The bankruptcy of South Korea-based global carrier Hanjin has highlighted the potential risk that terminal operating companies, which are often set up as joint ventures between shipping counterparties or private equity firms, aren’t always remote from the financial status of their owners.
Take the example of Pier T at the Port of Long Beach, which is leased by a joint venture—dubbed Total Terminal International (TTI)—between Hanjin and Terminal Investment Limited (TIL), noted Rob Rowan, senior analyst with Fitch Ratings, in a new report. The port saw TTI’s structure as distinct from Hanjin and believed at the beginning that the shipping firm’s bankruptcy would not impact lease payments. But Hanjin’s ability to post its portion of the joint venture as collateral to obtain funding from Korean Air so that stranded cargo could be processed suggests “…that terminal [joint ventures] are not always remote from the financial situations of their owners,” Rowan said.
“While lease terms are often confidential, scrutiny of [joint venture] structures for lease and concession partners is warranted given ports' potential exposure to shipping counterparties, which are typically of lower credit quality than their port operator landlords in the U.S.,” he continued. “As mergers between some of the world's largest shippers increase and alliances morph to include different carriers with varying bases of operation, ports may be exposed to similar strategic shifts. Careful consideration of the costs and benefits of such concessions, as well as scrutiny of termination provisions, can provide protection as ports consider taking on these agreements.”
– Nicholas Stern, editorial associate