Freight and Insurance
Many Indian exporters who had fixed-price overseas delivery contracts now face challenges if freight/insurance surcharges are not recovered from the buyers.
Demurrage Charges
One of the most immediate concerns for exporters is the imposition of demurrage and detention charges due to cargo delays. When goods remain at ports or airports beyond the permitted free period, exporters are required to pay demurrage charges and penalties.
It is important for the Government and its agencies to step in immediately and ensure that demurrage charges are not collected by the cargo terminal operators where the cargo is stuck at the airport and not in a position to be lifted due to flight restrictions and closure of air spaces. Similarly, when shipping lines avoid the war zones, there cannot be any levy of demurrage charges by the Government or the port.
Customer Contracts
Companies would have executed contracts/ agreements with customers in the context of supply of goods or services with timelines and commitments. There would be severe impact in adhering to these timelines on account of the current situation. Non-availability of means of transport, non-availability of air or sea connectivity, closure of airports or ports, suspension of access to routes, etc. will clearly affect the performance of contract.
In this context, the following precautions should be taken:
- Keep in touch with the customer and identify the issues of concern.
- Review the Agreement or contract to analyse the impact of ‘Force Majeure’ clauses and check whether these disruptions would fall within the ambit of the said clause. Force majeure would protect a business from non-compliance under certain circumstances, but it is a creation of a contract.
- In case force majeure is applicable, exercise the option in accordance with the agreement.
- In case there is no force majeure clause or the clause is inadequate, it may have to be examined whether the doctrine of frustration or principles of doctrine of impossibility can be applied. This is limited in scope given the fact that alternative routes may exist.
 Vendor Contracts
A business could depend on a critical service or a raw material from a vendor and the vendor may be supplying the said service or product from the affected areas or through a sub-vendor who could be located in one of the countries which have been significantly impacted. This would mean that the business would face disruption. In this context, the following precautions should be taken
- Identify critical vendor of goods and services, and keep in touch with the vendors to be aware of any possible disruption in schedules or timelines
- Wherever possible identify alternate sources within the country in case the procurement challenges from abroad are likely to continue.
- Examine contractual obligations in case firm order commitments have been given and seek timeline extension in accordance with the contract.
Government
Every business must comply with applicable laws and regulations which will include number of forms, returns, etc. to be filed. These are all timebound and delays are inevitable on account of disruption in business. In this context, the following precautions should be taken:
- Where goods have been cleared with ‘Let Export’, there is a free period of 12 hours for export. Beyond this period, terminal operators would start levying demurrage charges on the stranded shipments. Wherever possible, either through sector specific associations or through chambers of commerce, representations should be made to the government to extend applicable due dates and waive charges and penalties.
- Implement an adequate cash flow management system to ensure that the business does not default during the period of disruption and wherever possible seek waiver or extensions of time for payments.
- Bill of entry is generally filed in advance for import of goods. If there are delays in arrival of the vessel or aircraft or if there are changes in the vessel or aircraft, then there are requirements to be met in terms of updating under Customs law. It is also important for the trade to monitor and seek appropriate relief in case the conflict carries on for a longer period. If the goods do not arrive within 30 days of filing bill of entry, there are penalties and charges.
- In case, bill of entry has been filed much in advance and the current disruption results in the breach of 30 days then it is advisable for the industry to seek appropriate waivers from the Government.
- There could be perishables and other critical items stuck at the airports or ports. Quick decisions have to be taken with reference to clearance or salvage of this cargo with appropriate directions from the Government.
Residential Status
- There could be foreign citizens or non-residents who may be stuck in India due to non-availability of flights to travel to their country. Their stay beyond the stipulated period may trigger a change in their status from a residency perspective. Similarly, visa period may have also expired due to the forced stay due to the disruption. Over stay would be a violation under the Foreigners Act and it is advisable for such individuals to approach the Government Agencies and seek appropriate extensions.
- Involuntary stay in India could affect the residential status. The CBDT issued Circulars providing relief when Covid-19 caused disruptions. If alternate routes are not available for travel or it is impossible to travel to the countries which are affected, the Government must be moved to issue similar relief.
 Source: K.Vaitheeswaran & Co
