Force Majeure: A New Dimension to the Coronavirus Outbreak

Force Majeure: A New Dimension to the Coronavirus Outbreak

With production and logistics operations across China gradually resuming, supply chain managers across industries like automotive, machinery, and chemicals may soon face a new risk dimension pertaining to the coronavirus outbreak: suppliers or buyers invoking force majeure. As authorities seek to provide financial and legal support to companies struggling with the coronavirus fallout, the China Council for the Promotion of International Trade (CCPIT) has already issued force majeure certificates to 1,615 companies covering 30 sectors and a total contract value of RMB 109.9 billion (USD 15.7 billion; EUR 14.5 billion) until February 16.

These certificates shield companies from legal and financial damages arising from not performing or only partially performing contractual duties, such as delivering, transporting, or taking cargo, by proving that they are experiencing circumstances beyond their control. Typically, force majeure is invoked during natural disasters but can also apply in the event of unforeseen acts of government such as the government-mandated lockdowns and production stoppages in the wake of the coronavirus outbreak.

Since early February, some companies like Taixing Jinjiang Chemical Industry Co. Ltd., which produces biofuels and industrial chemicals, have started to declare force majeure to their customers. According to the CCPIT, Zhejiang-based Huida Manufacturing (Huzhou) Co., which supplies steering-system components to a PSA Group plant in Africa, was the first company to receive a force majeure certificate on February 2. The identities of other companies that have received the certificates have not been formally revealed through either Western or Chinese-language media sources.

However, original analysis of Chinese-language documents by Resilience360 shows that force majeure certificates were delivered to companies in different Chinese provinces across various sectors, including in the chemical, automotive, medical devices, and electronics sectors.

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