LG Electronics cuts H1 costs by $1.6 billion on stable supply chain

LG Electronics Inc. has slashed raw material and transportation costs by 2.12 trillion won ($1.6 billion) in the first half thanks to a stable supply chain and lower global shipping prices.

The South Korean home appliance giant spent 20.66 trillion won on such costs in the first half, down 9.3% from 22.78 trillion won in the year-earlier period.

While its raw material costs fell 6.5% year on year to 19.32 trillion won, shipping costs declined 58% to 1.34 trillion won.

The company’s first-half sales revenue stood at 40.41 trillion won, little changed from the year-earlier period’s 40.43 trillion won.

LG’s cost cuts were led by its Home Appliance & Air Solution (H&A) division and the Home Entertainment (HE) division.

The two business divisions cut costs by 631.4 billion won and 951.7 billion won, respectively.

The H&A division, in charge of procuring plastics from LG Chem Ltd. and steel from POSCO, has benefited from decreasing prices of the two materials.

The HE division cut costs by securing liquid crystal displays (LCDs) for televisions at lower prices.

LOWER SHIPPING COSTS

LG primarily uses container ships for transporting products and raw materials.

The global shipping costs, which surged during the COVID-19 pandemic, have returned to pre-pandemic levels, contributing to LG’s lower costs.

The Shanghai Containerized Freight Index (SCFI), a global maritime freight rate indicator, stood at 953.6 at the end of June, down sharply from 4,216.13 at the end of June 2022.

LG has renegotiated its shipping contracts with container operators to cut costs since late last year.

As higher global shipping and raw material prices created financial strain across LG’s divisions, the company in October established a cost control tower, its so-called "war room," to contain unnecessary spending, company officials said.

Write to Ik-Hwan Kim at lovepen@hankyung.com

In-Soo Nam edited this article.