AdBlue shortage highlights the need to protect Australia’s supply chain

Supply-chain challenges continue to plague Australia, most recently the global scarcity of AdBlue caused by a shortage of the chemical compound urea. It threatened Australia’s entire transport and logistics system.The decision by China to restrict exports of urea was made to protect the supply of fertilisers for their farmers and ensure food security for their people in the process. But why did this cause so much damage to our transport industry? And could the harm caused by China’s sudden restrictions reveal the need for change in our domestic production?

What is AdBlue and what caused the shortage?

While usually far from a common household name, AdBlue is an important part of the process when it comes to transporting goods from point A to point B. AdBlue is a trademark brand of urea-based diesel exhaust fluid (DEF) that acts as an anti-pollutant in modern diesel engines.Injected into the diesel engine exhaust system in liquid form, AdBlue is a mixture of urea and deionised water that converts nitrogen oxides into nitrogen and water, significantly reducing harmful emissions caused by the combustion process.Around a third of AdBlue is made from urea, a common fertiliser used in farming. The world is currently facing a shortage of urea, the key ingredient found not just AdBlue but most fertilisers, too. And it’s shortages like these that can threaten Australia’s entire logistics system.The price of urea has been rising consistently over the past year and reached an all-time high in 2021. China is one of the largest producers of urea, currently producing around 10% of the world’s urea, and around 80% of Australia’s supply of urea comes from Chinese producers.But China also uses urea for agriculture production purposes, and like the rest of the world, China is facing rising fertiliser costs. In recent months, demand for key crops including corn, soy and wheat has surged. Seeking to maximise their yields, farmers have used more fertiliser, which has increased demand for urea and pushed prices up.So, to keep a lid on the ever-rising prices in its domestic market, and to keep its farms supplied with fertiliser, China has tightened its grip on supply and halted exports to Australia. Because of this, it’s taking its toll on our transport sector — and many other sectors too.

What does an AdBlue shortage mean for Australian transporters and consumers?

While AdBlue is a pollution-reducing exhaust additive that doesn’t affect engine performance, many post-2010 vehicles will be forced into ‘limp’ mode if a fault is detected, effectively making them undrivable.Shortages of AdBlue not only impact the transport sector through increased costs can have flow-on impacts for food production, availability and cost, as well as air quality.Our agriculture sector is vulnerable too. Without the additive, activity on Australia's farms could be laid low. Much of the heavy machinery used by agriculture, such as harvesters and tractors, is also fuelled by diesel. What's more, urea is not only a key ingredient in AdBlue — it's just as important as a feedstock for fertilisers used in agriculture around the world.

Could the solution to our future supply-chain problems be closer to home?

On December 9, the Australian government announced the establishment of an AdBlue Taskforce to develop solutions to potential future supply constraints. This resulted in a rapid mobilisation of a fleet of 60 liquid tankers by UK-owned SCF Container Solutions to store and transport AdBlue supplies, while ASX-listed fertiliser manufacturer Incitec Pivot ramped up its production of AdBlue by around 800%, thus temporarily securing our local capabilities.McLardy McShane’s Director Mike McShane hopes that the solution to long-term supply issues is closer to home:“I think the AdBlue shortage reveals a broader issue that requires broader thinking. Clearly, our supply chains are vulnerable and overly dependent on those who can cut us off and cause mayhem in an instant. We don’t want history to repeat itself, so this could be a wake-up call to expand local production and put proactive business continuity plans in place.”Finding a solution for our vulnerable supply chains and domestic manufacturing capability will be complex, but the result could mean great benefits to Australia’s national resilience if done right. He continues:“It could be time to invest in our own small to medium manufacturers and to clear barriers to entry for domestic players. Moving forward, we should develop our own production capabilities and foster more local production. That way we’re not putting all our eggs in one basket and can spread our risk.”With whatever challenge we face next, we’re not guaranteed to be able to quickly or efficiently achieve a satisfactory result such as the AdBlue case study, so at McLardy McShane, we hope government and industry focus will be directed to long-term solutions as well as short-term outcomes.