Crisis of the Global Supply Chain
Crisis of the Global Supply Chain
  • Sim Ye-eun
  • 승인 2021.12.22 22:39
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▲ A man secretly is donating diesel exhaust fluid to Songdo Fire Station in Incheon (source=Yonhap news) (Left)▲ Firefighters are showing Diesel exhaust fluids donated by citizens at the Gimhae Fire Station on October 7 (source=Kyunghyang news) (Right)
▲ A man secretly is donating diesel exhaust fluid to Songdo Fire Station in Incheon (source=Yonhap news) (Left)▲ Firefighters are showing Diesel exhaust fluids donated by citizens at the Gimhae Fire Station on October 7 (source=Kyunghyang news) (Right)


  On October 5, an impressive situation occurred when an anonymous man placed three bottles of Diesel exhaust fluid (DEF) at the entrance of the fire station in Songdo, Incheon. The chief officer of Songdo Fire station said, “I think those people are better heroes than us. So, I want to give them a cup of tea in the sense of thanks.” After this happened, there were a lot of cases where citizens donated DEF to the fire station. DEF is an item necessary to reduce fumes generated by diesel engine vehicles such as cargo trucks and fire engines. 


  The background for the sudden relay of donations in Korea is the shortage of DEF. Without the DEF, diesel vehicle drivers have to find the fluid because their car could not start without it, and this caused serious situations such as the engine suddenly stopping while driving. The world's largest producer and exporter of DEF is China, supplying 5 million tons of raw materials to the global market every year. Korea has relied on China for 97.6% of DEF imports. However, China restricted global exports of raw materials of DEF on October 15. This is why a serious situation occurred in which urea water was in short supply in Korea.


▲ Korean importation of industrial DEF in 2021 (source=Korea Customs Service)
▲ Korean importation of industrial DEF in 2021 (source=Korea Customs Service)


  The fundamental reason for restricting exports of DEF was the shortage of coal in China. The shortage of coal has caused massive power outages in households and factories in more than 20 provinces in China since October. According to Global Times in China, even factories that supply components to Apple, Tesla, and Ford suffered power shortages in southeastern China, and this threatened s global supply chain crisis due to power shortage in China, which is often called the “world’s factory.”


  The reason for insufficient coal in China is the diplomatic friction between China and Australia. China and Australia have maintained good relations through trade in raw materials such as coal and iron ore. However, in response to the recent escalation of trade disputes between the United States and China, China suspended imports of Australian coal in retaliation for Australia's decision to join the *‘Quad’ and *‘Aukus’. These international agreements give the impression to China that Australia is an aligned nation with the United States. Therefore, China's suspension of coal imports has led to a shortage of coal and electricity shortages in China. 


* Quadrilateral Security Dialogue (QUAD) is a strategic dialogue between the United States, India, Japan, and Australia that is maintained by talks between member countries.


* Aukus is a trilateral security pact between Australia, the United Kingdom, and the United States, announced on September 15, 2021 for the Indo-Pacific region.

   The second reason for the lack of coal in China is a declaration by Chinese President Xi Jinping that he would achieve zero carbon emissions by 2060. According to the declaration, the Chinese government had adopted eco-friendly policies calling for a reducing thermal power generation, which have aggravated the power shortage. In addition, China has set a goal of showing a clear sky at the Beijing Winter Olympics in February 2022. The Wall Street Journal reported, "Some local governments, which failed to meet the central government's energy consumption restriction target, are forcing industrial facilities to reduce electricity use." 


  In other words, diplomatic conflicts with Australia and the carbon policy of President Xi led to coal shortages and power shortages in China. This is not only a reason for the shortage of DEF in Korea but also a serious global issue that has led to the collapse of the global supply chain. If the intermediate supply chain collapses due to the power shortage in China, the damage will also spread to Korea. This is because the Korean industries import intermediate materials from China and manufactures finished products for export in Korea. Korean companies operating in China are also suffering from power shortages. 


▲	A factory in Donggwan Industrial Complex, a manufacturing base in Guangdong Province in southern China, was extinguished due to power shortages (source= Yonhap news)
▲ A factory in Donggwan Industrial Complex, a manufacturing base in Guangdong Province in southern China, was extinguished due to power shortages (source= Yonhap news)


  According to the Ministry of Foreign Affairs, the stainless-steel plant of POSCO failed to operate, causing production shortages of about 3,000 tons a day. Production lines of Korean companies, including the Orion plant, were temporarily suspended. In particular, power supply restrictions, not based on a prearranged plan, and random restrictions present major obstacles to the stable operation of production facilities. 


  Many Korean companies have visited development departments and governments in China to ask them to supply at least 50 percent of the electricity. However, an official at a diplomatic mission in China said, "Korean companies are facing difficulties and are contacting local authorities in many ways, but it is difficult to appeal to the Chinese authorities because not only Korean companies but also all Chinese companies are experiencing power supply problems." Therefore, domestic companies that have factories in China are facing a crisis of power shortages.


  There are concerns that if this economic crisis continues, people who have an occupation that entails driving trucks will find it hard to maintain their livelihood. Also, essential public-service activities could stand paralyzed. The scarcity of the DEF could negatively affect the normal operation of environmental cleaners, fire trucks, and even ambulances. In addition, China’s prolonged restrictions on exports of DEF could lead to soaring fertilizer prices. Most urea from overseas is used as the material of fertilizer. Therefore, this situation affects the price of fertilizer. In this case, the price burden will be shifted to farmers, and the price of food and agricultural materials will be expensive. In addition, the operation of trucks is expected to be difficult and the distribution of vegetables will be hampered. In other words, the logistics of vegetables have become more difficult, and consumer prices are likely to be affected.


  The Ministry of Industry said it plans to monitor global supply chain instability factors and do its best to resolve corporate difficulties. Also, the Ministry of Commerce, Industry, Trade and Energy(MOCIE) and the Ministry of Environment have come up with countermeasures to draw up measures for this crisis. According to the MOCIE, they are considering supplying industrial DEF for vehicles. However, some point out that industrial DEF have more impurities than vehicles, making it difficult to use them immediately. Also, others point out that the number of industrial DEF is not sufficient, so it is a just temporary measure. 


  People in Korea were able to learn that the lack of domestic DEF caused by China has a great impact on areas close to our lives, such as the domestic operation and delivery industry, and soaring raw material prices. The Korean government and companies need to come up with measures to respond quickly to changes in the global supply chain to prevent another shortage situation. CUK students who are one of the consumers in Korea who need to be interested in world affairs so that they can select appropriate consumption types according to international issues and characteristics of the Korean industry. Furthermore, these kinds of efforts by consumers could minimize the damage from price fluctuation and the shortage of inventory.


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