Force Majeure reports show worrying increase

FMs Jul10.pngForce 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.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. He also serves as a Global Expert for the World Economic Forum. The aim of this blog is to share ideas about the influences that may shape the chemical industry and the global economy over the next 12 – 18 months. It looks behind today’s headlines, to understand what may happen next in critical areas such as oil prices, China and Emerging Markets, currencies, autos, housing, economic growth and the environment. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

One Response to Force Majeure reports show worrying increase

  1. Ray Adams 3 August, 2010 at 6:34 pm #

    I have had my own theories on force majeures and capacity expansions, but I have never been able to track down true historical information. I would love to see the same chart for the past 10-20 years – it is difficult to validate this data. My theory for 2010 would be predicated more on market consolidation than on deferred spend.

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