COVID-19 implications for commercial contracts: International sale of goods on CIF and FOB terms
The ability to trade globally, through a seamless logistic network, moving goods across international boundaries, integrating engineering and technology from different parts of the world has been a fundamental element of the globalized trading system. Raw commodities travelling from one part of the world to be converted into plastic or metal components only to be shipped again to be manufactured and then again for assembling and distribution is something which traders and consumers alike take for granted.
The current COVID-19 pandemic has and still is interfering heavily with international trade, creating inefficiencies, delays and supply-chain disruptions on an unprecedented scale.
The world has seen pandemic outbreaks before and international trade has been around for millennia, however, the logistical chain has never been as efficient and complex as it is now, and the timing of every step of it has never been more crucial. Shippers, customs authorities, ships, agents, banks, receivers, and underwriters, all rely heavily on the efficiency of the system and the ability to procure, produce, transmit goods and documents and turn them around very quickly. This is where the pandemic has caused severe disruption. Temporary closures of factories, partial closures of logistic providers, ports, and port services, has caused shortages of supplies and delays to the logistical chain with compound effects around existing bottlenecks.
Manufacturers are struggling to procure their components and ship their products, shippers and vessels are delayed at port and in transit, and sellers struggle to meet their banking deadlines for payment. In turn there is a compound failure to pay business suppliers on time, with an increased risk of insolvency.
All of this is clearly only temporary, but the effects it may have on the modern way in which international trade works, are potentially severe.
The purpose of this briefing note is to illustrate the way in which the mechanics of international trade may be affected by the COVID-19 pandemic and identify a number of common legal and commercial issues arising from it. Some possible approaches will also be suggested with the purpose of encouraging discussion between the affected parties and stimulating preventive measures for future agreements and their performance.