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South Korean companies suffering losses due to economic sanctions against Russia

South Korean trading companies are suffering from economic sanctions on Russia due to its invasion of Ukraine.

Due to the US and European countries-led economic sanctions against Russia, lots of Korean exporting companies are facing difficulties such as payment delays or withdrawal from trading with Russia. There are also some cases that cargo ships heading Ukraine or Russia arrived in third countries. In addition, as global major shipping companies have announced to suspend shipments to Russia, shipment disruptions are also expected. As it could lead to production disruptions, Korean exporters are deeply concerned.

According to the Korea International Trade Association (KITA) on March 4, the number of problems reported to the Ukraine crisis task force is 302 cases for 8 days from February 24 to March 2. Today’s cases increased 48 cases (16 companies) from 254 cases on the previous day (188 companies).

The most frequently reported issue is export payment problems (170 cases, 56.2 per cent). It is followed by logistics (94 cases, 31.1 per cent), lack of information (25 cases, 8.3 per cent) and others (13 cases, 4.4 per cent).

Many of the Korean exporting companies did not receive export payments or expect the payments will be postponed.

A Korean cosmetic exporting company said it has not received export payments from Russian buyers. It also said that some Russian partners are refusing to receive shipped goods or pay fees due to the rise in the exchange rate of the Russian rubles. This company asked the task force to extend the repayment due dates of bank loans to stabilize and maintain its management affected by the Ukraine crisis.

In the case of another exporting company, its Russian buyer asked to stop trading and refund the down payment.

This is because the payment through banks has become difficult due to sanctions on Russian banks and the ruble’s collapse. As additional orders have been also cancelled, concerns have grown over the business in the future. Companies that have yet to receive export payments that were transferred before financial sanctions also continue to be reported.

In addition, as the international oil price has recently exceeded USD100 due to Ukraine’s geopolitical risks, the shipments and transportation fees are also expected to increase.

In this situation, some Russian local buyers are requiring issuing the ‘Surrender B/L (a legal document issued by the exporters to terminate their ownership over the sent goods) to Korean exporters. If Korean exporters issued the Surrender B/L, the importer can reduce inconveniences such as shipment delays and additional costs, but the risk increases for Korean exporters.

Another Korean exporter is reportedly having difficulties after shipping goods from its Vietnam plant due to the suspension of the Ho Chi Minh-Russia route. In this case, the company should unload goods in other countries or return the ship to Vietnam. This leads to losses in logistics costs of exporters.

In addition, the shipping industry announced its participation in international sanctions against Russia and suspended shipment reservations to Russia to minimize risks such as the capture of the ships in the Black Sea. The Korean shipping company HMM is also considering stopping shipments to Russia.

Korea is highly dependent on Russia in energy imports, including crude oil, and is importing some rare metals from Ukraine. Accordingly, concerns have grown over the supply disruptions and increase in import prices among Korean manufacturing companies. Hyundai’s St. Petersburg plant in Russia has suspended its operation from March 1 to 5 due to global supply chain disruptions and parts shortages.

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