Rumors are circulating in the global shipping community about the invocation of force majeure. Although it is rarely used, force majeure can cause serious disruption in the supply chain. Worse yet, it can add a considerable expense to the consignee.
In broad terms, force majeure refers to unforeseeable circumstances that prevents someone from fulfilling a contract. In the shipping industry, force majeure is a clause in the bill of lading contract that is designed to, in part or in whole, absolve a party from liability for failing to fulfill their obligations because of extraordinary events and circumstances. Force majeure does not excuse a party for failure to perform under normal conditions and can only be deployed for specific, named conditions within the contract.
For example, when Hurricane Sandy struck the east coast, several terminals were unable to accept vessels and cargo due to damage caused by the storm. Citing the hurricane as an “Act of God”, steamship lines declared force majeure and discharged the cargo at different ports. “Acts of God” refer to unavoidable and catastrophic weather conditions and is a standard named condition under the force majeure clause.
It is crucial that the consignee, importer, and exporter understand which situations are specifically named within the force majeure clause of a contract. For instance, COVID-19 is a pandemic. If a pandemic is not specifically mentioned in the force majeure clause of a contract, it would be left up to the courts to determine if it can be applied to the contract.
If force majeure is declared on a shipment, the consignee would most likely be responsible for any additional charges to get the cargo from the port of involuntary discharge to the original named destination. Among other things, these fees can include terminal charges, demurrage, storage, drayage, and additional shipping costs. As you can imagine, this can become expensive very quickly.
However, there is an alternative to help protect businesses from these additional expenses – cargo insurance.
While force majeure may not be specifically named in the policy, additional freight charges for the purpose of completing delivery as well as potentially other associated costs may be paid by cargo insurers. Your cargo insurance policy generally has terms and conditions to cover costs relating to minimizing loss or damage and ensuring cargo arrives safely to its intended destination.
Right now is a great time to contact your insurance provider with questions about your specific coverage. The more familiar you are with the terms of your insurance, the better prepared you can be for potential disruptions caused by the COVID-19 pandemic.
At TLR, our team of professionals are constantly working with our vast network of experts to stay current on industry news, which allows us the ability to stay on top of trends and projections. Please feel free to contact us with any questions at BD@shiptlr.com.