What is force majeure?
Force Majeure is a French term that means “greater force”. It is a concept derived from an act of God. It is included as a separate term in shipping contracts to discharge participants from fulfilling obligations in case of external, unforeseeable, and unavoidable catastrophes interrupting the regular course of events.
In other words, the Force majeure clause absolves participants from performing operations or duties due to events beyond their control. It comprises an exhaustive list of natural and human-caused events including, but not limited to:
- Volcanic eruptions
- Acts of government
Force Majeure in Supply Chain & Logistics
While force majeure has implications beyond shipping, it could arise from specific circumstances in logistics.
For instance, in containerized ocean shipping, if a freight forwarder was stuck in a hurricane and cannot obtain freight space on a vessel, maintain agreed-upon pricing previously, and avoid carrier surcharges — it can be constituted as force majeure.
What differentiates “force majeure” from general changes in price is that the events leading up to its declaration were of unforeseeable nature and/or uncontrollable.
From the looks of it, COVID-19 disrupted production, induced order cancellations, and stopped shippers from sticking to volume commitments. And therefore, it was classified as force majeure by carriers and logistics providers.
However, this differs from case to case based on how parties word the force majeure clause in their shipping contract. It also does not excuse carriers from liability arising from negligence, or predictable conditions such as flooding in a storm-prone area.
Impact of Force Majeure
Force majeure can have major disruptions in the entire supply chain operations and logistics network, in a region or globally.
- Force majeure can disrupt shipping and logistics operations, leading to indefinite delays and schedule corrections.
- Businesses could also expect a rise in freight rates, depending on the event and considering that not all insurance companies cover the costs comprehensively.
- For shippers, force majeure may impact their risk ownership, cost liabilities, and service performance.
- They could have no say in accepting service rate changes and added surcharges for the agreed duration.
- Shippers may also not be able to hold logistics service providers responsible for delivery delays and incompetent performance.
Over time, the underlying concepts of force majeure are constantly evolving. Across circumstances and industries, it enables parties to shoulder the risks better and protect themselves if something out of their control wreaks havoc on business operations.
Terms related to force majeure
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