Yet another shock to the supply chain has emerged from the US/Israel/Iran war, which has quickly expanded to include Iranian attacks on Bahrain, Cyprus, Jordan, Kuwait, Oman, Qatar, Saudi Arabia and the UAE.
Linked to all of this is the impact on the ability of all affected countries to export oil via the Strait of Hormuz (currently closed), there are also expected impacts on all maritime trade that flows through the Red Sea and the Suez Canal, as well as all air cargo that flies across the Middle East and via hub airports in the Middle East.
As with many other supply chain shocks of recent years, the speed and scale of the escalating situation across the Middle East have taken many businesses by surprise, although tensions had been rising. This is not dissimilar to other major events (whether they be natural disasters affecting major industrialised countries, Brexit, COVID-19, the Russia/Ukraine conflict or the global cost of energy crisis, which have all had and, in some instances, continue to have major adverse impacts on the ability of companies to source, manufacture and sell raw materials, commodities, components, finished goods and services.
The occurrence of these events has placed businesses under extreme pressure for a considerable period of time as the events continue for months or years, rather than being a one-off occurrence. These events are often compounded by other issues relating to tariffs, energy prices and changes in tax, employment and other policies of national governments.
The impact of all “ unexpected” events is that they must be managed simultaneously by businesses and, as such, the effects of these events may be difficult to separate from other supply chain shocks. For example, the impact of digitisation, artificial intelligence and “ as-a-service” business models is also having a dramatic effect on the nature of what many companies produce, as well as how companies bring the goods that they produce to market.
As a result, existing supply chain contracts may require renegotiation if businesses are to remain viable, while greater care will be needed to ensure that new contracts provide appropriate protection when dealing with fast-changing conditions.
This note considers some of the key contractual issues that businesses (particularly those involved in the manufacture, distribution and sale of products) need to consider as they assess their critical needs, vulnerabilities and protections alongside their ability to mitigate risks, both under existing contracts and as they develop new contractual arrangements.
In addition, many of the practical tips apply equally well to businesses that may need to look to renegotiate failing contracts, particularly where one party finds itself under financial pressure, either generally or as a result of an existing contract that is either onerous, or that does not provide adequate protection as regards supply chain issues.
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