargo every year across the globe.

In order to show the extent to which Hanjin’s influence on world trade exists, the total value of the United States’ imports and exports fell by more than $200 billion last year. According to Binyamin Appelbaum’s article in The New York Times, this marks “the first time since World War II that trade with other nations had declined during a period of economic growth.”

Interestingly enough, Hanjin filed for bankruptcy in the U.S.’s bankruptcy court in Newark, New Jersey. By doing so, Hanjin would be allowed to dock its boats, without any cargo and equipment being taken as collateral by creditors.

Other Impacts on World Trade

The downfall of China in the ranks of world trade has created an incredible loss in supply of goods coming overseas. As opposed to the 1990s when seemingly everything that was bought said, “Made in China”, today there is a decrease of 25% of these goods. China has begun to produce more of what its people consume, and they are consuming more of what they make. This has forced a shrinkage in the number of exports they are shelling out and the number of imports they are bringing in. With smaller trade volume in and out of China, the entire world will feel the lingering effects.

What Hanjin Means to South Korea

Most recently, as reflected by Hanjin Shipping Company’s stock price, South Korea’s government has created an industry rescue plan. As a result, the stock closed up 24.8% from the end of the weekend. This is all speculation and reports that ever since the company’s financial collapse in late August, Seoul, the nation’s capital, has tried to get the shipping company back on track at an earlier time than expected. Also on October 31, 2016, Hanjin received five bids for its United States-Asia business. The shipping industry is so important to South Korea that the government’s goal is to create a state-backed ship financing company, that will help to improve the health of the current situation. There is a need for shipping in and out of Asia, and South Korea sees a promising future as long as there are new vessels, upgraded machinery, and intelligent executives at the helm of these firms.

The Shipping Industry and the Market

As of December 30, 2015, Hanjin has
amassed a 73.95% loss in its shares, compared to the industry’s loss of 19.23% year-to-date (YTD). Hanjin was responsible for seven percent market share on the Asia-U.S. trade in the first six months of 2016. Although a 7% market share may not seem like a lot, trade between the United States and Asian continent has exported $286 Billion and imported $641.4 Billion.

With hopes to turn things around, we should see a buyout of some of Hanjin’s shipping duties and equipment within the next couple of months.

 

Sources:

http://www.nytimes.com/2016/10/31/upshot/a-little-noticed-fact-about-trade-its-no-longer-rising.html

https://www.census.gov/foreign-trade/balance/c0016.htm

http://asia.nikkei.com/Business/Companies/Hanjin-Shipping-stock-soars-on-Seoul-s-industry-rescue-plan

http://www.reuters.com/article/us-hanjin-shipping-debt-idUSKBN12U0Z9?il=0