Manufacturer’s Corner. So, there’s a big shipping backlog forming out west while port owners and the longshoremen work a few things out. How’s that affecting your supply contracts?
If you’re not familiar with the situation, you should be. Here’s the New York Times with the latest. This last happened in 2002, and President Bush invoked a federal law to force everyone back to work before the problem got too bad. We have a different president and different circumstances now, so who knows how long this could drag out (or not).
Now, about those supply contracts. The supplier (whether you or your counterparty) is probably obligated to supply goods at fixed intervals, or within a specified time following request. There’s probably also something in there that says timing is really, really important. So, if the goods get held up because of this problem at the ports, what does that mean?
Maybe nothing, maybe quite a lot. There’s probably a clause in the contact that excuses failures of performance for various reasons, but sometimes that clause isn’t broad enough to cover strikes or labor disputes. Even if your clause is that broad, this particular dispute poses an interesting issue: there’s no strike or lockout. The port owners say the workers are intentionally working slowly, but the workers (at least formally) deny that. Does that rise to the level of a labor dispute? Must a party seeking to invoke the excuse of performance clause prove that the workers were intentionally working slowly to enhance their bargaining position? It seems so; surely the mere fact of negotiations between labor and owners does not rise to the level of a labor dispute without more.
I raise this now because maybe one of the parties to your supply contract is unhappy and looking for a way out. I hear that’s happening a lot these days. Whether you’re that party or not, this is an issue to keep an eye on. And, of course, if this threatens your supply chain or exposes you to liability, it’s time to start evaluating ways to mitigate the pain.