Australia is going through another supply chain crisis. Inventories of AdBlue, an exhaust fluid used in new diesel cars and trucks to reduce pollution, are dwindling dangerously.
The culprit is a shortage of synthesized urea, an ingredient that local AdBlue makers import mainly from Russia and China. It has uses ranging from plywood to cosmetics and fertilizers. Strong demand, especially from farmers, has resulted in a global supply shortage.
In July, Chinese urea manufacturers began restricting exports in response to fluctuations in the local market. International prices have gone up by 50% between September and October, but this was not enough to stabilize supply and demand.
For Australia, the alarm bells rang last week when the Australian Trucking Association warned AdBlue stocks would run out in February. Some are more pessimistic, saying supplies will run out by Christmas.
What happens if Australia runs out of AdBlue
AdBlue helps new diesel vehicle models meet emission standards by removing harmful nitrogen oxides. If you have a diesel car with an AdBlue tank, your car’s engine is programmed not to start when you run out of it.
The good news is that a typical car can travel over 1,000 km in 1 liter of AdBlue. Cars generally have tanks of at least 10 liters. So, a tank should keep you safe for at least six months.
For trucks, it’s a different story. They generally cover more kilometers on the road and are less efficient, using around 1 liter of AdBlue every 70 kilometers.
However, around half of Australian trucks do not use AdBlue due to their age. The average age of the Australian truck fleet at 15, compared to 13 years for Europe and less than 10 years for Germany. In addition, emissions regulations in Australia are less stringent than in the European Union.
In the worst case scenario, where no solution is found and the AdBlue supply stops, we may have to rely on these older trucks. Newer trucks could be remapped to run while polluting much more. But this is technically difficult and will require temporary changes to Australian emission standards.
No one wants to go this route. This is why the the federal government has established a working group to solve the problem.
How to solve the AdBlue supply crisis
Most supply chain crises are based on coordination issues.
The production, transport and storage of AdBlue around the world are under pressure but not disrupted. Federal Energy Minister Angus Taylor said last Thursday that Australia had enough AdBlue to last at least five weeks and that en route shipments would cover another two weeks. And more is yet to come.
Seven weeks will put us well at the end of January. By then, we’ll be past Christmas, with fewer goods and fewer packages to move. This will relieve some logistics providers, who will be better able to expand their AdBlue stocks.
This should give the AdBlue working group more time to find solutions.
For example, it may recommend that the Australian Competition and Consumer Commission suspend its usual anti-collusion rules that prevent competitors from talking to each other to cooperate. It did so in 2020 with supermarkets, healthcare providers, banks and telecommunications companies to help them weather the onset of the COVID-19 storm.
Read more: Watch Who’s Talking: Australian Telecom Operators, Banks, Supermarkets Get Exemption from Cartel Laws
Another lesson to be learned from past supply crises – especially in supermarket sourcing – is the removal of the risk of a self-created crisis due to panic buying or stockpiling behavior.
Limits on sales may be necessary. If every transporter and diesel vehicle owner decides that the time is right to fill their AdBlue tanks, stocks will deteriorate sooner.
The task force will look for suppliers less affected by the Chinese ban and ways to better allocate the stock we have. All these actions taken together should be enough to soon overcome the AdBlue shortage cap.
Is there a larger supply chain issue?
Whether this crisis indicates a systemic problem that needs to be addressed depends on one’s perspective. It is a by-product of globalization, which expands supply chains but makes them more vulnerable.
Economies of scale generally (but not always) make it more efficient and cheaper to have a large factory in one location than many small factories around the world. The problem is when something happens to this plant.
While there has been talk of a more strategic approach to “relocation”, COVID-19 has not been a game-changer. the DHL Global Connectivity Index shows that globalization “has been much more resilient through the COVID-19 crisis than many predicted.”
Four Pillars of Global Connectivity, 2001 – 2020
A Productivity Commission Report published in August was relatively relaxed about the risks to Australia. He pointed out that only a few critical products were vulnerable, while noting Australia’s over-reliance on much-needed chemicals from overseas (not specifically mentioning urea or AdBlue).
Read more: Mid-COVID, our investigation reveals few vulnerabilities in Australian supply chains
The call for more manufacturing in Australia comes up against the stark truth that once the crisis is over and the cracks in supply chains are repaired, most of the time, local industry cannot compete with imports.
So the two morals of this story, like many others, are not to put all your eggs in one basket and set them aside for a rainy day. AdBlue included!