In a move that could impact tens of thousands of workers and 30% of U.S. goods, there may be a freight rail stoppage starting Friday, September 14, 2022, if rail operators and unions fail to reach a deal by 12:01 a.m. ET on Friday. Due to this potential lack of staff, as of Tuesday, September 13, some rail operators even stopped accepting certain freight (such as hazardous materials), because there may not be anyone available to manage and keep it safe. While the media skews towards doom and gloom—predicting a massive of collapse of the supply chain—experts and commentators do expect that halted freight shipments will disrupt the already strained U.S. supply chain, including automotive and other manufacturing companies that operate on a just-in-time sole source basis.
Since the onset of COVID, the question that has come up more times than I can count is upon us once again: What can my company do to protect itself and enforce contract rights when supply is disrupted, both downstream and upstream? Can we compel suppliers to deliver under the contract? Can we issue a force majeure notice to our customers to avoid liability for non-delivery?
The solution depends on the facts of each matter, and, in the United States, will be answered by the applicable contract language and law. If your company receives a force majeure letter, below are some steps to consider. While not all of these options are available under the contract or law at issue, they may put the company in the best position to secure supply, to preserve claims against a supplier, and to protect against a larger customer claim later.
- Review what qualifies as force majeure under the contract language (don’t assume)
- Respond quickly to a force majeure notice
- Ask for specific information regarding the non-delivery
- Demand compliance with the contract
- Assert refusal to modify the contract
- Evaluate any allocation proposal and assert objections if appropriate
- Evaluate whether the supplier can manufacture and ship the goods using alternative sources
- Consider whether seeking a preliminary order requiring supply is a legal option under your contract
- Reserve all rights in communications
- Consider sending notice upstream (declare force majeure to your customers)
While there are legal pros and cons applicable to each of the options above, if you believe your company will be impacted as of Friday (and early next week if a strike ensues), now is the time to start evaluating legal options.