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Post-COVID challenges | Contracts at breaking point

Published: 20th April 2021
Area: Commercial Disputes

The coronavirus pandemic has highlighted to many businesses the fragility of their supply chains, whether they be local or global and, in addition to Brexit, many of these businesses supply chains are being pushed to breaking point. As the world recovers from the pandemic at different rates, business will undoubtedly face a number of issues.

Last year, businesses suddenly faced insurmountable difficulties trying to secure supply of products that they had formerly taken for granted. As a result, many were forced to compromise, try to reach accommodations with their counterparts, or otherwise, were simply unable to either produce or supply goods and services they had committed to.

Whilst many hope that a return to normality is around the corner, anyone managing risk for a business of whatever size, will not only have to take a close look at those supply chains to understand their future resilience, but also their rights and obligations to prepare for the future. From suppliers being forced to prioritise customers, to downsizing or closing down manufacturing facilities or supply chains, the difficulties will be significant.

 “Anyone thinking the issues that plagued our supply chains in the past year will magically disappear will be in for a nasty surprise”

A global head of risk engineering, and a voice of industry, noted the above recently – and it is undoubtedly true. The problems for businesses meeting their contractual obligations does not stop with supply of either materials or the final product. Skill-shortages have also been impacted, again, potentially affected by Brexit. As employees have been forced to find jobs in other sectors, there are gaps in critical business chains. From shortages of protective equipment, to absences of products as diverse as toilet paper to pasta, or hand sanitiser to bicycles, an uneven pattern of contract performance is clearly here to stay.

Contract disputes

Many businesses sensibly held off from litigation in 2020, protected by central government funding, drawing on reserves, or otherwise seeking to maintain relationships. As the economy heats up and recovery comes forth, few businesses will have that luxury, with funding falling away and reserves here to be trained.

Lessons from previous supply chain issues show being at the front of the queue, to not only understand but to protect and enforce your rights of contract, will be critical to a business’ survival; goodwill and past favours are quickly forgotten. Whilst no business wants to destroy long healthy relationships, the need to take steps to protect themselves will only become more stark as we continue through 2021.

Suez Canal blockage

Subsequently, the impact of these problems for many businesses may have been highlighted and or/accelerated by the recent blockage of the Suez Canal, after one of the world’s largest container ships ran aground, severing a vital trade artery and disrupting global shipments.

The Ever Given container ship, which is almost as long as the Empire State Building is tall, was wedged across the southern end of the canal, which is one to busiest shipping lanes in the world. Within hours shipping was backed up at both ends of the canal and, inevitably, moving such a ship was not light work. The container ship was eventually freed after six days.

To put the level of disruption into numbers, according the Suez Canal Authority, almost 50 per cent of the vessels that passed through the canal in February were container ships, carrying food, fuel and manufactured goods to Europe.

Lloyd's List estimated that, during the blockage, the value of the goods delayed each hour was US$400 million, and that every day it took to clear the obstruction would cause a disruption of an additional US$9 billion worth of goods.

Review your contracts and supply chain

Although many may think this was a rare incident, it takes little imagination to realise the potential impact this, and other global events, can have on any business.

Now that the UK has finally left the EU customs union and single market, and as the economy slowly starts to bounce back from the impact of the pandemic once again, now is the time to review your supply chain and network.

Our guide to recovery and resilience highlights the proactive steps you can take to ensure that you to get the products, parts and raw materials you need to continue to trade and deliver revenue.

Contact us

If you’re experiencing issues with your supply chain, with businesses struggling to meet the requirements of their contracts, our litigation & dispute resolution team can help - contact Daniel Jennings for guidance and support.

Our litigation team is ranked as a Leading Firm in the Legal 500 2021 edition.

Our updated guide to recovery and resilience covers everything you need to navigate your business out of lockdown, unlock your potential and make way for a brighter future. Further advice in relation to COVID-19 can be found on our dedicated coronavirus resource hub.

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