Contract reviews – Incoterms and Brexit, what does this mean for you?

Businesses may need to review their supply chain contracts in the event of a No-Deal Brexit

Executive summary

As 31st October 2019 looms closer and the likelihood of a No-Deal Brexit increases, businesses ought to continue looking at their contingency plans to ensure that they are sufficiently robust to deal with the impact a No-Deal Brexit could have on their operations.

A key concern for UK businesses that operate within a supply chain that cuts across Europe is around the possible impact of a No-Deal Brexit on the cost of doing business, primarily through the loss of ‘tariff free’ trading rights. Historically, businesses trading within Europe are likely to have adopted one of any number of well developed Incoterms to apportion responsibility around the costs and risks associated with the delivery of goods.

For UK businesses, the choice of the Incoterms included in their contracts will invariably have been influenced by the fact that prior to Brexit, tariffs and duties were not an issue when trading within Europe and the risks would have been viewed as limited. In the current political climate, UK businesses will need to carefully review their existing arrangements to determine their potential exposure.

The supermarket chain Aldi recently reminded its suppliers that the Deliver Duty Paid Incoterm clause in their contracts mean that those suppliers will be responsible for bearing the cost of any European Union imposed tariffs post 31st October 2019. As most supply contracts will contain strict price review clauses, a number of UK businesses could find themselves facing considerably higher costs of trade but with limited ability to absorb those additional costs or otherwise pass these costs up the chain.

Conclusion

These issues are likely to be replicated across sectors. UK businesses up and down their respective supply chains will need to ensure that they are clear on the potential costs implications of the relevant clauses in their key contracts. We expect that contingency plans will already be very advanced with most businesses. However, we recommend that UK businesses continue to monitor their plans and consider all their options.

If you have any questions or would like to know more about our update, please contact Itohan Odekunle, Solicitor and author of this update, on 0113 213 4046, or itohan.odekunle@weightmans.com, or Jacqui Bickerton, Principal Associate, on 0151 242 6846, or jacqui.bickerton@weightmans.com; you can also visit our Brexit Hub for all the latest updates and news.

Further information - Supply chain

Weightmans is pleased to announce the launch of a new, national report “Weightmans evolve: The supply chain of the future”. The report highlights experiences and opinions from supply chain leaders, sector experts and our very own legal specialists. Download a copy of the report.

If you have any questions or would like to discuss any aspect of this article, please contact:

Tristan Feunteun, Partner at tristan.feunteun@weightmans.com or 020 7842 0840,

Andrew Roberts, Partner at andrew.roberts@weightmans.com or 0151 243 9840 or

Matthew Williamson, Partner at matthew.williamson@weightmans.com or 0151 243 9883.

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