Predicting Risk: The Philadelphia Energy Solutions Bankruptcy

THE RESILIENT ENTERPRISE | THE RISKMETHODS BLOG
bankruptcy

September 12, 2019

Another day, another risk event, another series of predictive insights that hinted at what was eventually coming. Learn more about the Philadelphia Energy Solutions bankruptcy—and how a proactive supply chain risk management program could have warned you about it in advance.

by Stefanie Schori

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.

philadelphia-energy-alerts

riskmethods Risk Intelligence™ immediately alerted affected customers to the June 21 incident so that they could start launching mitigation plans. Our AI engine and Risk Intelligence team also continued to monitor the situation, waiting for what we suspected would happen: the ripple effect of risk. And, indeed, the alerts started rolling in.

  • Four days after the fire, Philadelphia Energy Solutions declared force majeure on some of their deliveries.
  • Five days after the fire, Philadelphia Energy Solutions announced a permanent shutdown of the refinery and worker layoffs.
  • Seven days after the fire, Philadelphia Energy Solutions was sued by their laid-off workers, who claimed that they weren’t given enough notice.

And, finally, we come to the end of the story: 30 days after the fire, Philadelphia Energy Solutions filed for Chapter 11 bankruptcy.

And that’s how to lose a supplier in 30 days.

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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