No end in sight

Woolworths’ warnings,coming from one of the country’s most stable grocery retailers,are worrisome enough,but the situation is far more difficult for fashion and consumer goods retailers,many of which rely on international shipments to keep their stores stocked.

Former Myer chief executive Bernie Brookes,who now owns handbag seller Colette,is candid about current conditions. “I can’t remember seeing the disruption in supply chains as bad as it is at the moment,” he tellsThe Age andThe Sydney Morning Herald.

“It’s an unfortunate,imperfect storm.”

Brookes agrees that the post-Christmas period could be when the full extent of supply chain issues manifest for consumers,pointing to the February Chinese New Year celebrations as a looming crunch point.

“That shuts China down for a period of three weeks,so it’s going to take a long time to restart after Chinese New Year,” he says,“So while there’s plenty of stock for Christmas,post-Christmas there’s going to be a continued shortage of product for at least the first six to nine months.”

But closer to home there’s a more immediate crisis playing out. Sometime in the past fortnight,staff at truck stops across the eastern seaboard began sticking up paper signs:stocks of the diesel-exhaust fluid called AdBlue are running low,and customer purchases must now be limited.

“If you’d asked people two weeks ago what AdBlue was,nobody would have a clue,” says Innes Willox,chief executive of the Australian Industry Group. Indeed,on Tuesday’s calls,Banducci admitted he had to phone a colleague to ask what the obscure product was.

“Now everybody is talking about it,” Willox says. “Without it,our economy will really start grinding to a halt.”

Just about everything you see in supermarkets and other retail stores,at one point or another,has spent some time on a truck to get there. And for about half of Australia’s diesel trucks to be able to run,they need to be filled up with AdBlue,an additive used to remove pollution from diesel exhaust.

However,a global shortage and rising prices of urea - the key compound needed to make AdBlue - have prompted the world’s biggest urea supplier China to curb its exports to protect its domestic farming industry,which relies on it as an ingredient in fertilisers.

As a result,Australia is facing the threat of an AdBlue shortage within the next seven weeks.

“The supply of AdBlue is just as important as the supply of fuel,” says David Smith of the Australian Trucking Association. “We are already seeing suppliers restricting orders or raising prices.”

According to some in the industry,the price of AdBlue has surged four-fold already. Fuel suppliers including BP and Viva Energy,which runs Australia’s network of Shell petrol stations,say they are working with their AdBlue suppliers and monitoring stock levels closely.

Price hikes,but no shortages

For Australian consumers,a looming shortage shouldn’t be a cause for concern or panic-buying,stresses Edith Cowan University associate dean Flavio Romero Macau.

“The worst-case scenario - it’s not the most probable scenario - we go so low that we cannot replenish AdBlue for those truckies. And then what will happen is,depending on the location,you may see some shelves running empty,” he said.

But even then,it’s not like everything everywhere will disappear all at once. Rather,some items may be missing from shelves in certain regions from time to time,and Mr Macau cautioned that regional Australia might be more vulnerable than metropolitan cities.

Everybody in retail can swallow some of the costs,but not all of them.

Former Myer CEO Bernie Brookes

“It won’t be a synchronised event that will hit Australia at the same time … it will be like flashes of up-then-down shortages. The system should be able to work on that. So,it will not be the end of the world - even in the worst-case scenario.”

Australians will more likely experience the AdBlue shortage borne out as price hikes - though this is just one of several factors pushing costs up higher at the moment as Australia navigates a labour shortage.

Rising prices,in general,are almost inevitable in the current high-inflation,high-cost retail environment. While Banducci on Tuesday reinforced that Woolworths would absorb its higher costs,rather than passing them on to customers,if conditions continue to worsen companies will inevitably look to halt the erosion of their all-important profits.

“All retailers have got ambitious targets for profit,and the market encourages ambitious profits,” Brookes says. “And everybody in retail can swallow some of the costs,but not all of them.”

“Inevitably,we are going to see some inflationary pressures in the whole environment,and particularly in retail.”

Two years of instability

In a report published this month,economists and analysts at major investment bank Citi declared there would be a long and complicated road back to “normal” for the world’s supply chains,with no simple,single solution available to relieve the current stress on shipping. With a whole raft of caveats,the report tentatively suggests that it could be another 12 months,or longer,until things return to pre-pandemic levels of functionality.

“It was easy to say early in the pandemic that ‘demand is running ahead of supply’ and that it will ‘take time for supply to adjust.’ But what we are currently experiencing is qualitatively more severe,” the report reads.

“This episode underscored that the world is in an unpredictable and risky place,and the farther supply chains get from home,the more vulnerable they become to a range of foreseeable (and unforeseeable) shocks.”

Others see this problem sticking around for much longer than that. “It’s going to take three or four years for it to be untangled,” PwC chief executive Tom Seymour told theSydney Morning Herald andThe Age. “It’ll be diesel this week,it’ll be semiconductors next week.”

Similarly,Macau believes we’ll be in the thick of these problems for years. “This mess will not be over before mid-2024,” he says. “We should expect more instability for the next two years.”