The Corona pandemic and the war in Ukraine are a watershed event: companies are faced with unforeseen shifts and changes. Among the most striking events in the global economic market are supply shortages of machinery, machine parts and raw materials. Hardly any key industry is spared: construction, transport, car manufacturing, furniture industry and high technology – to name but a few.
The chart shows the proportion of SMEs that answered yes to a survey in March 2022.
Source: Statista (based on DZ Bank)
The chart shows the responses of the companies surveyed from Germany (by sector, 2022).
Source: Statista (based on DIHK)
Even before the COVID pandemic, many regions around the world were affected by slowing economic growth. This caused many manufacturers to curtail production in key economic markets.
After the economy collapsed in early 2020 – due to the global lockdowns – the same manufacturers experienced historically high demand in the second half of 2020. This was triggered by changes in consumers’ workplaces and lifestyles and led to a shortage of supply.
Significant price increases and delays in deliveries are the result. Items of personal use, all kinds of spare parts, raw materials, building materials, etc. are affected.
Faced with drastically increased costs in purchasing and transporting goods, suppliers are reacting differently: some are waiting for market adjustments, others may pass on the costs to customers if they have no alternatives.
As the supply shortage and the unabated increase in demand are compounded by other unforeseen market developments, such as the energy crisis and the Ukraine war, exorbitant price jumps can be observed in individual market segments.
The sharp rise in orders from online retailers due to the pandemic, for example, has led to a significant increase in demand for cardboard packaging.
This has led to price increases for corrugated board processing machines of over 70% in some cases for new machines between 2019 and 2022!
Producer price index of packaging in Germany from 2011 to 2021 (2015 = 100)
Source: Statista (based on Destatis)
In view of the escalating Ukraine conflict, the ongoing, worsening energy crisis and the consequences of the Corona pandemic, it is to be feared that this serious imbalance in the markets will not disappear so quickly and that manufacturers will continue to be unable to meet the usual delivery deadlines for their products.
This has an impact on the market for second-hand machinery and equipment. Every company that has a machine park is affected by this on different levels, even if it is not directly on the move as a buyer or seller!
A company that currently wants to sell machinery or equipment is faced with a large number of potential buyers. Sellers of used machinery benefit from a considerable increase in the value of their machines in view of the immediate availability of their offer.
It is unlikely that the increased demand will be short-lived. Rather, it can be expected to continue, as it takes time for manufacturers to catch up with the production of new goods.
But this also means that if you want to sell parts of your machinery or stocks or spare parts, then make sure that you can also replace them – if necessary – either with existing equipment in the company or with replacement machines that are available on the market at short notice at a reasonable price.
So here, more than ever, the rule is: inform first, then sell.
From a delivery date perspective, buying used machinery, equipment or machine parts may be the best option if you have investment needs.
However, you may have to adjust your budget significantly upwards.
From the perspective of the company valuer when buying and selling companies, the effects of these market changes must also be taken into account. Particularly in those industries that are affected by the greatest fluctuations in the price of production machinery, the effects can have a significant impact on the value of the company, even in the short term.
The same applies when applying for credit lines and financing. Under certain circumstances, the loanable market values of your machinery and equipment can increase significantly in value, which could make it significantly easier to obtain new loans for planned investments.
But beware: banks usually look at the long-term value of the collateral.
This means that they try to keep short-term market fluctuations out of the equation when determining the mortgage lending value. However, to ensure that this does not only apply in one direction, you should consider an expert opinion on the value of your machinery.
When setting up sums insured, greater care must be taken to ensure that the sums – including any subsequent lump-sum cover – are sufficient to compensate for the sometimes extraordinary price increases for machinery. Otherwise, an unpleasant surprise can quickly arise in the event of a claim.
In this article we have looked at the effects of rising producer prices in the area of industrial property insurance.
In business interruption insurance, you might want to double-check the liability period. Under certain circumstances, the procurement of new (or “new used”) machinery can currently take significantly longer than is otherwise usual in everyday business.
In our article “How to calculate the business interruption loss” we also dealt with the topic of liability time and what needs to be considered.
If you are currently concerned with the value of your machinery, please contact us, because this is our speciality!
So much for today,
Philip Merker
Philip Merker, MBA
Certified expert for the evaluation of machinery and technical equipment (DIN EN ISO / IEC 17024)
Telephon +49 40 602 13 33
Email info@sv-merker.de
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