Supply Chain Disruptions: Evidence from the Bankruptcy of Hanjin Shipping

Abstract

Problem: How do supply chain disruptions in the form of unanticipated inventory delays affect firms' inventory holdings?
Methodology: I exploit the bankruptcy announcement of Hanjin Shipping in 2016 as an exogenous shock to the global flow of inventory. This announcement stranded \$14 billion of cargo in transit as ports refused to unload Hanjin vessels. As a result, cargo on Hanjin vessels were rendered inaccessible out in the open sea for an unknown length of time. I use a novel dataset featuring tens of millions of sea-based imports from U.S. Customs to identify the: (1) identity of impacted firms, (2) magnitude of experienced cargo delays, and (3) monetary value of delayed cargo. Using a matched difference-in-differences approach, I estimate the impact of this supply chain disruption on firms' inventory holdings.
Results: Impacted firms exhibit persistent increases to their inventory holdings, despite having similar pre-disruption inventory levels with their matched counterparts. Specifically, impacted firms increase inventory holdings by 4.6 percentage points on average, and the effect size increases monotonically with the realized length of delay, cargo value, and liquidity.
Relevance: I provide causal estimates from a single supply chain disruption, which may help practitioners and academics better understand and manage supply chain risk.
Managerial Implications: Supply chain disruptions can delay, degrade, and even destroy inventory. In addition, they can also inflict uncertainty to the flow of inventory, which can cause costly increases to firms' inventory holdings.

Keywords: Supply chain disruptions, Hanjin Shipping, sourcing strategies, inventory management