Samsung, LG fret over shipping lines’ delivery halt to Russia

Samsung Electronics Co. and LG Electronics Inc., South Korea’s two major exporters, are jittery about global shipping lines’ decision to suspend most of their deliveries to Russia as the West ramps up sanctions over the Ukraine war.

Samsung and LG, which operate TV and other home appliances factories in Russia, have said they have enough inventory of raw materials and components in Russia for the production of their products there.

But industry watchers say the Korean companies could face disruptions to their Russian plant operations if global shipping companies’ delivery halts are protracted.

The world’s three biggest shipping lines – Danish shipping giant Maersk, Switzerland-based MSC and France’s CMA CGM – announced on Tuesday that they are suspending non-essential deliveries to Russia, joining a growing list of companies shunning Moscow amid Western sanctions over its invasion of Ukraine.

Maersk said in a statement that “bookings to and from Russia will be temporarily suspended, with exception of foodstuffs, medical and humanitarian supplies.”

Russia is the world’s eleventh-largest economy and supplier of one-sixth of all commodities and the moves by Maersk and other shipping companies mean that Moscow is effectively cut off from a large chunk of the globe’s shipping capacity.

Samsung, the world’s largest TV maker, runs a TV manufacturing facility in Kaluga, a city in western Russia, while LG operates a TV and home electronics plant in Ruza, a town on the outskirts of Moscow.

In a worst-case scenario, the Korean companies may have to divert their home appliance productions from Russia to their global bases in other regions.

SEEKING EXEMPTIONS FROM FDPR

Korean companies are particularly concerned about the possible inclusion of their key products to the list of export bans to Russia.

Last week, the US announced sweeping export controls against Russia, requiring companies that use US technology in their products to obtain prior approval from Washington before shipping to Russia.

One such measure called the Foreign Direct Product Rule (FDPR) aims to block Russia's access to global high-tech products, including communication equipment.

While the European Union, Japan, the UK, Canada, New Zealand and a dozen other countries, which already announced their own sanctions against Russia, are not subject to the FDPR regulation, Korea is still seeking exemptions from the US.

Industry officials said Samsung and SK Hynix Inc. – the world’s two largest memory chipmakers – may be banned from exporting their advanced chips to Russia if the FDPR is applied.

A growing number of global companies, including Apple and Taiwan’s TSMC, the world’s largest chip foundry player, have declared the suspension of their product sales to Russia to join the US-led sanctions against the country.

Korea’s commerce ministry said on Thursday it is in talks with its US counterpart and that Korean-made cars, smartphones and washing machines could be excluded from the FDPR since those products are not intended for military use.

Samsung is a leading player in Russia’s mobile phone and home appliance markets. As of the end of October 2021, Samsung ranked first in the Russian smartphone market with a 34.5% share, more than double that of Apple, according to industry data.

Write to Su-Bin Lee at lsb@hankyung.com
In-Soo Nam edited this article.