With the end of the EU – UK transition period now a matter of days away, the focus in the media has (understandably) been on whether both sides will be able to conclude a trade deal and where the key sticking points in the negotiations remain – fisheries, the so-called "level playing field" and enforcement. There has also been much discussion on what the implications will be if the trading relationship is on World Trade Organization terms.
We must also remember that whether or not a deal is reached, the trading relationship between the UK and the EU from 1 January 2021 will change fundamentally and businesses trading with the EU need to be prepared for that. Yet, recent statistics suggest that many businesses trading with the EU are ill-prepared, with uncertainty on what the eventual outcome of the trade negotiations will be and the disruption caused by COVID-19 being blamed as factors.
It is clear that there is potential for major disruption of supply from and to the UK over the coming weeks (and possibly months) as the new customs checks, rules and paperwork requirements bed in. In recent days, there have been reports of hauliers from the EU being reluctant to ship freight to the UK over the coming weeks, due to concerns about being caught up in large queues at cross-channel ferry terminals, and haulage costs increasing as a result. These problems may be exacerbated by restrictions on transportation caused by COVID-19.
Last month, we published an updated version of our Brexit readiness checklist, to help businesses assess how ready they are for the end of the transition period. Even at this late stage, this is essential reading for any business that will be trading with the EU in 2021 but even businesses that have completed the execution of their plans need to be prepared for the unexpected - and that is likely to come from events outside their control.
From a commercial perspective, supply chain issues remain a key risk. Media reports suggest hauliers may be refusing to honour existing agreed contractual terms and, more generally, delays in supply are likely to cause issues that may cascade down supply chains.
While it has always been important for organisations to know the terms of their contracts and to proactively manage performance in line with them, this will be even more important than normal over the coming weeks and months. Particular areas for attention are likely to include:
- provisions dealing with delays or failure to perform;
- service levels/key performance indicators;
- customs, delivery and transportation obligations; and
- liability and insurance
- clauses that deal with change of the type that the end of transition brings – typically change in law, material adverse change and force majeure provisions.
It's important to understand these provisions now so that an organisation establishes the strengths (and weaknesses) of its contractual position in advance, in case problems arise. That will help inform the required strategy and actions that are needed, with speed of response often being the critical factor.
More generally, 2021 is likely to be a year where organisations seek to learn lessons from both the COVID-19 pandemic and the effects of the end of transition. Contractual 'resilience' is likely to be a key theme. In the context of supply chains, organisations are likely to look at ways to de-risk supply chain issues and this may well involve supply chain foreshortening and localisation, where possible, as well as trying to move away from single sources of supply.
Our commercial contracts and business dispute resolution teams are here to help with any contractual issues arising from post-transition issues. Get in touch with Grant Campbell (commercial contracts) or Stephen Goldie (business dispute resolution) or your usual contact within the respective teams.
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