How does a chance occurrence or unavoidable accident affect contracts between two businesses? For example, your business uses a carrier to ship your freight, and it’s expected to arrive on a certain date. But, what happens if a hurricane causes flooding which wipes out a bridge, delaying the shipment? If the contract between the carrier and your business contains a force majeure clause, the carrier is protected from liability and the obligation of delivering on time due to the occurrence of an extraordinary event (the hurricane and resulting flood). This example is an introduction to force majeure, which this article will explore in greater detail, specifically in the transportation and logistics industry.
What Is Force Majeure?
Like the above example shows, force majeure is the term for an unavoidable, unforeseeable, extraordinary event that prevents the completion of a contract. As long as the contract contains a force majeure clause, the parties are not liable or obligated to complete the contract until the extraordinary event passes. It is important to note that the terms of the contract will be completed, if possible, after the event occurs. In addition, the events must be out of the control of the parties involved in the contract. Therefore, force majeure cannot be used in the case of negligence. Overall, extreme events happen, and force majeure clauses can help protect the parties in the contract from liability and obligation when the events are out of their control.
Some examples of intervening circumstances that could prevent one or both parties from fulfilling the obligations in the contract include natural disasters, acts of war, government actions, labor strikes, or impracticability of completing the tasks required. Many recent events provide examples of force majeure being applied in the transportation and logistics industry.
A Real World Example Of Invoking Force Majeure In The Transportation And Logistics Industry
Force majeure clauses may be especially useful in the transportation and logistics industry due to the time-sensitive nature of many contracts. A wide variety of extraordinary events could occur, making the completion of such contracts impossible until the event passes. We’ve explored one such example below:
Labor strikes at the Ports of Los Angeles and Long Beach
From the Fall of 2014 through the Winter of 2015 the Ports of Los Angeles and Long Beach saw serious congestion due to the build up of shipping containers. This was caused by a labor dispute between the ship lines carrying the containers, and the workers at port tasked with unloading the containers from the vessels. As more and more port workers went on strike, the container volume built up, and congestions led to delays. Normally, the trucking carriers have an allotted amount of time to pick up and return containers to port. If the truckers go over this time limit, they face fines up to $200 a day. The truckers are now arguing for the fines to be waived, invoking the force majeure clauses in their contracts. They believe the labor strike and eventual congestion was an unforeseen, extraordinary event for which they are now paying the consequences. As the labor disputes are resolved, and port activity returns to normal, it will be interesting to see if the trucking carriers invoking force majeure are compensated for the extra charges.
When parties invoke the force majeure clause in their contract, the contract is generally reviewed in court to determine if the extraordinary events were in fact unavoidable and unforeseeable. Therefore, even when events such as hurricanes occur, one party may still end up being liable if it is determined that the hurricane was foreseeable. However, it is better to have a force majeure clause and end up being found liable in court, rather than for-go the force majeure clause entirely. Transportation and logistics has always been a complicated, multi-faceted industry; made more so with extraordinary events. As this blog has said in the past, accidents happen, so it’s best to be prepared in order to protect your business.