Contingency Planning and the Hanjin Bankruptcy

They are inevitable and yet so difficult to plan for.

“They” are the unexpected regional and global disasters and disruptions that cause havoc to our international supply chains.

We all remember the 2011 earthquake and tsunami that hit Japan and the ensuing chaos it wrought on most industries, especially high-tech and automotive. Then, there was the U.S. West Coast Port Slowdown and Strike of early 2015 that affected many shippers and consignees doing in the Trans-Pacific.

This past week, we had a huge disruption in our supply chain related to the bankruptcy of one of the world’s largest shipping lines, Hanjin Shipping. They were the 7th largest shipping company in the world with a total capacity of over 600,000 TEUs.*

LWL041 Hanjin Ship

Their bankruptcy declaration on August 31, 2016 put a stranglehold on international commerce and, especially, those shippers/consignees unlucky enough to have cargo on Hanjin vessels and at inland distribution hubs riding under a Hanjin Bill of Lading.

It is estimated that some $14 billion of cargo (most notably Samsung Electronics and HP) has been tied up globally as ports and the many ancillary service providers (stevedores, tug boat operators, etc.) refuse to handle any Hanjin containers for fear they will not be paid due to uncertainty brought about by the bankruptcy.+

No matter how prepared a company is for contingencies, the catastrophe happening now (whenever “now” is), is always quite different than the multiple scenarios we practiced with, so there is always a learning curve to tailor the approach to the current event.

LWL041 ChecklistHere are some key points to keep in mind as you react to the latest crisis:

1.    Confirm with multiple sources that a major supply chain disruption event has occurred.

2.    Identify current shipments that are (or could soon be) impacted by the event. You will need to identify the plants and final customers that are impacted, so you can prepare a targeted message.

3.    It will be critical to obtain key shipment info such as container numbers, truck/trailer identifiers, bill of lading or AWB numbers, shipment’s exact physical location and updated ETAs. Begin collecting this information and maintain it in one file that can be shared with the appropriate stakeholders.

4.    Work with the logistics company that controls the freight to obtain a sense of the impact of the event and the impact to the current ETA. Understand current options for diversion to alternate modes and begin to think about or make bookings on those alternate modes or carriers.

5.    Work with the impacted plant and customer to understand how the delay will impact their production schedule. Based on new ETA (if available), determine minimum quantities that may need to be expedited and/or diverted. If additional materials are needed from our suppliers or our Tier 2 suppliers, then the appropriate function at our company will need to organize this with the relevant suppliers.

6.    After receiving info from your internal team of additional material needed to cover the gap, quickly make bookings using the appropriate mode, service level and logistics service provider.

7.    You may need to determine who has liability for this incident. That will require a discussion with the logistics service provider and your legal staff. Work with your logistics service provider beforehand regarding any agreement to reimburse any of the expedite costs back to your company, if they had any fault in the crisis or exacerbated it.

8.    Maintain regular (daily or weekly as the issue requires) contact with plants and customers to keep them updated of the situation, plans, timing and current status of expedited shipments and learn from them of any changes (increases or decreases) from the original request.

LWL041 Communication is Key

9.    A suggested format for communication to your management or customer is as follows:

A.    Issue: be sure to clearly and concisely define the problem causing a possible (or probable) event that could lead to unexpected delays or shut-down by our plants or delivery to the customer. Name the geographic region (or lanes) affected as well as the suppliers, vendors and logistics service providers that are stakeholders.

B.    Impact: mention the plants, units lost and potential cost of the event.

C.    Root Cause: what event(s) triggered this issue / event.

D.    Action to Date: answer the questions
a.    Who has been working on this issue?
b.    What have they been doing?
c.    Where has the action taken occurred?
d.    When did the action occur?
e.    How did the action plan work and who is likely to pay?

E.    Action Planned: answer the questions
a.    Who is/will be working on this issue?
b.    What will they be doing?
c.    Where will the action occur?
d.    When is/will the action be taken?
e.    How will the action plan work and who is likely to pay?

F.    Expected Resolution: what is the expected outcome of the actions?

G.    Open Issues: communicate open or unclear items related to the issue as well as issues for which you may need assistance from higher management.

Every crisis will be different, but with the steps above, you can manage the crisis to a close and keep your team informed every step of the way.

Good luck!

Sources for this article:
*Based on Alphaliner’s Alphaliner – TOP 100 Operated fleets (as per 11 September 2016) and found at  http://www.alphaliner.com/top100/
+ from “Samsung seeks court order to remove goods from Hanjin vessels” from Sept 8, 2016 found at http://www.reuters.com/article/us-hanjin-shipping-debt-samsung-elec-idUSKCN11E2ZH

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About Lenny

Many years of experience in a Fortune 1000 companies, especially in the logistics and I.T. areas of manufacturing companies. Through process improvements and the use of many of the tools mentioned here, I have been able to identify and implement savings opportunities worth up to $10 million. I hope that some of these real-life stories, suggestions and tools can help you!
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