‘Risks may lie in existing contracts’ signed before Ukraine conflict, warns Reed Smith

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“The onset of conflict in Ukraine saw businesses scramble to understand and navigate the rafts of new international sanctions which were rapidly introduced by individual states and international bodies,” says transportation lawyer Hyun Woo Kang, of global law firm Reed Smith

“Alongside the challenge of sanctions, the world has felt the further impacts of the war. Disruptions to grain exports led the UN to announce at a recent Security Council meeting (SC/14894) that the ‘global food crisis already impacted by the COVID-19 pandemic and climate change, is being driven to famine levels worldwide by the war in Ukraine’. Global car manufacturing has also suffered set-backs because a key component – electrical wiring – is made in Ukraine.

“Businesses lucky enough to have avoided any direct consequences of the conflict so far should remain vigilant. The global landscape has changed in many ways. Korean shipbuilders recently agreed to an 8% increase in steel plate prices as a result of higher steel prices. This has delayed their anticipated return to profitability despite increased orders and higher prices for new ships.

“Against this backdrop, risks may lie in existing contracts (particularly those signed before February 2022) which demand future performance.”

Reed Smith therefore advises clients to check:

• Was your contract signed before February 2022?
• Does your contract require future performance by a party?
• Are there elements of your contract in which a party stands to suffer as a result of the new economic landscape (e.g. pricing of raw materials etc.)?
• Does your contract contain any provisions which allow for adjustments in price to take account of fluctuating global markets or other changing circumstances?

“Many markets are feeling the effects of the conflict,” concludes Hyun Woo Kang. “Charter rates have been sky-high but are expected to soften. Bunker prices have been pushed up. Shipping and other commercial contracts concluded some time ago and filed away for safe-keeping, but requiring ongoing performance, would benefit from a fresh look to understand where any enhanced, or completely new, risks may lie.”

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