September/October 1995
How well is your company prepared to handle an emergency? Considering the potential disasters you could face and how to mitigate them can help cut your losses and improve your survival odds.
By Jeff Borsecnik
Jeff Borsecnik is an associate editor of Scrap Processing and Recycling
In June 1972, Hurricane Agnes, which had slammed into the Florida Gulf Coast and then skittered across the Southeast, slid off the Virginia coast. But then it unexpectedly veered landward again and stalled, rapidly dumping as much as 14 to 18 inches of rain in parts of Pennsylvania , which was among the hardest hit areas of the sodden East.
Agnes left 15 feet of water in the in the offices of Louis Cohen & Son Inc. (Wilkes-Barre, Pa.). Though the company is located on the Susquehanna River , it’s protected by dikes and was never considered at risk of flooding. “We lost everything,” says President Charles P. Medico, “absolutely everything.”
As if that weren’t enough devastation for one company to have to cope with in its lifetime, two decades later, disaster struck Cohen & Son again, when a faulty electrical panel sparked a fire that gutted the company. And to top it off—literally—the following day the freak spring “Blizzard of ‘93” blanketed the charred mess with more than 5 feet of snow.
Looking back, Medico quips, “We’ve had the flood and the fire, now we’re waiting for the famine.”
Disaster Stock Rising
Medico can count himself lucky to come through such catastrophes with his sense of humor intact. A barrage of earthquakes, wildfires, hurricanes, and floods have shaken, toasted, and soaked big parts of the United States in recent years, and recycling businesses in the path of these disasters have been ravaged.
The possibility of more of such natural disasters is certainly a threat to scrap recyclers. Still, the average scrap company is much more likely to suffer—perhaps just as severely—from a smaller-scale trauma like a structural fire, local flood, or tornado. There's also the potential for such threats as a chemical emergency at a neighboring plant or adjacent highway— a sort of incident that occurs about every six hours in the United States, according to Patrick LaValla, an emergency planning consultant with the Emergency Response Institute Inc. (Olympia, Wash.). In other words, all businesses face some threat of disaster.
Even events that don't do any physical damage to your property might shut you down. For example, while the well-publicized 1993 flooding in Missouri didn't soak Shapiro Brothers Inc. (Festus), it did dislocate the firm's rail service for nearly two and a half months—a severe blow to a company that relies on rail for about 90 percent of its outbound shipments. "We were shut down from all incoming revenues for a sixth of the year," says President Harry Shapiro, explaining that trucks were difficult to secure and some steel mills were unwilling to accept them.
While this temporary disruption may have seemed an expensive annoyance to Shapiro Brothers, the costs of calamity can be much more severe. In fact, 70 to 80 percent of businesses suffering a major disaster don't recover, says LaValla.
With these odds, it certainly seems wise for companies to consider how to improve their chances of bouncing back or limiting the costs of an emergency. Yet few do so. "To try to sell [emergency planning] in the absence of disaster is like trying to sell ice water in Alaska in the middle of winter," says Tony Mills, a veteran of the Small Business Administration's disaster assistance division and founder of Disaster Resource Management (Atlanta), a firm that helps companies and communities recover.
Planning to Minimize
So what can you do to plan for disaster? The key, the experts agree, is to assess the risks you face so you can develop ideas on how to limit—if not prevent—damage.
Great Northern Recycling Inc. (Mechanic Falls, Maine) can attest to the importance of that basic step. The company suffered a major fire in March, but foresight limited the resulting dislocation. "If you look at the history of paper recycling facilities, if there is a common thread of what puts them on their knees, it's fire," says Peter Bolduc, who heads the company. "Consequently, we planned accordingly." For instance, he notes, "Most paper operations have their offices and main production under one roof. We safeguarded ourselves by locating in three different buildings." As a result, while the firm's production facility was torched, its offices were spared.
In retrospect, Bolduc now has more ideas on ways to minimize the threat of fire damage. Intensive security precautions, for example, can help protect against arson— which Great Northern Recycling blames its fire on.
Retrospect has also provided Cohen & Son with some emergency planning inspiration. For instance, Medico notes, the company keeps its inventory ready to ship on short notice because of its flood-prone location. "The most important thing is to have everything very fluid, very mobile," he says, pointing out that this is an impossible task if scrap is kept in piles all over the floor of a warehouse building. "You should be able to go in with forklifts and move material quickly," he adds. "Say you've got a fire in one part of the building. Once human safety is taken care of, you can start to move things out in no time if scrap is stored and handled properly."
Past experience with a disaster can certainly help you develop strategies for lessening the effects of catastrophe, but for those fortunate enough to have avoided emergencies in the past, simple common sense also can go a long way in limiting damages. As Mills puts it, "Don't wait until the storm to buy storm shutters if they are an effective way to mitigate problems."
To be as thorough as possible in your disaster planning, LaValla suggests, draft a list of critical business inputs that could be affected— such as utilities, accounting records, inventory, trucks, key equipment, and phones and fax machines— and then trim the list to the absolutely critical items. "Most small- and medium-size companies don't sit and figure what it takes to stay in business on a daily basis," he says. "We make people ponder that."
Next, consider foreseeable emergencies and figure out, during each, how you could protect each critical input or acquire it from an alternative source. "If, for example, one is trucks, maybe I'll call on employees to muster their pickup trucks. Maybe I cut a deal with the farmer down the street," LaValla suggests. This sort of planning doesn't take much money or even time, he insists, just a bit of walking through the "what ifs."
If you're not sure that you've covered all the bases, advice on emergency planning is widely available. Besides private companies that specialize in emergency planning publications, seminars, and other assistance, your insurer, local library, American Red Cross chapter, and fire department may also be of help. In addition, the Federal Emergency Management Agency (FEMA) offers an Emergency Management Guide for Business and Industry and other free publications covering disaster mitigation, earthquake preparedness, and buildings preparation and performance relative to floods and hurricanes. (Call 8001480-2520 for more information.)
And yet another possible source of planning assistance is your community's emergency planning coordinator. According to Mills, this individual should be able to offer advice on your plan and is likely to be thrilled to brief you on the community's own emergency plan— which will tell you what kind of assistance may be available in the case of a large-scale emergency.
Put It in Writing
Having simply done this exercise, you should be better prepared to weather an emergency, but there are benefits to going a step further and creating a written disaster plan. A written plan, in addition to providing handy emergency checklists, can improve your company's image and credibility with its employees, insurers, and lenders while lowering your exposure to civil and criminal liability. It can also help you ensure compliance with safety rules and provide a central, accessible repository of key documents you might need in an emergency, such as employee and vendor phone numbers and facility floor plans showing features like utility shutoffs, hazardous material storage sites, and fire fighting equipment.
One believer in going that extra step in emergency planning is Hannibal Iron & Metal Co. (Hannibal, Mo.), a facility endangered whenever the Mississippi River hits the 22-foot mark—8 feet above the flood stage. In the flooding of 1993, the river eventually crested at 34 feet, putting the firm out of commission for several months. "We may have survived only because [ferrous] markets took off," admits Robert Fletcher, president.
As the rising waters overshot Corps of Engineers' predictions by leaps and bounds, company staff found themselves tied to safety lines, groping through the swift current to secure possessions, many of which had already been moved once. That experience convinced Fletcher that the company needed an emergency plan. "I don't want to be back in the same situation again where we're wading 5 and 6 foot deep trying to find things."
The resulting plan lists tasks that need to be performed as the river reaches certain levels, beginning with contacting local authorities for river level data. It details when to move equipment, shut down retail scrap buying, move the office to an off-site trailer, and notify utility providers to cut off water, electricity, and telephone service at the plant and activate these services at the alternative site. The plan also includes procedures to handle other risks, such as an employee heart attack, tornado warning, or fire.
By putting it all in writing, the company has created a central repository for emergency information, but what's even more important is employees' comprehension of the plan, Fletcher says. "Once a month in our safety seminar; we pick one emergency issue and go over it again, and assess it," he says. As a result, he offers as an example, if there were an electric storm, "we may not run and pull the file, but if we've discussed lightning with our employees and gone over it enough times, people will act instinctively."
The Road to Recovery
No matter how much planning you do, you may not be able to prevent damage to your business. Thus, it's also important to develop a recovery strategy.
According to an emergency planning guide from CNA Insurance Cos. (Chicago), the key to recovering from a disaster is getting back into business, fast. “Studies have shown that most business lost when cleanup or rebuilding takes place is never recaptured,” the guide notes.
Translating this advice to the scrap business, Medico suggests that recyclers hit by catastrophe can improve their chances of survival by doing whatever they can to continue serving industrial accounts. “Forget about markets, forget about all that stuff,” he says. “You have to maintain that flow of scrap through your operation. If you lose it, but get a new facility, what good is that?”
Macon Iron & Paper Stock Co. Inc. (Macon, Ga.) demonstrated this ability after tropical storm Alberto dumped more than a foot of rain in less than 12 hours in the area in July 1994, flooding the company out. The firm was able to evacuate its office to a second, retail site—a potentially invaluable resource in a disaster—in less than a day, and a demolition project previously set to start a few days after the flood went ahead on schedule. “We ended up having to dump the scrap elsewhere,” says Evan Hoplin, vice president and general manager, “but we serviced that customer without interruption. I’d be willing to say that 90 percent of our customers never knew we had a problem.”
There are plenty of other considerations in the recovery process. For instance, Medico notes that part of his company’s ability to survive the flood was due to its diversification into other businesses. “If you have two irons in the fire and one is destroyed but the other is hot, you’re OK,” he explains. And Richard E. Abrams, president of B. Abrams & Sons Inc. (Harrisburg, Pa.), another victim of Agnes offers this simple advice: “You have to be financially prepared for a disaster, whether through insurance or just by having enough reserves set aside to cover a situation like that.”
And that leads to some more considerations…
Ensure You’re Insured. Emergency preparedness demands you review your insurance coverage at least once a year, suggests Mills, especially if your business is growing or shrinking. Among the key insurance issues you should address:
Don’t sign your insurance renewal without fully understanding the ratings and the quality of the insurance carrier,” says Bolduc, who has been frustrated by delayed insurance reimbursements. “Taking the time to fully understand what kind of insurance you have and how [the insurer] will respond in the event of a disaster is more important than a catastrophe plan could ever be.”
Bolduc also suggests having a public adjuster “try to poke some holes in” your policy. And take care in selecting that adjuster, he adds, noting that they are likely to come crawling out of the woodwork if you suffer a disaster.
Consider purchasing business interruption insurance, which covers income loss and extra business costs incurred as a result of disaster. Many insureds reportedly just assume they can’t afford it, but Mills asks, “Can you afford not to have it?” He calls it “one of the most affordable types of insurance for what you receive in the event you call on it.”
You may also want to consider boiler and equipment coverage, which goes beyond fire insurance to cover key equipment and related profits, and contingent business interruption insurance, which can be tailored to cover things like utility cutoffs or problems suffered by a supplier that could essentially shut you down.
Be certain you’ve carefully determined the value of your assets and have sufficient insurance coverage based on that value, especially if the policy includes a coinsurance clause. Medico guesstimates that 95 percent of scrap recyclers would be shocked if they had their buildings appraised for replacement value.
Consider Your Credit. “You’d be surprised how many notes get called in after a disaster,” says Mills, illustrating the importance of a good banking relationship (a topic discussed in more detail in “Keeping the Lending Door Open,” beginning on page 121). “The company gets wiped out and the bank says, ‘We might as well take whatever we can get while the getting’s good’ and the loans get called in. If your banker is not a partner, he can be the worst person in your disaster recovery.”
Thus, reviewing your credit arrangements is a vital part of evaluating your emergency preparedness. LaValla suggests discussing your emergency plan with your bank, perhaps arranging for an extra line of credit—or even written assurances that your loans won’t be called in—as a result of disaster.
Understand the Aid Process. Large-scale disasters may bring in as many as 28 federal agencies to offer aid. If you end up seeking federal aid—most likely low-interest loans—find someone knowledgeable to help you through the red tape, counsels Koplin, whose firm’s initial frustrations prompted it to call on Disaster Resource Management.
Miles compares the disaster aid process to doing your taxes—if you don’t do the latter alone, don’t go solo on the former. He also warns that the veritable army of temporary disaster workers can be a source of misinformation, and suggests you try to speak with someone in charge and always get answers from more than one person.
Fletcher confirms this warning. “They said it would only take 30 to 45 days to file and get assistance to keep us afloat,” he says. “But I found out how the bureaucracy worked: It took over 90 days to complete my application and another 30 to 60 days to generate any revenue. By that time we were already back in business.”
In seeking aid, you should also keep in mind that a community-wide disaster will rapidly soak available public help—and small businesses may well be at the bottom of the priority list—LaValla notes. And if you are approved for aid, realize that there may be many strings attached, such as liens on personal as well as company property, warn Fletcher and other disaster veterans. Fletcher therefore advises: “Use the [federal aid] resources you need, but don’t use any more than you have to. If you can, try to build enough reserves to potentially operate through a small disaster without help. If you don’t need the federal government, don’t use them. They are not pro-business.”
Be a Good Neighbor. It may seem an ancillary point, but maintaining a good relationship with your town’s leaders and other local businesses can be vital to disaster recovery.
According to FEMA’s Emergency Management Guide, “Your Facility’s relationship with the community will influence your ability to protect personnel and property and return to normal operations” following a disaster. The guide advises maintaining a dialogue wit community leaders, first responds, government agencies, community organizations, and utilities as part of your emergency preparedness. It also suggests you consider how your facility could help the community in a major emergency.
Fletcher feels his local activism was vital to his company’s flood recovery. “Because of my involvement in the community, we had outside people that came down and helped sandbag. … We had business people whom I buy from say. ‘Don’t worry about paying us back until you get your feet back on the ground.’ My bank suspended all notes, with no penalties. If I wasn’t involved in the community, I don’t believe I would have had that response.
How well is your company prepared to handle an emergency? Considering the potential disasters you could face and how to mitigate them can help cut your losses and improve your survival odds.