"What’s the Use of Hard-to-Get Parts?"... Transport Routes Blocked and Payment Networks Cut Off

Russia Sanctions Block Land, Air, and Maritime Routes
Shipping Companies Concerned About Operations if SWIFT Sanctions Applied
Airlines Reroute Around Russian Airspace, Fuel Costs Increase

[Image source=Yonhap News]

[Asia Economy Reporter Yoo Hyun-seok] The woes of domestic companies facing disruptions in raw material supply chains due to Russia's invasion of Ukraine are deepening. With Western countries imposing economic sanctions and transportation difficulties compounding the situation, disruptions to local operations have become inevitable.

According to the shipping and aviation industries on the 3rd, MSC, the world's largest container shipping company, decided on the 1st to suspend reservations for cargo departing from or arriving in Russia. Other shipping companies such as Maersk, ranked second, Ocean Network Express, and Hapag-Lloyd have made similar decisions. Not only sea routes but air routes are also blocked. Russia has restricted flights of airlines from 36 countries in response to the flight bans imposed by European countries. The United States has also decided to ban Russian aircraft from flying in its airspace. Demand for the Trans-Siberian Railway (TSR), which was the main land transportation method before sanctions against Russia, has decreased, while demand for the Trans-China Railway (TCR) has increased, causing a surge in cargo volume and making logistics difficulties more apparent.

Domestic shipping and aviation companies are closely monitoring the situation. According to the Ministry of Oceans and Fisheries, Korean shipping companies such as HMM and Janggeum Shipping are calling at ports on the Russian Far East route. Minister of Oceans and Fisheries Moon Sung-hyuk said at a press briefing the day before, "If sanctions on the Society for Worldwide Interbank Financial Telecommunication (SWIFT) are imposed, it will be difficult for shipping companies to operate," adding, "We will continue to monitor the situation and respond by closely communicating with the industry to ensure that export and import logistics are not disrupted."

For Korean Air and Asiana Airlines, flights passing through Russian airspace are mainly cargo flights. Korean Air operates cargo flights to Europe via Moscow four times a week, and Asiana Airlines operates seven times a week. If Russian airspace is closed, flights will have to detour, increasing fuel costs. Recently, jet fuel prices have exceeded $120 per barrel, increasing fixed costs. An aviation industry official explained, "Cargo flights usually sign long-term contracts on an annual basis, but airlines bear the full cost of fuel," adding, "If the air routes are blocked, the burden will increase further."

Domestic companies that export to Russia, produce directly there, or import raw materials are also on high alert. Even if they secure raw materials and parts with difficulty, transportation to or from the local area is blocked, making transportation disruptions inevitable. Electronics companies hold a high market share in the Russian market. Samsung Electronics' smartphones have a 30% market share in Russia, ranking first. Samsung Electronics and LG Electronics also produce electronic products in the Moscow region of Russia. Hyundai Motor's Russian factory has temporarily suspended automobile production due to semiconductor supply shortages, but it is difficult to predict the future impact. Automobiles and parts account for more than 25% of Korea's exports to Russia.

The situation is similar for raw material imports. Korea mainly imports industrial rare gases such as neon, xenon, and krypton from Russia. Neon is mainly used in the photolithography process during semiconductor manufacturing, while krypton and xenon are mainly used in the etching process. Last year, the proportion of imports from Ukraine and Russia was 28% for neon (Ukraine 23%, Russia 5%), 48% for krypton (Ukraine 31%, Russia 17%), and 49% for xenon (Ukraine 18%, Russia 31%). The semiconductor industry is understood to have secured about three months' worth of inventory for neon, krypton, and xenon. However, if the Russia-Ukraine conflict prolongs, concerns about semiconductor production disruptions are expected to grow.

This content was produced with the assistance of AI translation services.