The aerial shots of the Ever Given were a perfect illustration of how international trade can be disrupted by a single event. However, businesses were already looking at their supply chains to reallocate cost and risk as a result of Covid-19 and Brexit. In light of the disruption caused by these changes, some long-standing assumptions and incentives are likely to need re-examining.
When looking at a commercial supply chain and the risk of delay, the following questions need to be addressed:
- When does delivery take place? What is the relationship between delivery and payment? When does title to the goods pass from the seller to the buyer?
- Do the buyer and the seller trust each other? Is there a risk of non-delivery or non-payment?
- How are the goods described in terms of quality and quantity? What is included in the price?
- Which party is responsible for transportation (providing it or arranging for it to be provided)?
- Which party bears the risk of delay in the transportation of the goods (i.e. paying demurrage or extra costs for transport or storage)?
- If there is a delay, will the goods depreciate? Or, is there a risk that downstream sales will be lost?
- Who is responsible for insuring the goods whilst they are stored or in-transit? Which party pays for the insurance?
- Which party takes the risk if the insurance is not sufficient to cover any losses? What steps can be taken to mitigate any uninsured risks? How does this relate to any limits of liability in the contract(s)?
- What customs formalities must be met? Which party is responsible for custom clearance or for paying tax or duties (export and import)? What documents need to be produced? Which party is responsible for ensuring the correct certificates, markings or packaging are provided? Which party is responsible for the collection of receipts or certificates?
- If journeys are rerouted or delayed, does this present additional health and safety dangers or the additional risk of theft or damage?
- In longer-term arrangements, are there volume-based guarantees or thresholds? What will happen if these are not met or if the availability of goods or services is inconsistent? Which party absorbs the risk of fluctuations in volumes?
- In the event of serious disruption or delay, can the goods or services be substituted? Is there exclusivity? Are there likely to be suitable alternatives available?
- Is the force majeure clause fit for purpose?
- Does the planning for any "worst case" scenarios fit with the values and ethics of the business?
For UK businesses, the supply chain is now subject to more complexity and delay than before. This makes it important for parties to ensure they know who they are dealing with in their supply chains and to understand the risks and incentives at play. If it is not possible to insure against risk or to find a contractual solution, businesses will still need to ensure that the relevant risks are recognised and managed.
It remained unclear how long the blockage would last. Even after reopening the canal that links factories in Asia to consumers in Europe, the waiting containers are likely to arrive at busy ports, forcing them to face additional delays before offloading.