Big logistics companies invoke ‘act of God’ clause in contracts

With global supply chains rattled by the unforeseen coronavirus pandemic, “force majeure” may become the word du jour among global freight forwarders in the coming weeks as more of these firms seek flexibility with their existing service contracts.

CEVA Logistics (OTCMKTS: CVLGF) and DHL Global Forwarding (OTCMKTS: DPSGY) have both announced force majeure actions to their carriers and logistics services customers.

By declaring force majeure, CEVA said it “reserves the right to modify all or part of its services, to change its working procedures and any previously agreed rates and prices, to levy surcharges, or otherwise to take any measures necessary to adjust its business operations and its obligations to its customers, suppliers and other stakeholders, in response to the prevailing circumstances.”

CEVA further stated that action applies to all its services, including air and ocean freight, trucking and rail transport, customs brokerage, and contract logistics.

“With almost all elements of the air and ocean supply chain on certain trade lanes currently being impossible to predict or control, DHL Global Forwarding decided to declare ‘Force Majeure’ and to reserve the right to modify its services to the prevailing circumstances consequent to the virus,” the company said in an emailed statement. “We will continuously review this position as the situation is very fluid for the industry at the moment.”

The freight transportation industry has invoked temporary force majeure over the years, often during regional incidents of natural disaster or “acts of God.” They are typically added to avoid liability for natural and unavoidable catastrophes. However, rarely have forwarders taken these measures for their services on a global scale.

“COVID-19 likely will cause many contracting parties to consider declaring that a force majeure event has occurred when performance has become impossible or significantly more difficult,” Mark Klapow, a partner with law firm Crowell & Moring in Washington, told American Shipper.

“The specific facts, exact wording on the force majeure clause, and the governing law and applicable statutes will matter a great deal in determining whether nonperformance is legally excused in part or in whole, and the resultant obligations on both the parties,” he said.

Klapow explained that any business facing a force majeure notice should understand the risks and the company’s obligations.

“The starting point is going to be the contract language itself, including the force majeure clause and the remedies and termination provisions,” he said. “That legal regime is overlaid with statutory and common law doctrines like impossibility, impracticability, frustration of purpose, etc., that can vary somewhat by jurisdiction.”

Other global forwarders contacted by American Shipper have not yet invoked force majeure but say the action is not off the table.

Lance Malesh, chief commercial officer of BDP International, said his company is closely monitoring the situation with its air and ocean carriers.

“The reason that we have not invoked force majeure at this time is because of the fluidity of the situation,” he said. “We are committed to servicing our customers in as effective and efficient manner as possible during this unprecedented event.”

DSV Panalpina (OTCMKTS: DSDVY) also has not yet invoked force majeure for its logistics services.

“At DSV Panalpina we focus on finding the best possible solution for our customers through mutual bilateral discussions,” the company’s chief spokesman, Christian Krogslund, said in an email statement.

“It is our experience so far that all parties acknowledge that it is an extraordinary situation and that the usual agreements in many cases no longer are in force,” he added.

“We are adapting our response on a daily basis,” Kuehne + Nagel (OTCMKTS: KHNGY) said in a statement on Friday. “Our focus is on protecting the health and safety of our employees and ensuring our customers’ operations continue as smoothly as possible during this difficult period.”

The duration of the force majeure generally lasts as long as the period of the disruption. “Once that disruption has ceased, the contracted provisions may be restored for the remaining duration of the contract, unless the contract provides otherwise,” Klapow said.