Two decades of trade expansion has dimmed our memory of prior recessions. The last time the U.S. economy contracted at comparable rates was more than 25 years ago. But learning from other industries and implementing the proper tools can help you weather the storm. The following are 10 tips to help terminal operators manage their way through the recession:
1. Know your company’s strengths and weaknesses.
Knowing your business strengths, as well as the features that differentiate you from your competition, is an important step in dealing with sudden cargo contractions. For example, some marine terminals view their gate turn time as the means to successfully differentiate themselves from their competition. These companies should refrain from any cost-cutting activities that might have a negative impact on gate turn time, until no other options are available to them.
2. Collaborate with customers.
Communication with customers is always important but it is crucial in times like these. Your customers know the services they most value from your business versus those that are marginally important. Use their evaluation as the basis of your identification of nonessential services that can be temporarily or permanently eliminated. Know the reasons why your best customers do business with you.
3. Have a deep understanding of your cost structure.
You can’t successfully cut your costs before you know your costs. You would be surprised to learn how many companies have only the most meager understanding of their major costs, especially labor costs, which represent approximately 60 percent of a terminal’s costs. For many companies, years of accounting adaptations have produced bookkeeping allocations, corporate cross-charges and otherwise well-intentioned adjustments that serve to confuse management on the true cost of operations. Moreover, some companies stir major costs, such as operating labor, into one large pot without fully understanding the ingredients of this stew.
4. Utilize targeted cost cuts
While cutting costs is the first thing many companies do in response to an economic slowdown, successful companies know what elements of their business are critical to their reputation and, as a result, they avoid sweeping cuts that will be detrimental to these functions. Targeted cost-cutting requires detailed knowledge of costs by department, by function and by activity, without allocations. There are no shortcuts; this is a tedious exercise but necessary to avoid overreacting or reducing costs in the wrong activities.
5. Make “savvy” investments.
Forward-thinking companies that are not capital-constrained understand that this is the time to make investments that will put them in a position of market strength when the recession ends. It may be difficult to imagine while coping with the severe downturn in global trade and the corresponding cargo declines, but the end of the recession will occur. Noow is the time to invest in facilities, technology and even strategic acquisitions that will place you on solid ground when the economy inevitably strengthens. If your IT systems cannot deliver the data necessary to understand costs, as described above, then it is time to make that investment to solve this problem.
6. Use emulation tools to plan for multiple scenarios.
Overcautious managers often wait too long to respond to declining volume and revenue, and then they “overcorrect.” Their cost-cutting activities can be compared to a beginning skier cutting wide swaths across the slope instead of the precise movements of the expert. These managers do not have a plan for reversals of fortune and so they tend to wait too long before cutting costs or cut back too much, with negative consequences for customer service levels
Planning tools, such as labor emulation tools, allow management to plan for volume changes (up or down) with a specific labor plan of action. These tools provide for precise and well-planned reactions to cargo volume changes, in contrast to unplanned reactions.
7 .Work as a team.
Teamwork plays into this in a number of ways:
• From the beginning of planning for a recessionary economy, teamwork is required to communicate up and down the organization about the company’s strengths and its plans to respond without compromising those sustainable business advantages.
• Understanding the cost structure requires teamwork between accounting and operations departments with full access to data and a willingness within operations to answer tough questions about costs.
8. Upgrade and fine-tune your controls.
Measuring the success (or failure) of a plan is as important as the plan itself. Timely and accurate reporting of plan variances is an essential step in controlling spending. Other controls used to alter business-as-usual behavior are:
• Modifying bonus and pay increases based on meeting planned goals.
• Defining the course of action to be taken when cost-cutting goals conflict with service level goals.
9. Act decisively.
Companies that excel use a weak economy as an opportunity to take decisive actions that their competitors are reluctant to take. They are resolute in making commitments that improve their strategic position.
10. Leverage your management team to deal with recession planning.
Managing in an economic crisis requires a substantial amount of introspection about your business, its sustainable business advantages and cost structure.
Establishing a plan of action and the organizational will to execute that plan requires buy-in by management and staff to that plan of action.
A strong management team, armed with this information and the tools to analyze the underlying data, has a distinct advantage over its competition and is more likely to weather the economic storm.
Joseph Palazzolo is president of Palazzolo and Associates, a maritime consulting firm based in San Francisco and Long Beach. He can be contacted at jpalazzolo@palazzoloassociates.com