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What Is Mothballing?
Let me explain mothballing to you directly: it's the deactivation and preservation of equipment or a production facility so you can use or sell it later. You might also think of it as setting aside an object or idea for possible reuse down the line. I see this often with expensive capital goods, machinery, aircraft, ships, properties, and other assets that cost a lot to create, last a long time, and face unpredictable market disruptions.
How Mothballing Works
The term comes from using pesticides to protect stored clothing from moths, and in business, it gives you production flexibility if your operating costs are high. You can quickly reopen a factory for temporary demand spikes instead of running it continuously at lower margins. For production plants, you need solid planning to resume operations fast. Mothballing might lead to reactivating assets, updating them, disassembling for parts resale, or scrapping for salvage value like steel or aluminum.
Companies often skip proper mothballing when finances are tight. During the Great Recession, many just removed hazards and locked up, letting equipment rot into scrap. If they'd deactivated and mothballed properly, they could have preserved value for later use or sale.
Mothballing Tips
- Think long-term; market dislocations usually don't last forever.
- Set aside money specifically for mothballing.
- Appoint someone to lead mothballing and develop a strategy.
- Maintain all necessary permits.
- Handle hazardous materials early; cleanup later costs much more.
- Get experienced workers like operators and mechanics to help.
- Keep detailed records of actions, maintenance, and timelines.
Example of Mothballing
Take oil exploration and drilling, a cyclical business that benefits from mothballing. Drilling equipment is pricey, and oil prices are unpredictable with boom-bust cycles. When prices drop, some wells become unprofitable, leading to idle rigs. If you mothball them properly, you can restart once the market turns, and the cost difference versus poor mothballing can be three times the replacement value.
Aircraft, both commercial and military, are commonly mothballed in boneyards for long-term storage. Ships get stored in 'ghost fleets' for potential reconditioning. The shipping industry's cycles, energy price swings, and tight airline margins make mothballing a standard practice for these assets.
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