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| 1 minute read

A new economic landscape - contracts warrant a second look

The onset of conflict in Ukraine saw businesses scramble to understand and navigate the raft of new international sanctions which were rapidly introduced by individual states and international bodies.

Alongside the challenge of sanctions, the world has felt the further impacts of the war. Disruptions to grain exports led the UN to announce at a recent Security Council meeting (SC/14894) that the "global food crisis already impacted by the COVID-19 pandemic and climate change, is being driven to famine levels worldwide by the war in Ukraine". Global car manufacturing has also suffered set-backs because a key component - electrical wiring - is made in Ukraine.

Businesses lucky enough to have avoided any direct consequences of the conflict so far should remain vigilant. The global landscape has changed in many ways. Korean shipbuilders recently agreed to an 8 per cent increase in steel plate prices as a result of higher steel prices. This has delayed their anticipated return to profitability despite increased orders and higher prices for new ships. 

Against this backdrop, risks may lie in existing contracts (particularly those signed before February 2022) which demand future performance.

  • Was your contract signed before February 2022?
  • Does your contract require future performance by a party?
  • Are there elements of your contract in which a party stands to suffer as a result of the new economic landscape (e.g. pricing of raw materials etc.)?
  • Does your contract contain any provisions which allow for adjustments in price to take account of fluctuating global markets or other changing circumstances?

Many markets are feeling the effects of the conflict. Charter rates have been sky-high, but are expected to soften. Bunker prices have been pushed up. Shipping and other commercial contracts concluded some time ago and filed away for safe-keeping, but requiring ongoing performance, would benefit from a fresh look to understand where any enhanced, or completely new, risks may lie.

The three big South Korean builders are trying to renegotiate the terms of the $19bn in total preliminary orders for more than 100 LNG carriers to be delivered through 2027

Tags

transportation, ukraine, covid-19, shipping, industrial & logistics

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