The coronavirus (Covid-19) which has caught the world unawares and disrupted supply chain efficiencies, especially exports and imports to and from China, is a wake-up call for traders and manufacturers to be properly informed about contractual clauses and insurance cover.According to Quintus van der Merwe, head of shipping and logistics at Shepstone & Wylie, Covid-19 has come as a wake-up call for the freight industry with ramifications that will be felt for years to come.“Whether it’s ocean, air or road freight, the potential knock-on effect for all modes of transport is huge.”Touching on China’s much-affected manufacturing sector, Van der Merwe cautioned that importers in particular should consider what he referred to as “potentials”.“The possibilities of delay, quarantine and the fear of goods being affected is something that could have serious consequences.”He quoted a China-based Canadian manufacturer of “high-end, high-spec parts thatare non-retail goods that have a lot of research and development going into them and that are used by other manufacturers for major design-specific products”.The ripple effect from the outbreak in China, however, has dealt the Canadian concern a neck blow.“The person I spoke to told me they had been brought to their knees,” Van der Merwe said.“A n d i t ’s not just them. It af fects their clients too as they couldn’t get their general manager to their plant because of quarantine and travel bans. As a result their assembly came to a halt.”From a retail point of view, Van der Merwe added, the question was how stores, agents, suppliers and everyone in the value chain safeguarded themselves against the fallout of imports not reaching shelves fast enough.“What you have are contracts that usually have very strict delivery terms to protect the various vested interests from loss of market share. When goods don’t reach shop shelves, consumers don’t hang around until they can buy what they came for in a particular store. They simply go elsewhere.”Late-delivery penalties, sliding-scale cost effects, cancellation clauses and punitive contractual provisions were just some of the crucial contractual commitments that could affect traders if acute awareness of potential consequences weren’t properly considered, Van der Mer we explained.“Those aside, you are left with suppliers that are stuck with large stock of now-distressed goods after contracts are cancelled, and buyers who are unable to get delivery of their merchandise.”Another ramification, he said, were the effects on insurance.“A s i d e f r o m the obvious medical insurance consequences, there are potential aspects on the exclusions in insurance contracts.”Recalling the outbreaks of Ebola haemorrhagic fever that has ravaged Africa’s equatorial tropics where a lot of mining activity occurs, Van der Merwe said it had massively impacted on the insurance sector.“Service providers to the mines were forced to cease operations and, in one instance, this gave rise to a significant business interruption claim against insurers.”Insurers have taken a battering over recent years according to Van der Merwe, citing as examples of force majeure or “act of God” incidents, the tsunami that slammed into Japan a few years ago, as well as recent wild fires that raged across Australia and how insurers had to carry the can for unintended and uncontrolled interruptions to trading and manufacturing.“Risk managers will all confirm that insurers have been taking an absolute pasting in recent years and what we are beginning to see is that insurers are increasingly disinclined to underwrite certain risks any more because related claims by far exceed the premiums.”However, whether or not Covid-19 was regarded as force majeure depended on contractual definitions, Van der Merwe said.Of interest is that Chinese business concerns have been issuing a lot of force majeure disclaimers in a bid to preventatively safeguard themselves against any corona-related supply-chain interruptions.What’s more important, Van der Merwe said, was that traders, whether they were exporting perishables to China or importing goods from that country, were looking at all the possible angles and related costs.
INSERT: Covid-19 is worse than people anticipated and is going to have ramifications for years to come.– Quintus van der Merwe