Force majeures can be very costly in a downturn, as they enable competitors to gain market share, whilst the business suffers a loss of revenue and earnings. Yet maintenance spend on plant and equipment, and training, is always a soft target for cutbacks when cash is tight.
The blog also knows from its own experience of the 1980s and 1990s downturns, that continued deferral of required spending creates future problems. Thus it has become concerned by the increasing number of times that ‘force majeure’ is being mentioned in ICIS news reports.
The chart above summarises the global position on a monthly basis, from January 2008 to July 2010. It shows that mention of force majeures declined sharply as the Crisis hit in Q4 2008 (even though September/ October 2008 data reflected Hurricane Ike problems in the USA).
But mentions have recovered sharply in 2010. Is this a statistical anomaly? Or is it due to the impact of deferred spending in 2009? It is impossible to be sure. But the blog is very aware from its contacts in the insurance community that underwriters are increasingly concerned.
Equally, when talking last week to George Pilko of Pilko & Associates (global EHS advisers), it discovered that buyers are increasingly focusing on Operational Excellence issues, including maintenance spend, during due diligence processes in M&A.
Hopefully, H1′s better earnings will now encourage companies to reinstate any spending deferrals that have been made.