Pressures on the supply chain continue to be particularly tense, both due to trade tensions between the U.S. and China that deepened during the Trump administration and the ongoing COVID-19 pandemic. While the volatility that resulted from unprecedented sanctions and tariffs introduced a new level of stress to global logistics, the pandemic exacerbated the situation.
In 2020, demand for many types of goods dropped, manufacturing was reduced and workers were uprooted. It didn’t take long for the fiscal stimulus to kickstart the global economy; however, the impact of the lockdown had serious repercussions on manufacturing and the transportation of goods. It was clear by the end of 2020 shipping rates had increased, shipping containers were harder to come by and international ports and terminals were severely congested. All of this served as evidence the global supply chain had been significantly damaged.
This disruption to the global supply chain opens the door to litigation for everyone from manufacturers to distributors to retailers. This situation raises questions about responsibility: Who is responsible if there are faulty products as a result of supply chain disruptions? What happens if the rapid restarting of manufacturing causes problems with product quality and liability? How will disruptions impact contracts, and how can they be renegotiated?
These are questions we asked some of our leading supply chain expert witnesses near the start of the pandemic, and their answers continue to illuminate some important points that have become even more prevalent as the pandemic, and other pressures, continue.
Restarting manufacturing presents interesting scenarios in which the rushed production of goods leads to defective products. If a defective product is purchased and causes an injury, the consumer usually goes to the retailer or manufacturer, rarely calling attention to the integrity of the supply chain, which is actually where the root of the problem lies. “The manufacturer who chose to use that supplier, who is cutting costs because of lack of manpower, etc., etc., is responsible in large part for a situation like this, but not necessarily accountable,.” says Zal Phiroz, Ph.D., MBA, an expert on global supply chain management, and a professor at the University of California, San Diego.
Prof. Phiroz continues, “The problem is that in many cases we may have a lack of personnel, a lowered level of manpower, and we may have COVID-related quality assurance standards that might result in the need to speed up production because of these standards and guidelines taking up even that much more time.”. When we zoom out, we are starting to see a shift in where responsibility lies for these products. While in the past the retailer was assumed to have responsibility for the care of these products, now distributors are holding more responsibility for the last mile.
In regard to the question of contracts, most existing supply chain contracts do not account for global pandemics. This reality has us asking how can parties to these agreements renegotiate contract terms and/or revisit force majeure clauses following COVID-19? For many businesses, the answer to this question is that standard agreements, purchase orders and buying contracts will start to look much different in this post-COVID world.
“[I] would be looking for guarantees that my purchase orders are going to be fulfilled to the best of the ability of the manufacturer. My buying contracts would be talking about what percentage I am of your business, making sure that I get that percentage, at the minimum, of your output,” says Jerry Davis, a recognized thought leader in the supply chain, 3PL, and reverse logistics industries. While this type of language is just starting to make its way into contracts, it will certainly increase in usage in the coming years.
Since our discussion with Prof. Phiroz and Mr. Davis last year, the demand for goods returned. An increasing number of consumers have turned to ecommerce options and started spending less of their money on “experiences” and more on improving their at home experience. There has been a notable increase in home-improvement projects, and a growing demand for appliances and consumer electronics.
While we are currently navigating the daily changes that have arisen as a result of the pandemic, we must simultaneously look to the future. Legal teams should be prepared to advise their clients on new standards in contracts and policies, and as the inevitable wave of litigation arrives. That inspired us to have our conversation with Prof. Phiroz and Mr. Davis in July of 2020, and the conversation is just as relevant and informative today as it was last year.
If you are interested in hearing more on this topic, from some of the world’s leading experts, please take a listen to the conversation and feel free to reach out to Round Table Group should you have any related expert witness needs.
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International trade is the exchange of goods and services between countries. Worldwide trade gives countries, and their consumers, a chance to experience goods and services not available or more expensive in their countries. It also allows countries to expand their markets for goods and services not available domestically.
Logistics is the detailed organization and the application of a complicated operation. It involves the movement of a product from beginning to end. Business logistics manages the flow of packaging and supplies from the beginning of production to the point of sale to meet customer or corporation requirements.
When consumers purchase goods, they rarely consider the supply chain behind those products. Supply chains start with vendors who provide raw materials to the producers, who manufacture the products. The manufactured goods are sent to warehouses where they are stored until they are sent to distribution centers. From the distribution center the goods are sent to retailers. Without supply chains manufacturers would not be able to compete with one another or give customers what they want.