Membership voice, January - February 2009
The world economy is going through turbulent times and the financial crisis is affecting many of our Members. The first to suffer were those businesses relying directly on consumer confidence, and were seriously dented by the credit crunch. People have stopped purchasing non-essential items, like expensive cars, domestic appliances and luxury electronic products. This has had an immediate impact on the performance of the automotive, fast moving consumer goods and electronic industries. Many companies have reacted with drastic cost cutting programmes including for example a ban on business travel. This, combined with reduction in holiday travel, will affect airlines, with a likely knock on effect on our Members in the aeroengine and airframe business.
Despite the drop in traffic, the aerospace business is currently helped by the equally dramatic drop in the price of oil, from over $100 a barrel a few months ago to $40 now.
However, I think that $40 a barrel is undervalued. I believe it is a knee-jerk reaction to the drop in demand, because some of the underlying reasons that pushed the price up in the first place are still there: oil supplies are declining, and whatever is left is located in inaccessible areas, the deeper seas and the Arctic, or in geopolitically unstable parts of the world.
The current crisis might slow down the development of the energy supply infrastructure, including oil fields, pipelines, nuclear power plants, renewable energy projects, but I am confident that the long term investment will continue and that the sector will ride the storm better than any other.
The loss in consumer confidence and the lack of liquidity in the financial system will hurt small businesses more than large companies and the Construction and Engineering sector and the Equipment Consumable and Materials sector, are expected to struggle in 2009 as they find themselves in the supply chain of sectors directly affected by the downturn.
However, all is not doom and gloom for TWI. Approximately 60% of its business is energy related, which I believe will remain strong. In addition, the loss of value of the pound sterling against all major currencies, by 30 to 40% in one year, is helping us in our export markets, which represent about half of our business. Our Members outside the UK now find our costs quite attractive and are placing more projects with us than before. From experience of previous recessions, we find that our consultancy business is often counter-cyclical, as our Members tend to reduce their in-house resources, and more often need to outsource expertise needs to firms like TWI.
Every business in the world is, or should be, worried about the coming year. We at TWI are no exception. We share the pain that has been, or will be, experienced by our Members, even though we believe some will be more affected than others. We anticipate that the energy sector and our exports will compensate for the likely decline from other sectors. I hope that this is only a storm, and that we shall be out of it before too long.
Fred Delany - Head of Industrial Member Services
