The bankruptcy of the world’s seventh-largest shipping firm shows that just-in-time delivery in manufacturing, distribution, and retail works just fine…until it doesn’t.
Now, the sudden disappearance of Korean-based Hanjin Shipping Co. Ltd. Is about to show “that lack of resilience is the flip side of efficiency,” analyst Kurt Cobb writes on Resilience.org.
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“Retailers and manufacturers worldwide are in a bit of a panic as the fate of goods on Hanjin ships shifts into the hands of courts, and lawyers for creditors intent on seizing Hanjin assets in order to ensure payment of outstanding bills,” Cobb notes. “Much of Hanjin’s fleet is chartered, that is, owned by others, and those owners want to make sure they get paid their charter fees or get their ships back pronto.”
The net result is a shipping bottleneck that reverberates right through the extended supply chains that serve communities around the world, at just the moment when retailers are gearing up for the December holiday buying season. (The size, reach, and organization of those supply chains have also helped turn freight forwarding into one of the fastest-growing sources of greenhouse gas emissions.)
“Half of Hanjin’s container vessels are currently blocked from the world’s ports for fear that the ports will not be paid for their loading and unloading services,” Cobb explains. “Other shippers, which include trucking companies which carry containers to their final destination, are reluctant to take on Hanjin freight, for fear of not getting paid.” As availability plummets, shipping rates soar, and pre-holiday delivery schedules fall into question, “U.S. retailers are so panicked they have asked the U.S. Department of Commerce to step in to help resolve the breakdown.”
Cobb traces the problem back to the very concept of just-in-time delivery, and the stunning lack of resilience it produces. “Just-in-time is very efficient financially (until, of course, it isn’t),” he writes. “Little money is tied up in inventories or the space to warehouse them. But just-in-time is not very resilient.” With “little or no inventory of essential goods and raw materials, retailers and manufacturers are subject to disruptions all along their supply chains which reach around the globe. A breakdown at any step can quickly bring activity to a halt on the factory floor, or on the sales floor.”
