The fall of Hanjin Shipping, Korea's largest container line, has brought about a global cargo chaos.

With many of its vessels unable to dock or unload cargo at ports, owners of the stranded cargo are in a panic. Other Hanjin clients who planned to ship merchandise to the US or elsewhere for the Thanksgiving and Christmas shopping seasons are scrambling for alternatives. Global freight rates have soared.


But in this Hanjin Shipping crisis, cargo is not the only thing in peril.

Korea's drive to restructure industries and corporations and retool the economy in the face of slowing growth is being put to the test.

When the state-run Korea Development Bank announced last week that creditors were ending all support of the cash-strapped shipper, which handles a big chunk of Korea’s exports to the world, creditors and government officials said in unison that the key principle in corporate bailouts is that no taxpayers’ money should be wasted on ultimately unviable companies, allowing them to stay on life support a little longer.

If Hanjin has to fall, so be it. The government will guard against any fallout of its demise, officials said. Media proclaimed the end of the “too big to fail” myth in Korea.

The strength and tone of their language has changed drastically since Thursday when the beleaguered firm filed for court receivership and the fallout began to materialize.

As it turned out, Hanjin Shipping was not just big, but was too important to go under -- not like this at least -- for Korea, a small country in the Far East that is surrounded by sea on three sides and relies on global consumers for its continued economic prosperity. Nor was the government prepared to deal with the repercussions.

Hanjin's crisis had global roots and was long in the making, but the company and the government failed to react until it was too late.

The global ocean shipping industry woes -- a supply glut coincided with a sharp fall in demand, leading to record-low freight rates -- could bring down Hyundai Merchant Marine as well, Korea’s No. 2 container liner that ranks 15th globally. Unlike Hanjin, HMM still has creditors behind it, mainly thanks to its over 1 trillion won ($917 million) sale of a controlling stake in an affiliate company. But none are forecasting a turnaround for the firm, which has been in the red for the past five years. Without a well-advised government policy to support the ailing industry, Korea, despite being the world's No. 1 shipbuilding nation and sixth-largest exporter, will end up with no global shipping line of its own.

What unfolded in the Hanjin debacle this week also seriously dented public confidence in the government’s handling of corporate or industrial revamps.
Finance Minister Yoo Il-ho, who doubles as the deputy prime minister, came forward as a messenger for President Park Geun-hye, who has been attending the G20 meeting in China, saying Monday that the parent group’s chairman should spend his own money to resolve the cargo crisis.

On Tuesday morning, the government and the ruling Saenuri Party decided to provide 100 billion won in cheap, long-term loans to Hanjin Shipping on the condition it provides necessary collateral.

While keeping mum on the government’s suggestion, Hanjin Group announced Tuesday afternoon that it would inject 100 billion won into the ailing shipping unit. Of that amount, 40 billion won is envisioned to come from Chairman Cho Yang-ho’s own pockets.

The oddity of this chain of events arises from the fact that Hanjin Shipping is now under court receivership, with an overdue balance of at least 600 billion won. This means that money pledged by Hanjin or the government is unlikely to be recouped.

Furthermore, the envisioned 100 billion-won policy loan -- although Hanjin does not seem to be interested right now -- would have to come from none other than KDB, the very creditor who cut off the lifeline of Hanjin Shipping over the same amount of money.

In its last-ditch effort to win the continued support of creditors, Hanjin Group proposed to raise 500 billion won in total, which the KDB rejected because it was 100 billion won shy of the minimum the policy bank required for the shipper.

One might wonder, was this really about taxpayers’ money being spent in accordance with principles? Or did the government -- disguised as creditors -- have a tug of war with the controlling Cho family of Hanjin?

Whichever the case, the damage falls on Hanjin's clients -- many of them Korean manufacturers -- and their workers.

By Lee Sun-young (milaya@heraldcorp.com)