What Is Force Majeure in Shipping?

What is force majeure in shipping? This is an unfamiliar term for many, but it is important to understand if you are involved in the shipping industry.

In this article, we will discuss what force majeure is, how it can impact your business and what you can do to protect your business from its impact. We will also provide some examples to help illustrate this concept. Keep reading for more information.

Definition of Force Majeure in Shipping

When it comes to shipping, force majeure is a legal term that refers to an unforeseeable event or circumstance that prevents someone from fulfilling their contractual obligations.

Force majeure can apply to both individuals and businesses and is often invoked in cases of natural disasters or other events beyond one's control.

Force majeure may excuse a party from liability if they cannot perform their contractual duties due to an unforeseen event. This could include events like bad weather, fires, earthquakes, hurricanes, or war.

If force majeure is invoked, it may release the affected party from their obligations under the contract or allow them to suspend performance until the event has passed.

If you're shipping goods, it's necessary to be aware of force majeure and how it could affect your contract. In an unforeseen circumstance, you may need to invoke force majeure to protect yourself from liability.

Examples of Force Majeure Events

Force majeure events are divided into two categories: natural and man-made events.

Natural force majeure events in shipping

Natural force majeure events, also known as "acts of God," are events that are unforeseeable, unavoidable, and outside human control. Such events include but are not limited to earthquakes, floods, hurricanes, typhoons, volcanoes, severe weather conditions, and pandemics.

These events are beyond the control of businesses, which is why the force majeure clause is invoked. The force majeure clause essentially protects businesses from being held liable for damages caused by these events.

How do natural force majeure events affect shipping?

Natural force majeure events can have a significant impact on the shipping industry. For example, if a hurricane hits and damages a port, businesses may be unable to ship their products as planned, causing delays and other supply chain disruptions.

In some cases, natural force majeure events can even damage or destroy products being shipped. This can lead to business losses and may even force them to cancel orders.

When a natural force majeure event occurs, it can significantly impact international trade and the supply chain. For example, the outbreak of COVID-19 has led to widespread disruptions in global supply chains. As a result, many businesses have had to grapple with delays in shipments and unexpected costs.

If you are involved in international trade, it is crucial to be aware of the potential impact of natural force majeure events. While these events may be beyond your control, understanding how they affect your business can help you minimize disruptions and avoid costly delays.

Man-made force majeure events in shipping

Man-made force majeure events are caused by humans and not by natural causes. These events can include political unrest, war, terrorism, and other similar situations. While these events are beyond our control, they can still significantly impact shipping.

Here are some examples of man-made force majeure events and how they can affect shipping:

Political unrest

Political unrest can lead to supply chain disruptions and make it difficult for ships to dock at ports. This can cause delays in deliveries and may also result in increased costs.

War

War is one of the most devastating man-made force majeure events. It can completely disrupt the supply chain and lead to infrastructure destruction. This can result in delays, cancellations, and increased costs.

Terrorism

Terrorism is another major man-made force majeure event that can significantly impact shipping. It can cause disruptions in the supply chain and lead to the closure of ports and airports. This can result in delays, cancellations, and increased costs.

While these events are beyond our control, there are still steps that we can take to minimize the impact on shipping, as we will see later in this post.

What Determines whether an Event Is Classified as Force Majeure?

There is no one answer to this question since each situation is unique and must be evaluated on a case-by-case basis. However, there are some general factors that you can take into consideration when making your determination.

The language of the contract in question

Force majeure clauses are typically found in commercial contracts and supply agreements. The language of the clause will vary from contract to contract, but it will usually list specific events that qualify as force majeure events.

Similarity to what is listed in the contract

If the event in question is not explicitly listed in the contract, you will need to determine whether it is similar to the listed events. For example, if a contract lists strikes as a force majeure event, then a work stoppage due to a fire at the worksite would likely be classified as a force majeure event.

Apart from the contract, the following questions will help you to classify an event as a force majeure or not:

Was the event foreseeable?

Foreseeable events are not likely to be considered force majeure. For example, if bad weather was foreseeable, a party cannot claim that it prevented it from performing its obligations under the contract.

Was the event extraordinary?

An extraordinary event is not common or ordinary. For example, a pandemic would be considered an extraordinary event because it is not something that typically occurs.

Was the event beyond the control of the parties?

This means that the event must have been something that the parties in the contract could not have reasonably prevented. So, for example, if one party knew about a potential pandemic but did not take steps to prevent it from happening, then that party would likely not be able to claim force majeure.

Has the event prevented the completion of contract obligations?

This is usually the most critical factor in determining whether or not a situation is classified as a force majeure event.

Is there any other remedy that would excuse the party?

It is essential to consider whether any other remedy would excuse the party from performing its obligations under the contract.

For example, suppose a party can show that it took all reasonable steps to prevent the event from occurring. In that case, that party may still be able to perform its contractual obligation under the contract.

If you are ever unsure whether or not a situation is classified as a force majeure event, you should consult with an experienced attorney who can give you legal advice on your rights and options.

How Does Force Majeure Affect Shipments?

There are many ways in which force majeure can affect shipments. Here are seven of the most common:

1) Delays in transportation: Delays in transportation can be due to bad weather, mechanical problems, political unrest, or any other force majeure event.

2) Cancellation of orders: If a force majeure event occurs while an order is in transit, the order may be canceled. This can be extremely frustrating for both the buyer and the seller, as it can lead to lost time and money.

3) Changes in destination: If a force majeure event occurs at the destination of a shipment, the shipment may be redirected to another location. Redirection can often be done without delays, but it can occasionally cause delays if the new destination is not equipped to handle the shipment.

4) Damage to goods: In some cases, force majeure events can damage goods in transit due to weather conditions, accidents, or even acts of terrorism.

5) Loss of goods: In rare cases, force majeure events can result in the total loss of a shipment, which can happen if the goods are lost at sea or destroyed in an accident.

6) Increased costs: Force majeure events can often cause increased costs for buyers and sellers. The events can often lead to unexpected expenses, such as transportation delays or damaged goods.

7) Decreased demand: Force majeure events can lead to reduced demand for certain products if the event makes it difficult for customers to use the product or if it creates safety concerns.

While force majeure events can be frustrating, it's important to remember that they are beyond the control of both buyers and sellers. Therefore, if you find yourself in a situation where force majeure has affected your shipment, it's necessary to work with your team to find a solution that works for everyone involved.

What to Do if Your Business Experiences a Force Majeure Event

Force majeure events can be disruptive to businesses, but there are steps that you can take to minimize the impact:

• Stop and assess the situation: What has happened? How will it affect your ability to perform your contractual obligations? Is the event something that is within or outside of your control?
• Review your contract: Most contracts have a force majeure clause that will outline the steps to take in the event of an unforeseeable circumstance.
• Give notice to the other party as soon as possible: This allows them to make alternative arrangements and avoid delays or disruptions in their operations.
• Keep records of the event and its effects on your business: Documentation will be helpful if you need to claim damages later on.
• Try to find a solution that will allow you to meet your contractual obligations despite the force majeure event: It may involve working with the other party to find an alternative way to fulfill the terms of the contract.
• Negotiate a release: If it is impossible to meet your contractual obligations, then you may be able to negotiate a release from the shipping contract with the other party. This should be done as a last resort and only after all other options have been exhausted.
• Consult with an attorney: Consult with an attorney familiar with force majeure law to discuss your specific situation and what legal options may be available.

How Do You File a Claim for Force Majeure?

If you find yourself in the situation where you need to file a claim for force majeure, there are a few steps you'll need to take:

1. Consult your contract. See if force majeure is included as a clause. If it is, review the language carefully to see what conditions need to be met for you to make a claim.
2. Start collecting evidence that will support your claim. This might include weather reports, news articles, or other documentation proving that the event in question was indeed beyond your control. The more evidence you have, the stronger your case will be.
3. Reach out to the other party involved. Let them know you will file a claim. Make sure to include all the evidence you've collected so they can review it and determine if your claim is valid.
4. Wait for claim approval. If everything goes smoothly, your claim should be approved, and you'll be able to move forward. However, if the other party disagrees with your claim, you may need mediation or arbitration to resolve it.

No matter what, don't give up – force majeure claims can be tricky, but if you have a strong case and are persistent, you stand a good chance of getting the outcome you're hoping for.

How to Protect Yourself against the Risks of Force Majeure

For businesses, force majeure can have a significant impact. It can disrupt supply chains and cause financial losses. That's why it's necessary to have a plan in place in case your business is affected by force majeure.

There are several things you can do to protect your business from the risks of force majeure:

Review your contracts: Make sure you understand the force majeure clause in your contracts. This will help you know what to do if an event occurs.

Have contingency plans: Have a plan for how you will cope if your business is affected by force majeure. This could include things like alternative suppliers or transportation options.

Get insurance: Force majeure events are often not covered by standard business insurance policies. But some insurers offer coverage for these types of events.

By taking these steps, you can help protect your business from the risks of force majeure.

Bottom Line

Force majeure can have a significant impact on businesses. That's why it's necessary to have a plan in place in case your business is affected by force majeure. You can do several things to protect your business, including reviewing your contracts, having contingency plans, and getting insurance.

Have more questions about force majeure or shipping in general? Contact us at A-1 Auto Transport today. With our years of experience in the shipping industry, we would be happy to answer your questions and help you find shipping solutions.