By Costas Paris and Erica Phillips – Wall Street Journal –

South Korea’s Hanjin Shipping Co., one of the world’s largest shipping lines, stopped taking new cargo and U.S. ports began turning away its ships after it filed for bankruptcy protection on Wednesday.

The move, coming at a critical time for U.S. retailers stocking up for the holidays, roiled global trade and caused U.S. shippers to brace for steep rate increases on routes to and from Asia.

Hanjin, a major container carrier and the world’s seventh-largest shipping line by capacity, moves manufactured products and consumer goods from electronics to clothing, furniture and toys destined for Inc. and other retailers. Asia-based freight brokers estimate about 25,000 containers are crossing the Pacific each day on Hanjin ships.

The repercussions of Hanjin’s filing in Seoul were nearly instantaneous. Three of its ships that were scheduled to berth at the ports of Los Angeles and Long Beach, Calif., drifted off the coast Wednesday, their contents—bound for retail shelves, factories and warehouses—marooned indefinitely. Uncertainty about Hanjin’s future raised concerns that its ships could be subject to seizure by creditors, clogging the ports.

Meanwhile, port terminals from New York to Georgia to California said they would turn away outbound containers destined for Hanjin ships, sending U.S. exporters scrambling to rebook, truck, reload and repack their cargo into other carriers’ containers.
Shippers and truckers fretted about rising costs and shrinking capacity.

“There’s going to be exorbitant costs,” said Peter Schneider, vice president of T.G.S. Transportation Inc. in California. “Everything is unraveling.” His company has about $6,000 to $7,000 in outstanding bills to Hanjin, which he will likely write off, but other trucking companies could be harder hit. Smaller companies that “had all their eggs in one basket with Hanjin—they may go under,” he said.

Nina Luu, a California-based importer of towels, bathrobes and other home textiles, said that as Hanjin’s financial troubles came to light, other ocean carriers have been announcing rate surcharges. “It is crazy today, pricing is pretty bad,” she said. But long term, she is more concerned about capacity.

The filing with the Seoul Central District Court came just a day after the company’screditors cut off a lifeline, as financial assistance of more than 1 trillion won ($896 million) failed to keep it afloat. It is the latest domino to fall as shipping companies world-wide grapple with overcapacity amid a slump in global trade. Hanjin accounts for 3.1% of global container capacity, according to maritime data provider Alphaliner.

The South Korean court will soon determine whether Hanjin, the country’s largest container operator by capacity, should be liquidated or given a chance to survive after restructuring, the company said.

Hanjin’s receivership, which is a form of creditor protection, comes as shipping companies world-wide have been hurt by years of weakening demand—particularly from China—as global trade has slowed. Some companies have been forced to sell vessels at a discount while a handful of smaller operators have gone bankrupt.

State-run Korea Development Bank, the company’s main creditor, on Tuesday withdrew its support, saying a funding plan by Hanjin’s parent group wasn’t sufficient to tackle the shipper’s debt, which stood at $5.5 billion at the end of June.

Hanjin—a unit of the conglomerate that controls  Korean Air Lines Co.—has faced an acute credit crunch after posting a loss each year from 2011 to 2014 amid depressed freight rates. It has been under a creditor-led debt restructuring program since May.

The Korean government said it wants Hanjin’s domestic rival,  Hyundai Merchant Marine Co., to buy healthy assets from the troubled company. It rejected the idea of a merger.

A Hyundai Merchant spokesman said the company would discuss the matter with the government and Korea Development Bank. The state-run bank is also Hyundai Merchant’s main creditor. Hyundai Merchant, the country’s second-largest shipping company, is on a recovery track under a creditor-led debt restructuring program.

Government officials said Hanjin’s receivership also could lead to the company’s exclusion from a global shipping alliance, reducing its chances of survival.

Hanjin is part of The Alliance, a six-member group that was formed in May to rival the dominance of global giants Maersk Line and Mediterranean Shipping Co. Hanjin said its relations with the alliance would end if the company ended up in bankruptcy.

Ports—including those in Shanghai and Xiamen in China; Valencia, Spain; and Savannah, Ga.—had blocked access to Hanjin ships because of concerns that they wouldn’t be able to pay fees, according to a Hanjin spokeswoman.

“Some foreign countries are out of Korea’s jurisdiction. So, creditors and ship owners in those countries try to seize ships and authorities deny access to their ports,” the spokeswoman said. “Hanjin has nothing to do to prevent them.”

Singapore port officials said the Hanjin Rome, a relatively small container vessel in regional service, was seized after a request by a creditor on Tuesday. Another, the Hanjin Sooho, a larger ship with capacity of more than 14,000 twenty-foot equivalent units, or TEUs, was stopped from entering the Port of Shanghai as creditors sought to have ports either deny entry or impound Hanjin-operated ships.

“I expect more ports in Europe the U.S. and Asia to do the same,” said one ship broker. “If you deny access you avoid having ships arrested inside ports when legal claims by creditors are filed. Idled ships take space and ports want to avoid this.”