The ongoing Middle East conflict could lead to a ‘COVID 2.0’ price shock, with some suppliers already informing customers they will be forced to pass on rising costs, according to new reports.
With the vital Strait of Hormuz closed and transport bottlenecks taking effect, The Australian reports the cost of plastic materials – often used in the building and healthcare sectors – is expected to soar, with manufacturers warning that existing contracts may falter.
Impact International – an Australian manufacturer of food, cosmetic and pharmaceutical tubes – said it had no other option but to increase its prices by 15 percent as it struggles to absorb a 250 percent surge in sea freight charges.
The company typically imports resin from the Middle East, Thailand and Japan, which is used in the manufacturing process of its award-winning products. Australia generally imports over 90 percent of its plastic as either resins or finished packaging.
Speaking to The Australian, company director Aleks Lajovic said, “I’m calling it personally COVID 2.0.”
“When the pandemic started to reveal itself, the circumstances were almost the same. People were scared. People couldn’t get information, people couldn’t get pricing, people couldn’t get delivery confirmation. And people also couldn’t get an accurate shipping date,” he said.
“And this is exactly what we’re seeing play out in supply chains. Again, it’s really like the start of a pandemic.”
Another prominent manufacturer, Viva Energy – Australia’s only polypropylene supplier – is also reportedly increasing its costs from 1 April.
Elsewhere, Polypipe, which supplies Australians with polyethylene pipes and related products, will introduce a 24 percent diesel levy on all deliveries from 23 March.
Australia is also set to be hit by a shortage of helium – which is used to power MRI machines and other medical, research and manufacturing technology – due to a lack of supply from the Gulf nation, which produces about a third of the world’s helium.
Australia’s only helium plant, which was based in Darwin, permanently closed in 2023.
Professor Dongke Zhang, director of the University of Western Australia’s Centre for Energy, highlighted the vital role of helium in Australia.
“Hospitals, across the nation, literally all of them, use it to service MRI and other advanced diagnoses, and for running major research facilities in physics, in chemistry and, in my case, advanced energy technology,” he told The Guardian.
This was reflected by Simon Talbot, commercial executive of Natural Helium Tasmania, which was recently granted exploration licences and expects to be operating in 18 months’ time, according to The Guardian.
“Balloons are the crudest and rudest form of helium,” said Talbot. “It’s in literally every part of your day: when you pick up your phone, helium’s been used in your phone manufacturing.”
Amidst warnings that oil could top $US200 a barrel, Geelong-based D&D Worldwide Logistics said Australian businesses should prepare for a new wave of freight cost increases.
“Road transport operators have confirmed fuel levy increases, and more carriers across ocean and air freight are expected to follow as global diesel and jet fuel prices continue to spike – driven directly by the ongoing Middle East conflict,” advised the company in a statement.
“Brent crude oil has surged past US$114 per barrel – the highest level since 2022 – and Australian diesel prices have risen 50-60 cents per litre in just eight days.
“The speed of these increases is unprecedented. Both domestic transport operators and international carriers are now passing fuel cost increases through, and the flow-on effect is hitting every mode of freight: road, ocean and air.”
According to the international freight forwarding business, some road carriers have advised of a fuel levy increase of 30 percent, effective from 16 March, with further increases expected.
All major ocean freight carriers have also implemented war risk and emergency surcharges, with Maersk announcing an emergency freight increase of $1,800 per twenty-foot equivalent unit
(TEU).
Experts have warned that widespread fuel rationing could be on the horizon if the war in the Middle East – which has created the largest supply disruption in the history of the global oil market – is prolonged.
Professor Samantha Hepburn, who specialises in energy policy at the Deakin Law School, told the ABC that she is concerned about where global events are heading.
“I do see us getting to rationing, yes,” she said.
“Our short-term buffer will obviously not survive and we’re going to have to immediately switch to rationing.
“A short-term buffer is not a realistic solution for these types of conflicts. Given the huge impact that this has on consumers and the prospect of inflation increasing, and the Reserve Bank increasing interest rates, this is a major concern moving forward, and it needs to be properly addressed.”
