How Will Hanjin Shipping's Bankruptcy Impact Real Estate?

Fast Facts:

• Korea-based shipping giant Hanjin has filed for bankruptcy—the largest container carrier bankruptcy in history.
• CBRE managing director Joe Dunlap said the filing was driven by both company-specific issues as well as wider woes affecting the industry.
• Dunlap does not expect any immediate impact to industrial real estate.
• Retailers' imported goods could be at risk due to the bankruptcy. 

Mounting Uncertainty Complicates Hanjin's Rescue  

Hanjin filed for Chapter 15 bankruptcy protection in Newark, NJ, last Friday, a few days after it applied for similar safeguards from creditors in South Korea. The move marks a stunning fall for the ninth-largest container shipping company in the world, which moved an estimated 100 million tons of cargo per year, according to the Wall Street Journal.

Legal uncertainty over the company’s fate has reverberated across the world. Immediately following the filing, 45 ships were stranded at sea as ports and handlers refused to unload cargo from Hanjin vessels as they feared the bankrupt company would not be able to pay for their services.

The situation remains unresolved as the company has only secured $45M of the estimated $154.5M necessary to unload all of the stranded ships. Hanjin has said it would take more time for it to secure further financing.

Oversupply Led To Hanjin's Troubles

CBRE’s managing director of supply chain services, Joe Dunlap, told Bisnow the industry is coming to terms with an excess of supply. Shipping companies built more large vessels over the past 15 years, contributing to a glut and thereby lowering prices. The decline in container spot rates is likely the most immediate cause of Hanjin’s shrinking margins, he added.

Dunlap said some of the company’s ships are docking and unloading as stakeholders are preparing to orderly mitigate losses. There is an unlikely chance, he cautioned, that if rates continue to fall, other companies could be affected.

Impact On Industrial Real Estate Expected To Be Slight

Despite the dire news, Dunlap doesn’t expect any immediate impact on industrial real estate. “So far, we have not recommended any near-term changes in our clients’ industrial real estate portfolio,” he said.

While Hanjin's bankruptcy is only expected to cause temporary disruptions, he stressed the importance of being prepared in case of wider deterioration in the market. “A major shake-up in the ocean container industry will impact port traffic, supply chain costs and the need to mitigate inventory risks, all of which impact both occupiers and owners of industrial real estate," Dunlap said. 

Retailers Could Be Hurt

Hanjin's bankruptcy could reverberate across the economy and hit retailers that rely on importing goods from Asia. The Retail Industry Leader Association (RILA) wrote to the US government that stoppage or interruption in shipping before the critical Christmas shopping season could leave retailers in a precarious position. The letter urged the government to ensure orderly resolution of the situation.