South Africa faces a shortage of these items and is creating a headache for businesses

Current logistics bottlenecks present high risks to contractors, miners, IT companies and other industries and need to protect themselves from sanctions.

“The disruptions in the supply chain, which emerged following the Covid-19 blockades in 2020, and to which was added the increase in inflation towards the end of 2021, intensified in the first part of 2022. With the war in Ukraine and the closure of Covid-19 in Shanghai, it seems that the disruptions may get worse, “said the law firm Webber Wentzel.

“The other aspect of the logistical disruption and the war in Ukraine is that it is causing the prices of some raw materials to rise, so mining companies are more anxious than ever to speed up expansion projects, even if their contractors are fighting. to ensure the necessary inputs. “

The company cited the global shortage of microchips, which are used in a wide range of consumer products, including cell phones and automotive vehicles. This stemmed not only from factory closures, but also from the growing demand for technology when more employees had to work from home. Three-quarters of microchip production is located in East Asia, according to the New York Times.

Another area of ​​severe shortage over the past two years has been steel, as not only were factories closed during Covid-19 but, when they restarted, they underestimated the magnitude of the economic recovery. This has caused the cost of some steel products to rise, Webber Wentzel said.

“The costs and timescales for importing goods have increased significantly, with a 500% increase in transport costs of using a 12 meter container to ship goods by sea from China to South Africa.

“Furthermore, cases of Covid-19 continue to affect the outputs of suppliers, manufacturers and contractors at various levels of the supply chain. For example, a Covid-19 outbreak at a supplier or sub-supplier compromises its ability to complete production on time, which in turn delays delivery to manufacturers and contractors. “

Contractual changes

These delays and rising costs are causing contractors and manufacturers to seek ways to manage risk and decline responsibility for time and cost overruns on large investment projects, Webber Wentzel said.

“The Material Adverse Event or Force Majeure clauses may not help, as the materiality threshold may not be reached in relation to the former and it is unlikely that the supply chain disruption will be interpreted as an unforeseen or unavoidable event in relation to the second.

“With no immediate prospect of this problem being solved, contractors who must procure critical capital goods that depend on inputs such as steel, microchips or the supply chain must consider including additional clauses in their contracts to protect themselves from the ramifications of non-delivery. on schedule. Contractors need to recognize that there are higher levels of commercial risk and manage them differently. “

Where there are concerns that a potential delay in the supply chain could have an unintended ripple effect on the construction period, completion time and date of defects, and these delays are not attributable to the contractor, the contractor may consider to include restitution – support provisions in their contracts with suppliers in order to mitigate these risks, the company said.

“In addition to providing contractual concessions, contractors should reduce their reliance on a single critical source of supply and seek alternatives. Sourcing products closer to home or using local products can also alleviate the risk.

“The ripple effect of risk on corporate reputation should be considered when selecting a supplier and the related geopolitical risk should be part of this assessment. Sustainability of supply can be an important part of ESG reporting for contractors as well. “

Comment by Tyron Theessen and Megan Jarvis, partner of Webber Wentzel.

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