Every company should be prepared for a crisis. You may not know what the crisis will be or when it will happen, but crises happen. The way your company reacts to a crisis can mean the difference between profit or loss, and even business survival or failure. No crisis is the same. A distributor could cut back on crucial parts needed for manufacturing, like silicon chips used in cars and computers. A warehouse could catch on fire, destroying the inventory inside. A natural disaster like an earthquake or mudslide can delay trucks from getting through a certain area. The business owner or a key person in the company could have a health issue or die, taking with them the knowledge that only they have. That leads to business continuity issues. An employee could embezzle funds, making it difficult to carry on business as usual. Business crisis management comes in all forms.

The important thing is having a well-designed crisis management plan and being able to implement it quickly. With crisis management planning, shippers can decrease or mitigate negative outcomes. That helps the shipper protect the stakeholders and ensure customer obligations are met and that customers feel confident in the shipper’s actions and abilities. Incorporate a parcel audit software that automatically claims all eligible refunds, ensuring your shipping carriers are held accountable

What is a crisis?

There are definitions for a crisis, but one we prefer is that a crisis is an incident or event that has potentially unhelpful consequences outside of the typical scenarios. A crisis can create negative and long-term effects, which can range from reputation to financial to operational. A crisis management definition refers to the process of handling this unexpected incident or event that can hurt the company or its stakeholders. While crisis management involves handling a crisis before, during, and after it happens, risk assessment and risk management involve assessing any potential threats and finding ways to avoid them.

Some people use four elements to describe a crisis. They include threats to the organization, the event occurring in a surprising manner, a short timeframe for the event and immediate response, and the need to respond with changes in company operations. The past way of operating the company is no longer relevant and must be transformed.

What is a crisis management example?

Crises come in many forms but can be divided into two main categories: organizational crisis or disaster.

Organizational crisis: An organizational crisis involves an unpredictable event that threatens the stakeholder expectations for the company’s economic future, its safety, environmental impacts, or its health. An organizational crisis might affect the company’s performance and finances. An example is if the company produces a product that is recalled for safety issues. Customers might think the company can’t recover from the loss of trust. With an organizational crisis, if the stakeholders think there’s a crisis, then there’s a crisis. Not everyone needs to believe there’s a crisis, but a belief leads to reality with organizational crises. 

Disaster: With a disaster, the events are sudden and can disrupt how the organization’s systems work. They may require new routines or operations, such as manufacturing disruptions, transportation problems due to natural disasters, or manmade ones like a traffic accident or bomb explosion. Disasters like these can also lead to organizational crises.

What are the three phases of crisis management?

A crisis is unpredictable, but it is not unexpected, and that’s where a crisis management plan comes in. Smart companies and shippers know that a crisis can happen anytime; they just don’t know when or the details. Crises can be anticipated. 

There are many ways to categorize crisis phases. One is using these three phases of crisis management:

Phase 1 – preparing for a crisis

 While the details of a crisis can’t be known in advance, a shipper can prepare for different types of crises. Risk management tactics could include keeping enough safety stock on hand to ensure some leeway should a supplier have its own crisis. Distributing inventory among warehouses in different parts of the country wards potential problems from a regional natural disaster. Maintaining contracts with multiple carriers gives breathing room and additional capacity if one carrier has their own crisis.

But preparing for a crisis situation involves crisis management planning. That means creating a response plan based on the many types of things that could happen, and committing that response plan to paper. It should be revisited in regular intervals, whether once a quarter or once a year. All internal stakeholders should be part of that review, and some external stakeholders as well. That could include key distribution centers, suppliers, and technology vendors. Running through tabletop drills is a way to see if the plan covers all the important elements that might be encountered during a crisis.

Given how many different types of potential crises can occur, there should be a plan for each type of situation, with a designated crisis management team. The team should include communications, legal, finance, technology/IT, and operations – at a minimum. This is when developing crisis management strategies for emergency response for any potential threat to the organization is crucial.

Phase 2 – the crisis itself

 The crisis could occur in an hour, like a distribution center goes up in flames. Or it could be a longer-term event, like the COVID-19 pandemic. However long it lasts, there will be some notification of the event and a clear signal that something has to be done. At some point, the leadership team will realize a situation is occurring, and emergency response is needed. This is the time to activate the crisis plan and the crisis response team. That most likely will involve crisis communications as well. You don’t want a business crisis to turn into a PR crisis. Reputation management is a big part of any crisis communication plan and effective crisis management.

A crisis response plan will include multiple internal and external stakeholders. The crisis communications team can help coordinate the messaging and the timing of both internal and external responses. This process can include sharing the business continuity plan, which may be a big question for everyone, to understand how the business will maintain its operations in the throes of a crisis. A crisis manager should be designated in the crisis management strategy, so it’s understood even before the crisis happens, who will be in charge. Communications and transparency are a big part of disaster recovery and a crisis management strategy.

Phase 3 – business continuity management

 After the initial emergency response begins, the leadership team needs to think about changes to the organization going forward. Even if the changes are only for a few weeks or a few months, the business operations will need to change to accommodate the new needs. The business will need to understand what damage was caused to the company during the crisis and find the best route to preserving the shipper’s reputation and maintaining the business customers. 

The communications team will be vital to this phase as well. Messaging for the company strategy and assessment is important because stakeholders will want to know what was learned from the crisis and how they respond going forward. Now is also the time to tweak contingency plans for the future and hear what lessons were learned from the crisis team members. Documenting what worked and what didn’t work while the information is still fresh can help with future planning.

Stakeholders want transparency, but that doesn’t mean sharing everything that happened in great detail. It means acknowledging the event and causes (if it’s not obvious), sharing what types of assessments were done, where the review process stands (if possible), and sharing the next steps. It’s not always possible or advisable to give every detail, but stakeholders need to know the company is on top of what is happening and is taking it seriously. They want to know how they will be affected now and going forward.

While these are three phases of crisis management, others use a four-stage system: prevention, preparation, response, and revision. The difference here is the prevention stage. This is an additional emphasis on risk management. Developing a risk management plan means that you’re not just preparing for a potential business crisis, but trying to make sure it never happens in the first place. Prevention means not ignoring signs of a smoldering crisis, like rumors about a warehouse operating unsafely, or a carrier having operational problems. Ignoring these issues and assuming they’ll just get better is inviting a crisis to occur.

What can be a crisis situation in shipping?

In shipping, many things can go wrong and lead to a business crisis. The COVID-19 pandemic is one of the universal crises that occurred in recent years, and it impacted many areas of shipping. The COVID-19 pandemic caused crises for distribution centers that suddenly had increased order volumes and decreased supplies. In the early months of the pandemic, some countries stopped exporting goods altogether. 

  • Some of China’s manufacturing facilities and ports closed as the country locked down. Labor, already difficult to find in a tight market, was even harder to come by for warehouses and deliveries. 
  • Some employees were sick or home quarantining, and there wasn’t enough personal protective equipment at the beginning to ensure safety. 
  • Potential members of the workforce did not want to risk their health to come to the warehouse or do deliveries. This meant that businesses might not have had the supplies they needed to sell to customers or create products. 

As a result of increased e-commerce orders and lower capacity, carriers halted their guaranteed delivery dates. There was no financial incentive to get parcels delivered by a certain time or day. That meant the endusers were also waiting for their orders, and they could easily hold the shipper responsible even if it were the carrier’s to blame. Shippers had their own manufacturing issues as well, due to both labor and scarce supplies. With more people working from home, it was harder to change business operations to account for remote workers. Many companies developed crisis teams to handle all these issues, which lasted a lot longer than most people thought they would.

But of course, there are many other types of crises shippers have gone through. Here are some other recent examples:

The Evergreen cargo ship getting stuck in the Suez Canal: 18,000 containers were stuck onboard a cargo ship with endusers waiting for the items. Other ships needed to determine whether to wait or reroute for a longer, more expensive passage. And, of course, getting the boat unstuck was an ordeal itself. 

Container shortages: The pandemic brought container shortages that continue to this day. The container shortages make shipping more expensive and difficult to plan.

Economic crises: The pandemic drove a lot of companies out of business. Financial difficulties can directly affect the shipper if customers stop buying goods or if carrier prices go up.The government provided loans and grants to many companies, but it wasn’t enough to keep all shippers in business.

Workplace violence: Workplace violence is something every company should prepare for. A gunman and former employee shot and killed workers at an Indianapolis FedEx facility in April 2021. And the King Soopers supermarket was the site of a shooting in March  2021. In 2020, an employee shot colleagues at Molson Coors headquarters in Milwaukee. Workplace violence happens, and shippers should have a plan in place to mitigate potential effects.

One way to avoid a crisis and streamline your operations is by using automated software to help with billing and payments. Invoice audit recovery software can lower costs carrier costs automatically by recovering incorrect invoicing fees. Carrier invoices contain service failures and billing errors that can be up to 9% of total invoice costs. Automating the assessment process to claim eligible refunds is one way to save money while maintaining a hands-off approach to what can otherwise be manual and tedious work. You don’t have to pay anything upfront. Shipware’s service only takes a percentage of any savings you gain from the service. Billing and paying invoices should not be a crisis but rather a smoothly run part of your shipping operations.

To learn more about how Shipware can help you lower your carrier rates and capture invoice audit savings, call us at (858) 879-2020.