Contract strategies for supply chain resilience in a turbulent global landscape

International supply chains are under pressure like never before. Changeable tariffs, renewed geopolitical uncertainty, and escalating conflict in the Middle East are reshaping the risk landscape for UK businesses. The latest developments in the region—including significant disruption around the Strait of Hormuz, a vital oil transportation route—underscore how fragile the flow of goods, materials, and energy can be.

These pressures are already being felt in the UK through rising transportation costs, longer lead times and volatility in energy pricing. At the same time, the ongoing Middle East conflict is creating uncertainty for businesses looking to enter new contracts, manage existing arrangements, or meet their contractual obligations. This combination of commercial and geopolitical disruption highlights the importance of effective contract management—both to ensure compliance and to minimise the risk of business interruption.

Against this backdrop, strong contractual frameworks become a critical lever for maintaining operational resilience. Here are key strategies that UK businesses can use to anticipate, withstand and respond to supply chain disruption:

1. Review and strengthen force majeure provisions

Force majeure clauses came under intense scrutiny during the pandemic, and they remain central to managing geopolitical uncertainty. Consider:

• Scope and triggers: Ensure the clause clearly covers geopolitical conflict, sanctions, port closures, shipping route disruption, and government-imposed restrictions
• Notice requirements: Suppliers and customers alike must understand how and when notice must be given
• Mitigation duties: Many UK contracts require parties to take reasonable steps to mitigate the effects of a force majeure event
• Consequences: Clarify whether obligations are suspended, extended, or may ultimately result in termination.

Robust drafting is essential to avoid ambiguity when rapid escalation renders performance difficult or impossible. Under English law, force majeure clauses with a very broad application may be viewed as a form of exemption clause. Where that is the case, they may be scrutinised under the Unfair Contract Terms Act 1977 (which applies to certain business-to-business contracts). In that case, the clause must satisfy the "reasonableness" test and if it fails that test, the clause will be unenforceable and any protection it sought to afford would be lost.

If a contract does not contain a force majeure clause or it is otherwise unenforceable, it may be possible to rely on the legal doctrine of frustration. However, this is very difficult to prove and it is rare that the English courts permit it. They view it as a severe remedy which may undermine contractual certainty if applied too widely, so they instead take a very narrow approach to its use.

2. Address pricing risk, tariff volatility, and cost increases

Fluctuating tariffs and transportation costs are placing strain on margins. UK businesses should:

• Include price adjustment mechanisms, particularly where shipping, freight, or raw material costs are volatile
• Revisit index‑based pricing, ensuring indices used are relevant, transparent, and regularly updated
• Provide for tariff‑related adjustments, especially in long‑term supply agreements where policy changes may be sudden or politically driven.

This is not about transferring all risk to the counterparty, but giving both parties a predictable framework for navigating uncertainty.

3. Reassess delivery terms, risk allocation, and incoterms

Shipping route disruption—such as the current challenges at the Strait of Hormuz—can significantly extend lead times, alter routes, and increase insurance costs. Review:

• Incoterms allocations, including responsibility for freight, insurance, and customs clearance.
• Delivery windows, considering whether they need to be widened or made contingent on specific geopolitical risk factors.
• Risk transfer, ensuring that the point at which risk passes reflects current operating realities.

These provisions should be reviewed in partnership with logistics teams and freight forwarders who understand emerging choke points.

4. Strengthen supply chain transparency and reporting obligations

Visibility is essential during periods of instability. Contracts can support this by requiring:

• Regular operational reporting, including early warning of delays, shortages, or manufacturing interruptions.
• Disclosure of subcontractors, particularly where production is concentrated in high‑risk regions.
• Notification of cyber incidents, given the increasing links between cyber disruption and physical supply chain performance.

Transparent communication can help UK businesses plan, pivot, and respond quickly.

5. Enhance termination and step‑in rights

When a supplier becomes unable to perform, even temporarily, contractual flexibility becomes key. Consider:

• Termination rights for prolonged disruption, particularly where delay creates downstream financial or regulatory risk
• Step‑in provisions, allowing the customer to temporarily manage or source from alternative suppliers
• Transition planning, ensuring continuity of supply if a relationship breaks down.

Clear contractual pathways reduce the risk of disputes at moments of operational stress. Under English law, if you don't have an express contractual right to terminate then, under the common law, you can only terminate for the most serious (repudiatory) breaches. So, a robust termination clause is essential.

6. Review and refine dispute resolution clauses

Dispute resolution clauses are an often‑overlooked but powerful tool for managing contractual risk during periods of disruption. These provisions set out the framework the parties must follow if a disagreement arises, helping to control costs, maintain commercial relationships, and avoid escalation where possible. Consider:

• Method of resolution: Some contracts prescribe a specific process—such as negotiation, mediation or arbitration—before parties can pursue litigation
• Tiered mechanisms: Many clauses are structured in stages, requiring the parties to attempt informal negotiation first, followed by mediation or another alternative method before court proceedings can be issued
• Jurisdiction and forum: The clause may dictate which courts or arbitral institution will hear a dispute, providing certainty in cross‑border or complex supply chain relationships
• Procedural requirements: Time limits, notice provisions and decision‑maker selection can materially affect how quickly and efficiently disputes are resolved.

Clear and carefully drafted dispute resolution provisions help maintain control and structure at moments of stress, reducing the risk of protracted or costly conflict when supply chain pressures lead to disagreements.

7. Prepare templates and long‑term contracts for a volatile future

Given the changing geopolitical climate, UK businesses should ensure their templates and existing long‑term supply arrangements reflect:

• Resilience‑oriented drafting (mitigation, contingency planning, supply diversification).
• Clear obligations on both parties to cooperate during disruption
• Built‑in flexibility for alternative sourcing, rerouting, or adjusting volumes.

Templates that anticipate disruption reduce the need for emergency renegotiation later.

The view from our commercial disputes team

So you find yourself in a dispute with a counterparty: perhaps your supplier has failed to deliver the agreed quantity of product, or your supplier has called force-majeure and you disagree that the force majeure clause should take effect, or your customer has issued a termination notice and you dispute their right to end the contract - what next? 

Check the contract and ask yourself some questions:

• Is there a force majeure clause and if so, what events does it cover? Is it broadly or narrowly drafted, and does it afford protection to you or your counterparty? What are the effects of the force majeure clause if it is found to be enforceable, i.e. does it enable a counterparty to terminate the contract, or provide an extended timeframe for performance to be completed before a counterparty can take further action?
• Has there been a repudiatory (serious) breach of contract? Has there been a failure to perform a key obligation (not a minor one)? Is there a breach of a condition?
• What does the contract say about the parties' rights to terminate the contract? Has an event occurred which enables termination? Does it allow termination for convenience, or only if there has been a breach of contract? Are you required to give notice? If so, how much notice is needed and what format should that take? What are the consequences of termination / your obligations immediately post termination (e.g. is a termination fee payable)?
• Does the contract impose a specific process for resolving a dispute (i.e. a dispute resolution clause)? Is there a clause specifying which country's laws apply to the contract and which jurisdiction's courts should deal with any disputes?

Even without a specific dispute resolution clause in your contract imposing a process for resolving disagreements, the English courts expect parties to engage with Alternative Dispute Resolution (ADR) to attempt to resolve the dispute outside of litigation. The claims process can be lengthy and expensive, so if a resolution can be reached without litigating it will likely be beneficial to all parties.

Final thoughts

Geopolitical uncertainty, shifting tariffs and disruption to critical shipping routes continue to place real pressure on supply chains. These developments are creating challenges for businesses across sectors, exposing gaps in existing arrangements and highlighting the importance of contractual resilience. Now is an ideal moment to revisit your contracts and ensure they are fit for purpose in an increasingly unpredictable environment.

If you are currently facing disruption or a contractual dispute, we are here to help. If you want to strengthen your templates, update your standard terms or take proactive steps to improve your supply chain resilience, we can support you with that too.

Simply reach out to Sarah Daun or Peter Snaith (if your query relates to contracting) or Samantha Bryant (if your query relates to a potential or actual dispute).