Weathering the Storm: Contract Strategies for Supply Chain Resilience in the UK and US
Oct 17 2024
In the post-Covid era, we are all familiar with the concept of supply chain disruption. International supply chains have been impacted by war in Ukraine, geopolitical tensions, extreme weather events and climate change. They are being impacted more recently by escalating conflict in the Middle East, and the strike by dockworkers on the U.S. East Coast.
These events are putting global supply chains under pressure. They are causing changes to shipping routes, delivery delays, increased transportation costs, and they can also lead to rampant inflation.
Supply chain disruption puts pressure on businesses that import and export goods. It can make the performance of contractual obligations more expensive, more difficult, or even impossible to perform.
Businesses must plan appropriately for disrupting events, and that includes having robust contract rights and remedies in place.
It is important to use the appropriate contractual tool to protect against supply chain disruption and address each individual concern.
Businesses must plan appropriately for disrupting events, and that includes having robust contract rights and remedies in place.
If you're the supplier, do you have the right to pass on increased costs to your customers? Are you at risk of a breach of contract claim if you fail to meet lead times?
If you're the customer, do you have contractual measures to incentivize your supplier to deliver on time? Do you have contractual measures to protect you from being in breach of contract if delays from your suppliers' end have a knock-on effect on your own performance?
In order to provide "a point of view like no other", we have talked to experienced attorneys in our Commercial teams in the UK and the U.S. to find out what contractual tools are available in each jurisdiction to help you navigate these issues to minimize disruption and liability to your business.
In the UK, the latest disruption to global supply chains is causing issues for exporters. It will make transportation slower and more costly. For importers, they are likely to see longer lead times which can cause a shortage of parts and a knock-on effect for downstream contracts. There are also likely to be price increases which importers may or may not be able to pass on to their customers.
The UK saw a change of government in July 2024, and the Labour Party is now in power. Early indications are that the new government is seeking to improve UK relations with the EU. This could be good news for UK businesses who trade with EU counterparts and a departure from the previous post-Brexit policy.
Under English contract law, there are a number of contractual tools, which you can include in your contracts, to mitigate supply chain volatility. These tools include the following:
Not all force majeure clauses are equal, and you need to think about how far yours goes.
US supply chains continue to experience ever-increasing disruptions from material and labor shortages, hurricanes and other extreme weather events, port holdups, and global conflicts. In the face of all of these potential issues, protecting your interests through carefully negotiated contract terms and effective managing of your supply chains beginning at the outset of your contractual relationship can be vital to remaining successful in the face of disruption. Some of the key tools to consider in connection with your US contracts are as follows:
In considering whether a force majeure event has occurred, U.S. courts have emphasized the importance of the contract expressly listing out the types of events that will constitute force majeure events – so, it is advisable to carefully reflect on the types of disruptive events that may occur and make sure those events are called out in the contract.
Consider your choice of law and forum selection clauses closely in your U.S. contracts. Having a multitude of different applicable U.S. state laws and having to litigate or arbitrate claims in multiple jurisdictions may make it difficult to manage and enforce your rights in the event of widespread supply disruption.
Simply reach out to Peter Snaith (if your query relates to UK contracting) or Jamie Stone (if your query relates to U.S. contracting).