Practical risk guidance in light of the developing covid-19 outbreak


  • Date: 27/03/2020
Practical risk guidance in light of the developing covid-19 outbreak

Executive Summary

The latest coronavirus outbreak in 2019 has had a wide and profound impact on citizens of a growing number of countries across the globe. The effects of the outbreak has witnessed disruption to many normal business operations in many countries. Even short periods of interruption to the manufacturing industry will inevitably give rise to various challenges through the international supply chain. 

While governments and society in general will be interested in maintaining at least certain cargo flows, the transport and logistics industry will face particularly gritty decisions that will impact their own people as well as many who are directly or indirectly connected. Some of these decisions may be covered (at least in part) by existing contractual provisions; many may fall outside direct contractual obligations and entities will need to consider how best to do what may be ‘right’ while not prejudicing their position. 

Introduction

The globalised nature of business has become reliant upon uninterrupted cross border trade, supplying, for instance, raw materials to the manufacturing industry and shipping finished product to the final markets for sale. An interruption to the flow of goods has the potential to give rise to a number of challenges to the stakeholders in the supply chain. 

In the modern logistics environment many industries have developed business models to ensure the most efficient or ‘lean’ operations; manufacturing industries for example may employ a just in time logistics model. Some businesses simply don’t have a sufficient availability of raw materials or components to ensure that their production line can continue to run as expected. 

TT Club membership across all sectors of the transport and logistics industry are likely as a result to be faced with commercial pressure from both their customers and suppliers, and possibly other counterparties, to assist in mitigating the potential issues faced. This may include in logistics transaction whether, for instance, a shipment of components can be shipped by air to reduce transit time, or can a time/temperature sensitive cargo be shipped through another destination port in order to reach its intended destination and avoid loss? However, the range of issues likely to arise in relation to physical facilities, such as warehouses or ports and terminals, will necessarily be vast and complex.

Those involved in the transport and logistics industry are by their very nature problem solvers and adept at tackling problems as they arise, often with innovative solutions. Nevertheless, where the capacity exists to take alternative actions, it may be expected that they may typically attract additional costs. Additionally, within a contractual nexus, a supply chain stakeholder is generally obligated to consider and explore all reasonable options to mitigate a potential loss arising out of the outbreak. Where a stakeholder seeks for example to rely up on a “force majeure” defence, they may well face the burden of evidencing that they took all reasonable steps to mitigate the loss.      

Risk mitigation strategies

Whilst liability will be considered against the specific circumstances of any loss on a case by case basis, there are a number of proactive risk mitigation strategies which stakeholders may consider; the list below is non-exhaustive and intended to provide an outline of possible actions.   

  • Ensure that you have established appropriate channels of communication with national or local authorities in your location, such that you understand quickly any restrictions that may be applied and are in a position to comply with any additional requirements, such as reporting.
  • Set up clear protocols with employees, contractors and visitors/other third parties that define your expectations in regard to self-care and responsibility to others in the workplace. Consider the health and welfare of all those interacting with your business and seek to put out clear communications that frame personal, corporate and contractual responsibilities.
  • Carry out a risk assessment of your activities/operations in order to identify vulnerabilities that may impact your ability to fulfil contractual obligations or carry out standard business requirements. Subject to the nature of your activities and any governmental guidance, it may be appropriate to investigate staggered working hours, split teams, home-working etc. 
  • Take time to ensure that your contracts (whether with customers or suppliers, including landlords etc) protect your interests as far as is reasonable. 
  • Undertake a review of your standard terms and conditions (STC’s, including, for example, bill of lading terms) and any bespoke customer contracts to confirm they include a force majeure clause and standard liberty clauses
  • Verify you have a robust process to incorporate terms and conditions into all transactions with your customers. Having sound terms and conditions may be ineffective if they have not been sufficiently incorporated.

Most STC’s, industry standard terms and conditions and model bill of lading terms will afford the contractor a degree of protection in respect of most conceivable claim scenarios provided that they have been sufficiently incorporated. In practice such terms may provide a complete defence to claim or conversely provide a mechanism through which any additional costs incurred can be recouped from your customer or another party.

“Force majeure” type clauses can potentially assist an operator to defend a claim. However, such clauses are not designed to provide unequivocal blanket protection in all circumstances. A stakeholder seeking to rely up on such a defence will have the burden to evidence that they have acted prudently in the circumstances and have taken reasonable steps to explore all available options to avoid the loss in question. Given the now global nature of the outbreak, there is clearly the potential for claims to be brought in a number of jurisdictions, it should be highlighted that the burden of evidence to defend against a force majeure clause successfully are likely to be different from jurisdiction to jurisdiction. 

Communications

Circumstances such as the current coronavirus do unfortunately have the potential to generate friction between all those affected, including those without a direct contractual nexus. Many organisations will have considered ‘crisis management’ or ‘emergency response’ plans in the past; while there will be specifics that are unlikely to be relevant in the current scenario, any aspects concerning communications with customers, suppliers, authorities and any other connected entities will provide a working blueprint to follow. Simple, clear and consistent communication will always serve your ‘community’ well and probably protect your legal position as well.

Fundamentally, there is the need to communicate. Communication with relevant authorities at a local, national and potentially international level will assist in understanding the latest official advice and guidance and in setting your strategies to mitigate risk and protect your business. It is also prudent to remain in open dialogue with your customers and suppliers to understand their challenges with a view to achieving collaborative solutions.  

Commercial considerations

Commercially there is a need to fully understand the extent to which you have a legal liability (and therefore potential insurance cover) and balance this against the risk of damaging any given commercial relationship.  

In relation to freight movement, there is a need to risk assess new bookings and future bookings of any nature. Can you fulfil the required services, either directly or through your established contractor network? Are you being asked to ship a time sensitive shipment through areas with known disruption? 

Since the coronavirus is understood to spread by contact with surfaces, those involved in any direct handling of cargo may need additional protections and training. It may be necessary to identify more carefully the routing of cargo or equipment. Furthermore, guidance from governmental authorities should be sought in relation to how to manage people coming into any facility, whether landside (such as truckers) or from ships (such as crew or passengers); while any entity will have responsibilities to their employees and contractors, these circumstances require careful consideration of all potentially affected people. 

Subject to any national or local governmental guidance, aligning with what is put out by the World Health Organization would appear most appropriate. At the time of writing, this would include personal hygiene, such as regular and thorough (20 second) washing of hands, and avoiding touching the face; actively support simple instructions such as these.

Alongside all this, take steps not to undermine safety and security procedures that are in place. There may be specific requirements that become impossible or where authorities instruct that usual procedures can be voided; there is, however, every reason to maintain normal rigour as far as possible. 

Through Transport Mutual Insurance Association Limited and TT Club Mutual Insurance Limited, trading as the TT Club. TT Club Mutual Insurance Limited, registered in the UK (Company number: 02657093) is authorised by the Prudential Regulation Authority and regulated in the UK by the Financial Conduct Authority and Prudential Regulation Authority. In Hong Kong, TT Club Mutual Insurance Limited is authorised and regulated by the Hong Kong Insurance Authority, in Singapore by the Monetary Authority of Singapore and in Australia by the Australian Prudential Regulation Authority. In the United States, TT Club Mutual Insurance Limited is approved as a surplus lines insurer in all states and is accessible through properly licensed surplus lines brokers. The registered offices are: 90 Fenchurch Street, London, EC3M 4ST.

Through Transport Mutual Insurance Association Limited, registered in Bermuda (Company number: 1750) is authorised and regulated in Bermuda by the Bermuda Monetary Authority. 

The UK VAT Identification number for Through Transport Mutual Insurance Association Limited is: GB 564 5244 35 and for TT Club Mutual Insurance Limited is: GB 564 3375 30. The Italian VAT Identification number for TT Club Mutual Ltd is: 03627210101.

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