One Month into the Ukraine Crisis... Companies Face the Test of Crisis Management (Comprehensive)

Samsung and LG Electronics Halt Shipments Due to Global Logistics Disruptions
Hyundai Motor Stops Production at Russian Plant
Refining Industry Faces Challenges Adjusting Operating Rates

[Image source=Yonhap News]

[Asia Economy Reporters Oh Hyung-gil, Kim Jin-ho, Choi Dae-yeol] Company A, which exports industrial PET products to Ukraine, recently had to forcibly unload five containers in Turkey due to the outbreak of war. Not only did Company A face disruptions in exporting products to Ukraine, but the shipping company also charged round-trip costs including reloading fees for the forcibly unloaded products in Turkey, resulting in additional demurrage and detention charges. The company suffered a critical blow to its business due to unpaid export payments and financial difficulties caused by logistics costs.

Company B, which exports automobile parts worth $100,000 annually to Russia, recently had $25,000 worth of orders canceled out of $75,000 in orders within the past month. The remaining $50,000 in orders may also be canceled, putting urgent pressure on parts production and securing funds.

As the Russia-Ukraine invasion reaches one month on the 24th, the scale of damage to the domestic industrial sector is rapidly increasing. The tightly blocked export routes have no foreseeable reopening date, and logistics difficulties combined with Western economic sanctions against Russia have dealt a direct blow to domestic export companies and local subsidiaries. There are concerns that if the already soaring international oil and raw material prices continue to rise, the resulting cost burdens and supply chain disruptions will spread damage across all industries in a domino effect.

According to the industry, Samsung Electronics and LG Electronics recently suspended all shipments to Russia. This is due to global shipping companies such as Germany’s Hapag-Lloyd, Denmark’s Maersk, and Switzerland’s MSC halting operations to Russia, citing participation in sanctions and decreased cargo volumes.

[Image source=Yonhap News]

As a result, both Samsung and LG Electronics are suffering setbacks in their local businesses in Ukraine and Russia. Samsung and LG Electronics, which have sales subsidiaries in Kyiv, the capital of Ukraine, have effectively halted their operations. The home appliance and TV factories operating in Russia are also expected to face inevitable shutdowns due to core parts supply issues if the situation prolongs.

Despite international calls for withdrawal from the region, both companies have yet to make a decisive move. An industry insider said, "Both companies have invested heavily in targeting the Russian market since the collapse of the Soviet Union," adding, "Having successfully established their presence, making a hasty decision to withdraw would be a significant burden."

[Image source=Yonhap News]

The automotive industry is also experiencing disruptions in business activities. Recently, supply shortages of Chinese parts have compounded the situation, leading Hyundai Motor and Kia to partially adjust operations on major vehicle assembly lines. Hyundai Motor’s Russian plant has stopped operations due to local logistics paralysis, and production disruptions at domestic plants have made overall volume adjustments unavoidable.

Shipbuilders are also concerned about delays in delivering vessels ordered from Russia. South Korea’s three major shipbuilders?Samsung Heavy Industries, Daewoo Shipbuilding & Marine Engineering, and Hyundai Heavy Industries?have collectively received orders worth about 8 trillion won from Russian shipowners for ships and offshore equipment. While they must build the ships before delivery according to contracts, there is a prevailing view that receiving final payments will become difficult as Russian payment systems are paralyzed.

The refining industry, which is directly affected by fluctuating international oil prices, is considering adjusting operating rates. With oil price increases expected to reduce demand for petroleum products, the worst-case scenario of production cuts is being contemplated. Operating rate adjustments are expected after May due to reduced imports starting in February.

The situation is even more severe for small and medium-sized enterprises (SMEs). According to a survey conducted by the Korea Federation of SMEs targeting 313 import-export SMEs, over 70.3% reported experiencing difficulties in export and import operations.

Among companies affected by the Russia-Ukraine crisis, 32.3% reported being ‘directly affected,’ while 67.7% said they were ‘indirectly affected.’ The most cited direct difficulties were logistics and transportation disruptions (64.8%), followed by payment suspensions or delays (50.7%), and export disruptions due to export controls (38.0%).

Since the Ukraine crisis, many companies have reported difficulties with payment settlements, logistics and supply chains, and lack of information. According to the Korea International Trade Association, from the 24th of last month to the 23rd of this month, a total of 436 companies submitted 558 urgent complaints. Payment issues accounted for 300 cases, followed by logistics and supply chain issues (188 cases), and information shortages (47 cases).

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