Predicting Risk: The Philadelphia Energy Solutions Bankruptcy

No one likes a spoiler—but sometimes it makes sense to start at the end of the story. Here’s the end of this story: On July 22, Philadelphia Energy Solutions, a company that owns and operates crude oil refineries in the Philadelphia, PA, area, suddenly went bankrupt.

But was it sudden?

Actually, no. Companies that relied on Philadelphia Energy’s oil were left scrambling, but they didn’t need to be. Because just 30 days earlier, the bankruptcy should have been on everyone’s radars. So what happened 30 days earlier, on June 21, that hinted at the eventual outcome? At 4am, alarm bells rang: The biggest oil refinery in the northeast had suffered a massive explosion and resulting fire. The blast could be felt up to 40 miles away, and the fireball could be seen from space. The incident was caught on video and also shared via social media from witnesses across the region. (You can watch the video here on YouTube.)

And yes, you guessed it: The location of the fire was a plant owned by Philadelphia Energy Solutions. This particular plant produced 335,000 barrels of oil per day (for those without context: that’s a lot), and the plant’s future came immediately into question, as it shut down with no announced plan for a restart.

30 days is a pretty small time window for the collapse of an entire company. But when you think about it: It’s a pretty big time window for finding out that one of your suppliers is going to declare bankruptcy. Imagine the competitive advantage won by the companies who knew they might need a plan before they actually needed it. When it comes to supply chain disruption, 30 days is a lifetime.

So what’s the takeaway? Well, not to beat a dead horse, dear reader, but it’s the same takeaway I gave you last time: Risk can be predicted. And by paying attention to the right predictive insights, you can be proactive about addressing it. This story is the perfect example of how, although financials are the bread and butter of supplier risk management, relying on traditional measures of financial stability falls short in today’s complex environment. Once a bankruptcy happens, it’s too late to do anything about it. But active monitoring brings transparency to early warning signs—such as this fire at Philadelphia Energy—that enables you to take action. At the end of the day, a proactive approach to risk management will help you prevent unpleasant surprises.

Still don’t believe me? Don’t worry. I can also predict—with 100% certainty—that I’ll have more stories for you in the future. So stay tuned…and cross your fingers that they’re not about your suppliers!

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