AdBlue shortage could halt Australia’s trucks by Christmas

Fears about Australia’s supply chain problems may finally be bearing fruit. Shortages of a fuel additive called AdBlue have sparked panic buying, threatening to bring trucks to a halt at one of the busiest times of year.

AdBlue is added to engines to reduce nitrous oxides, and is required for the operation of most diesel trucks. No trucks means no transportation of essential goods, which would have serious consequences for commerce and industry. There are fears supplies could even run out before Christmas.

The movement of goods has already been slow due to high demand during COVID-19, and compounding factors could create serious delays.

Why is there a shortage?

The shortage of AdBlue stems from China’s ban on exports of the chemical compound known as urea, a key component. But this is not just another geopolitical trade war — there are also domestic issues at play. Urea is also used in fertilisers, which have recently seen a price spike so China — from where 80% of Australia’s supply comes — has begun stockpiling it.

There could be serious consequences for Australia because most freight trucks require the additive. Trucks off the road could spark a chain reaction that delays movement of goods, resulting in higher prices for consumers.

What’s being done?

Australia has some reserves of the product but there are fears there won’t be enough. Energy Minister Angus Taylor assured businesses that shipments are en route, and that there’s enough to last five weeks. This would see trucking through until January and provide sufficient breathing room to get on top of the shortage.

Even if this is true and Australia dodges the bullet, the question remains: is Australia doing enough to strengthen its supply chains?

David Leaney, management consultant and lecturer at the ANU college of business and economics, says Australia’s supply chain issues were coming to a head.

“Sometimes there’s shortages of the product because production has been impacted by COVID-19, or other market-based impact, such as with AdBlue,” he said. “Sometimes it’s the logistics, such as when you can’t get the shipping containers themselves and you can’t move the stock you have.”

Leaney gave examples of shortages of niche medical supplies like asthma puffers and epipens, and Australia’s vulnerability to petrol shortages, despite some contingencies being in place.

Louise McGrath, head of policy at the Australian Industry Group, says the complexity of supply chains makes it difficult to predict where the next shortage will emerge, pointing to the Productivity Commission’s report on vulnerable supply chains earlier this year that didn’t identify urea as an issue.

“The commission dedicated great minds and many hours into investigating what are our most vulnerable supply chains, and they didn’t identify this,” she said.

What more could we do?

Leaney suggests that developing sovereign industrial capability priorities may be a way to ensure Australia has the “things we need to be self-reliant”. This would require major policy intervention to counteract the cheaper market options found overseas.

McGrath says most companies tackle supply chain issues by increasing their inventories. But this wasn’t always easy.

“We’re a small market and there needs to be a whole ecosystem around a product to make it worthwhile to produce,” she said.

News of the shortage creates more panic and exacerbates the initial problem.

“That’s the number one strategy for businesses, which means there’s further shortages,” McGrath said.

Like the panic buying that lead to shortages of toilet paper at the start of the pandemic, Leaney says the visibility of AdBlue, which is sold in shops such as Supercheap Auto, contributes to stockpiling.

“When people go to the store to pick something up and it’s not there, worries of a shortage end up causing a shortage, and a bit of human behaviour comes into it.”

This article was first published by Crikey.