The founder of the largest formulator and distributor of AdBlue in Australia says price gouging is not a key factor behind soaring prices after the competition watchdog was asked to crack down on any suppliers of diesel exhaust fluid exploiting a shortage in refined urea.
DGL Group chief executive Simon Henry told The Australian on Tuesday the issue was that for the past 25 years, Australia had “become accustomed to a very reliable ‘just in time’ stock management system”.
“It broke,” he said. “We pushed it too hard and it snapped … Supply chain managers got very skilled at running their stocks very low, expecting materials to turn up from China … but it doesn’t anymore.”
Mr Henry said soaring prices were the product of plants in China and Japan going offline and congested shipping channels around the word, which had created a supply crisis placing enormous pressure on the Australian model. “We went into this crisis with significant stocks of urea and other materials running into the tens of millions of dollars. I’m constantly criticised by the investment community for running an old-fashioned balance sheet.
“We have enough urea for AdBlue to supply our historic customer base with the normal demand. What we can’t do is supply our competitors whose supplies have run out of material … We can’t collude.
“That’s where the problem has come about … the multitude of poorly capitalised traders importing urea from all over the world.
“I don’t think it’s price gouging. They didn’t run much stock and now they have run out.”
Mr Henry said the price of urea had gone up 300 per cent while shipping prices had increased by 500 per cent, but that the solution was for “consumers of AdBlue to partner with companies that are in it for the long game, have got the capital and are disciplined enough to do it correctly”. “Chasing the last cent to the bottom will end in tears eventually.”
The Australian revealed this week that Energy Minister Angus Taylor had called in the Australian Competition and Consumer Commission to monitor price gouging amid a shortage of the AdBlue diesel additive used in agriculture and mining equipment, trucks and other vehicles.
AdBlue helps diesel vehicles meet emissions standards. It is a mix of urea and distilled water, injected into exhaust systems.
ACCC chair Rod Sims said any AdBlue producers pushing up prices to exploit the national shortage could be found to be engaging in unconscionable conduct or “named and shamed”.
Those who did the wrong thing faced the prospect of being taken to court and hefty financial penalties as well as being named and shamed. Mr Sims urged anyone concerned about high AdBlue prices to contact the ACCC, saying there was a lot of competition between suppliers and an expectation for prices to rise.
Days before Christmas the Australian Trucking Association urged the government to take immediate action to guarantee supplies. ATA chair David Smith said the supply of AdBlue was “just as important as the supply of fuel”.
However, Mr Henry said the cost of AdBlue was only about “3 per cent of your diesel bill – it’s minuscule”. He argued that an increase in costs should not be the “make or break” issue for most companies. “If you run the correct tyre pressure on a truck, the fuel savings will be greater than the cost of AdBlue. I think the price … will rebalance and go back to historically normal prices probably in February, March and April.”
extracted from The Australian