Over the last several years, the automotive industry has grown accustomed to various supply disruptions, from COVID-19 shutdowns and material shortages to port congestions. The tragic collapse of the Francis Scott Key Bridge in the Port of Baltimore – the result of a cargo ship crash – may lead to yet another supply disruption. This port is the largest U.S. port by volume for deliveries of automotive vehicles and components, with marine traffic currently at a standstill.
While cargo ships will be looking for alternate ports of entry along the eastern seaboard, there will still likely be delays in shipments. Suppliers should be ready to react. As we know in the automotive industry, any delay in our “just in time” world can cause very costly ripple effects. Below are some immediate steps suppliers should consider:
- Proactively assess (i.e., this week!) whether this shutdown will impact any inbound shipments or shipments to your sub-suppliers that could result in potential delays to your customers, whether an OEM or a tiered supplier.
- If you reasonably believe this port shutdown will impact your supply chain, you should promptly review your contracts (and any applicable terms and conditions) with your customers and your suppliers to determine whether, when and how to declare a force majeure event.
Generally speaking, a force majeure event is an external event outside of any party’s contract that is unforeseen and makes performance of the contract impossible or commercially impracticable. But every contract has different language, may contain unique obligations and some contracts do not even include force majeure language. A quick but careful review is critical.
If you have any doubts or concerns about the applicability of a force majeure provision, consult with in-house counsel or external legal resources before taking any action. - Based on this review, it may be appropriate to craft a written force majeure notice to your customers advising them of this incident, that shipments may be delayed and the particular steps you intend to take to address the situation. Again, the details matter — many force majeure provisions contain specific notification procedures.
- You may also need to send a communication to your suppliers, responding to any notices you receive. Again, these responses should be carefully crafted to protect your legal position and to ensure that all reasonable efforts are taken.
- Throughout this event, or any other potential force majeure event, it is important to engage in constant, open and transparent communications with your customers. Lack of communication can often exacerbate an already fraught situation.
The automotive industry has continued to confront numerous supply disruptions over the last several years, and this tragic port crash will pose yet another challenge. Be proactive in protecting your legal positions as you work your way through this recent event.
At Warner, our attorneys regularly counsel supplier clients on these and other supply chain matters, and we’re available to assist you. Please contact Michael Brady or a member of Warner’s Supply Chain Industry Group, or your Warner attorney for issues concerning supply chain matters.
