ED Lesson from supply crunch
Take long-term measures to secure key items
South Korea has barely avoided a looming logistics disruption amid a severe shortage of diesel exhaust fluid (DEF), also known as “urea water,” used to reduce emissions in diesel-powered vehicles. The government said Wednesday that it has secured a three-month stockpile of urea, the main constituent of DEF, by importing 200 tons from Vietnam and 18,700 tons from China. It also brough in 27,000 liters of the finished urea water product from Australia.
On Thursday, the Moon Jae-in administration announced a plan to cut tariffs and put emergency controls on the production and distribution of urea water to ease the ongoing supply shortage. It also decided to allow drivers of diesel trucks and passenger cars to buy up to 30 liters and 10 liters of DEF, respectively, at a time in order to prevent hoarding. These steps are necessary, but are not a final answer to address the problem once and for all.
Most of all, the government needs to take more comprehensive and fundamental measures to ensure a stable supply of DEF. The supply crunch erupted after China began to restrict exports of fertilizers and related materials, including urea, in mid-October. China has enforced the restriction as part of efforts to deal with a shortage of coal, a key source of urea, since it banned coal imports from Australia, a strong U.S. ally, apparently because of diplomatic rows over the origin of the COVID-19 pandemic and other issues.
Korea could suffer similar shortages of materials and products down the road unless it establishes more stable supply chains without relying too much on a single country. There are growing fears that Beijing may “weaponize” strategic materials and goods to force other countries such as South Korea, another strong American ally, to take sides with the Asian giant in its intensifying rivalry with the U.S.
That’s why the government and Korean businesses must reduce their heavy reliance on China. More than 80 percent of imports of 1,850 materials and products brought into Korea, comes from China. About 97 percent of urea imports are from China. We also depend on the neighboring country for 99 percent of our manganese imports and 90 percent of graphite imports. In fact, many Korean companies import different materials and parts from China to produce their key export items such as semiconductors and electric vehicle batteries. As such, another supply crunch can occur at any time unless Korea diversifies its import sources.
Yet it is still questionable if the country can prevent a recurrence. The Moon administration is under criticism for not forestalling the urea shortage. It has only shown its incompetence by failing to predict such a supply crunch and take prompt action. Its slow response to China’s export restriction on urea has added fuel to the fire, making truck drivers wait in long queues to buy a bottle of urea water. We should not forget a lesson from Japan’s 2019 export restrictions on key materials for Korean semiconductor and display firms in apparent retaliation for an unfavorable court ruling over the wartime forced labor issue.