Hurricane Harvey puts those in supply chains at legal risk
Manufacturers in Texas who have been forced to shut down operations due to Hurricane Harvey are initiating force majeure protocols protecting them against litigation should they fail to meet production deadlines. A force majeure clause permits a supplier to justify failure to uphold its end of a contract with another company as a result of a natural disaster. Many suppliers however may not have force majeure conditions outlined in their contracts. Furthermore, at least two million pounds of pollutants have been released from oil refineries and chemical plants as a result of the damage, which may cause additional legal problems.
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Harvey is not only disrupting supply chains, transport companies and manufacturers — it's fully shutting them down and exposing them to not only physical and financial harm but also legal risk.

Suzanne Trigg, a partner with Haynes and Boone, said in an interview with Supply Chain Dive that many manufacturers in the Texas Gulf Coast area are initiating force majeure protocols in their contracts, fearing they won't be able to get operations back online in time to meet deadlines.

A force majeure clause permits a supplier to justify failure to meet deadlines, reach production goals, make deliveries or uphold its end of a contract with another company as a result of a natural disaster, "act of man," or "act of God." It is usually a safeguard against litigation, should some unanticipated outside force prevent a company from operating and delivering on its promises.

"The other thing we’re seeing legally is out right disruption," Trigg told Supply Chain Dive.

She explained that many of the suppliers who have completely shut down operations may not have force majeure conditions clearly outlined in their contracts with buyers, which can lead to litigation after the crisis has passed, as these contracts are sure to be broken when suppliers halt or delay production to accommodate Harvey. Furthermore, the extraordinary amount of pollutants released by local refineries may cause legal problems for supply chains as well.

"Pollutants [are] being released, more than usual, so the supply chain angle is where the oil and gas were stored and how it was handled and whose fault it was," Trigg said. "What was released in a week is what was expected to have been released over a series of months."

Josh Brogan, a vice president at consulting firm A.T. Kearney, told Supply Chain Dive in an interview that he spoke with several manufacturing companies in the Texas Gulf Coast area.

"From a supply chain perspective, generally speaking there’s not much change that’s happened in terms of planning," he said. "I think manufacturing in the Houston area are kind of in a 'wait and see' position, and are more concerned with the well being of their employees."

As the hurricane begins to wane, however, Brogan believes trucking rates will spike nationwide, but especially in the Houston area as aid is shipped in.

"There’s going to be heavy pressure on freight lines to keep product moving — Houston is a pretty well balanced port when it comes to volumes going in and out — so there’s going to be a heavy reliance on rail and road to move product and a heavy reliance on infrastructure," Brogan told Supply Chain Dive.

Trucking rates are likely to stay elevated in the Houston area for a while, as building materials are shipped to repair damaged homes and personal property, according to Brogan, but the ports are unlikely to see as much traffic, as they will equalize fairly quickly once the floodwaters settle.

"It’s going to take flexibility and ingenuity on everyone’s side to get things up and running," Brogan said.

The likelihood of higher gas prices, combined with higher trucking rates, may be good for the trucking industry, but may stress Houston area supply chains trying to get back on their feet. For local supply chains, checking with suppliers about force majeure contract stipulations is a good way to plan for the next few weeks and avoid misunderstandings and complications that lead to litigation.