The pandemic COVID-19 has changed not only the lives of many people but also the global and local market. Around the world, there has been a significant reduction in production capacity due to the closure of borders between countries and the introduction of a self-isolation regime. The coronavirus pandemic has disrupted the familiar ties between manufacturers and consumers and has made major business changes for logistics companies. Let’s review some risks that appeared in international trade.
The essence of risk
It is obvious that at the moment the main problems of the industry due to the pandemic are associated with serious delays in deliveries and damage to goods with special properties. Also, do not forget that a lot of people are traditionally involved in cargo transportation, starting with cargo preparation, packaging and loading and ending with paperwork and support. Registration of documents for cargo is an integral part of the work of forwarders, carriers, line agents, warehouse complexes and terminals, customs authorities and even banks, and, despite the widespread introduction of digital technologies and the use of modern data exchange systems, many stages of transportation are still associated with paperwork that is done exclusively by people. In connection with the introduction of strict quarantine measures, many enterprises temporarily close their offices, transfer their employees to remote work, changing the usual business processes for everyone, which can cause various kinds of errors when transferring data along the supply chain and processing transport documents for goods.
It is also clear that any reduction in the volume of goods produced and delays in their dispatch have a strong impact on the income of cargo owners. In this regard, there is a risk that clients will urgently demand from the forwarders (including without proper execution of the relevant documents and changes in the contract) to organise alternative options for the delivery of goods, which may be more expensive or less reliable compared to traditional ones – for example, deliver goods by air transport, which is constantly growing in price against the backdrop of the crisis, or use it to deliver small and little-known contractors with all the risks that come with it.
Legal risk assessment:
Special conditions of contracts
While most of the transport and logistics industry operates under standard conditions of trading, some forwarders still conclude with key customers (and, obviously, under their pressure) special agreements. Taking into account the current situation in the industry, all exporters and transport operators need to carefully check the existing contracts in order to determine the boundaries and scope of their responsibility in the new circumstances. For example, is the freight forwarder or his agent required to issue forwarding receipts, powers of attorney for subcontractors and their drivers, or home bills of lading? Is the warehouse operator responsible for the timely consolidation and distribution of cargo, sticker and pasting, stock of excise taxes or stickers in the warehouse?
It is known that in many cases when it comes to large and important clients, contracts are concluded on terms that obviously imply more rights for the client than for the transport operator. However, the current situation in the cargo transportation market allows operators to already declare the need to revise the obligations of the parties, referring to the quite obvious “force majeure circumstances”, restrictive measures on the part of the authorities and uncertainty in the forecasts of the global market recovery.
Standard contract terms
If a transport operator carries out operations with cargo under standard terms of liability (i.e. within the framework of the basic applicable law), in any case, he must send all customers official notifications about the occurrence of force majeure circumstances that do not allow full compliance with the terms of the concluded contract. In addition, even if the formal date of the onset of force majeure under a particular agreement may be the subject of a dispute when concluding new transactions related to international transportation, it is necessary to even more carefully and in detail work out the terms of contracts in terms of fulfilling their obligations.
Communication with customers
One of the important points in this situation is the constant informing customers about all the problems faced by the participants in the cargo supply chain: forwarders, carriers, sea lines, agents, ports, warehouses and terminals. To take advantage of force majeure clauses, the transport operator will need to prove that the inability to fulfil its obligations to the client is due to circumstances beyond his control. As a rule, to use force majeure protection, operators only need to take reasonable measures to prevent losses to the client, which often do not even involve significant additional costs. Timely and constant information is just one of these measures.
Interaction between participants in the supply chain
Transport operators need to document all their actions taken due to the inability to fulfil obligations in full, in order to minimise the risk of claims and, if necessary, prove that everything possible has been done to avoid losses to the client. Therefore, do not forget to record all negotiations with stakeholders (customers, contractors, government agencies) of the supply chain and promptly send written notifications that confirm the agreements reached. Regularly send your clients a summary of the problems encountered and the actions you have taken to resolve them.
As you can see, there are plenty of risks during the pandemic changes if you are a part of the International Trade. Our advice is to always hire a professional 3pl service, that will handle complex operations related to warehouse and logistics services for you, especially during the crisis and hard times for all spheres of life, not just business.
We understand that this article analyses and describes only the tip of the iceberg that we all have to face in the near future against the background of the worsening situation with the coronavirus. However, the tips and tricks given here will help you, at least in the early stages of the industry crisis, avoid stupid mistakes and unnecessary expenses, as well as prepare for new challenges.