Supply chain feeling the strain?

12 Aug 2021

‘Supply chain’ is a term that the public have come to know well through experience in the last year or so. For example, Brexit may have meant some of us had  to wait longer for the materials for our DIY projects. Whilst the grounding of Ever Given, the container ship-shaped stopper in the Suez canal,  adversely impacted on global trade, meaning some did not get their new TV for some time.  There’s no doubt that global supply chains have become increasingly fragile, affected by, amongst other things, shortages, health crises and a rising number of cyber attacks.
 
When it comes to businesses, all too frequently we find that neither suppliers nor customers fully understand or appreciate the contractual arrangements they’ve signed up to.  Clearly, it’s critical that all parties in the supply chain understand the relevant contracts, particularly when market conditions remain so turbulent.
 
There have been many instances where businesses trading internationally have fallen foul of Incoterms by using the wrong set inadvertently.  A simple three-letter code has the capacity to make life very difficult, and expensive: EXW, for example, shifts much of the pain to the importer whereas DDP directs it to the exporter.
 
Some businesses wrestled with force majeure provisions in the run-up to Brexit and under multiple lockdowns; the ongoing pingdemic here in the UK hasn’t provided much relief either.  We have also seen clients struggle to claim additional costs when forced to source products from alternative suppliers because that liability has been excluded under the relevant contract.
 
The key takeaway – reinforced  by recent experience - is to understand your contracts and what you have committed to.
 
There are clear pinch points to be aware of, many of which you can plan for:
 
  • Are you locked into an exclusive arrangement?  Perhaps, a supply network would be more beneficial than a supply chain.
  • How can you end the arrangement if things are not working out?
  • Can you source from elsewhere and recover additional costs incurred? 
  • If you do incur additional costs due to supply chain issues, can you pass those on to someone else in the chain (upstream or downstream)?
  • Is your supplier required to stock minimum stock levels regardless of whether you order or not?
  • What is within or without the force majeure provisions (it would be exceptional for Brexit to be included but typically normal for pandemic and epidemic to count as a force majeure event)? 
  • What is the position on the parties’ liabilities – what can be recovered and what can’t?
  • Who is responsible for import and export duties and insurance?
 
Lessons in (supply chain) life
 
  1. Build flexibility into your contracts.
  2. Invest time understanding the issues you may face and reflect that understanding in your contracts.
  3. Be prepared to compromise; not everything will go your way, but a successful negotiation is one that is a win-win for both sides. You may find giving a little means a lot to the other party.
 
There is a great deal of debate within the supply chain industry about resilience, stress testing and supply networks rather than chains becoming the ‘norm’.  That debate is set to continue, fuelled by the experience and learnings of the last 18 months. There is a clear need for change and the starting point for many may be to look afresh at supply chain contracts.

If you need assistance with any issues concerning contracts, please do get in touch with one of our experts in the Commercial team.
 

Further reading

What does fair redundancy consultation mean?

Blog, Legal Updates
01/12/2023
All employers will be familiar with the need to follow a fair process of consultation in relation to any redundancy dismissals. But what does that mean? A recent Employment Appeal Tribunal decision underlined the importance of one aspect of the process
Read more Read

Major Reforms to Companies House

Blog, Legal Updates
30/11/2023
The Economic Crime and Corporate Transparency Act 2023 (the “Act”) has now received Royal Assent and become law. Its objective is to deliver a range of reforms to tackle economic crime and improve transparency over corporate entities.
Read more Read

Supreme Court rules that Deliveroo riders are not workers and cannot unionise

Blog, Legal Updates
24/11/2023
The Supreme Court brought an end to years of litigation this week and confirmed that Deliveroo riders were not ‘workers’ within the meaning of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA)
Read more Read

Levelling-Up and Regeneration Act 2023: The demise of the four-year rule

Blog
17/11/2023
A blanket 10 year time limit due to be implemented to take enforcement action on development without planning permission.
Read more Read
  • Brighton - Jubilee St

    1 Jubilee Street

    Brighton

    East Sussex

    BN1 1GE

  • Brighton - Old Steine

    47 Old Steine

    Brighton

    East Sussex

    BN1 1NW

  • Gatwick

    Griffin House

    135 High Street

    Crawley

    West Sussex

    RH10 1DQ

  • Guildford

    Wonersh House

    The Guildway

    Old Portsmouth Road

    Guildford

    Surrey

    GU3 1LR

  • Hassocks

    32 Keymer Road

    Hassocks

    West Sussex

    BN6 8AL

  • Horsham

    3rd Floor

    Afon Building

    Worthing Road

    Horsham

    West Sussex

    RH12 1TL

  • London

    6 New Street Square

    New Fetter Lane

    London

    EC4A 3BF

  • Make an enquiry

    Make an enquiry

    Message

    Or head to our Contact us page