"Unpredictable Exhibition Situation, Companies Can Only Watch Anxiously (Comprehensive)"

Supply Chain Disruptions and Raw Material Price Surges
Companies Say "We Can't Even Think About Redrawing Management Strategies"

[Asia Economy Reporters Sunmi Park, Daeyeol Choi, Hyunseok Yoo] Our company A, which signed a parts supply contract with a Belarusian state-owned bus manufacturer, was proposed by the buyer to receive 70% of the payment in yuan remittance. However, due to the impossibility of yuan deposits from Belarus, the export payment was not received. Although there are additional parts to be supplied under the contract, the previously used sea route has been blocked, making further supply difficult. The buyer has notified that failure to supply parts will result in exclusion from future supply transactions, so air shipment is being considered, but the risk of non-payment and high logistics costs are increasing the burden, causing concern about whether to continue the transactions going forward.

Due to Russia's invasion of Ukraine, not only financial sanctions but also sharp rises in raw material prices, supply chain disruptions, and transportation issues have occurred simultaneously, making it inevitable for Korean companies to change their management strategies regarding Russia and the Commonwealth of Independent States (CIS) region. However, despite immediate business interruptions and setbacks, the prolonged duration of the Russia-Ukraine conflict remains uncertain, making it difficult to properly revise business plans.

According to the Korea International Trade Association and industry sources on the 7th, Samsung Electronics has stopped shipments to Russia as of the 3rd because global shipping companies refuse to enter Russian ports, blocking export routes. Shipments to Russia will only be possible once the port entry issue is resolved, but currently, finding alternatives is difficult.

LG Electronics, which has a home appliance production plant in Russia, is unable to ship parts to the factory due to the Russian port entry issue. For now, they are relying on parts inventory and seeking to establish a Plan B for smooth supply. Hyundai Motor Company has halted operations at its Russian plant due to logistics system paralysis and difficulties in parts procurement. Initially, the plant was planned to be shut down for about five days this month, but the suspension period was extended until the 9th, and the possibility of resuming operations remains uncertain.

Not only large corporations but also small and medium-sized export companies are suffering damages. As of the previous day, the emergency response team for the Ukraine situation operated by the association received 346 cases of difficulties from 256 domestic companies. The number of reported difficulties was only 27 on the 25th of last month but increased to 160 on the 1st of this month and surpassed 300 on the 3rd, currently approaching over 350. Issues related to payment due to financial sanctions accounted for the largest number at 193 cases, followed by 110 cases related to logistics and supply chain disruptions.

[Image source=Yonhap News]

The problem is that Korean companies have little they can do immediately other than closely monitoring the situation. In domestic circumstances, strategic adjustments can be made promptly when business disruptions occur, but in overseas exhibition situations where conditions can change rapidly and the ripple effects on global raw material supply chains and transportation disruptions are broad, revising management strategies is difficult.

An electronics industry official said, "If the war ends within a month or two, there is no need to revise the regional sales, operating profit, and budget plans set at the end of last year; we can just prepare countermeasures." He added, "However, if the situation prolongs, supply chain disruptions and logistics issues will worsen, making a complete revision of business plans inevitable. Currently, it is impossible to predict even the near future, so revising management strategies is not feasible." Another electronics industry official also said, "If we revise management strategies in an unpredictable future situation, bigger problems may arise. We have no choice but to watch the situation carefully."

Hyundai Motor Group is closely monitoring the situation as many industries are directly or indirectly intertwined among its major affiliates. Other affiliates such as Hyundai Steel and Glovis have become busy internally as their management plans can be significantly affected by external raw material supply conditions and oil price fluctuations.

The aviation and shipping industries also find it difficult to predict when routes to and from Russia will reopen. Currently, Korean Air has suspended passenger flights to Russia. Both Korean Air and Asiana Airlines have decided not to route cargo flights through Russia due to the suspension of aviation fuel supply.

Korean Air's weekly 'Incheon-Moscow' passenger flight route is scheduled to be canceled from the 10th to the 18th. Additionally, the 'Incheon-Moscow-Europe' cargo flight route, which operated four times weekly (twice per week each), will operate without stopping in Moscow until the 18th. Asiana Airlines will also operate its cargo flights, which run seven times weekly, directly to Europe without stopping in Moscow until the 20th.

HMM suspended reservations for the Saint Petersburg cargo service route to Russia from the 2nd. The company is also reviewing whether to suspend the other two routes to Vladivostok and Vostochny in Russia. An aviation industry official said, "We will carefully assess the local situation and cautiously decide on flight operations according to changing circumstances. If the war situation does not improve, the suspension may be extended, but it is still difficult to predict."

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