Analysis

COVID-19 Disruption Reshapes NJ Supply Chains

By Jeannie O'Sullivan
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Law360 (July 15, 2020, 4:03 PM EDT) -- The supply-chain disruptions from the COVID-19 pandemic have forced companies in busy distribution hubs like New Jersey to relax contract terms to address immediate issues, and reshape neglected long-term strategies to establish sources closer to home, Garden State attorneys said.

After the novel coronavirus emerged in China, the world's largest exporter, and social distancing slowed or shut down manufacturing, warehousing and shipping operations in multiple countries in March, attorneys were inundated with calls from clients needing to know how the disruption would affect their rights and obligations with respect to delivering and receiving goods.

The panic increased as cases and deaths escalated, particularly in the New York metropolitan region, prompting a dire warning in April from Tyson Foods Inc. that the supply chain was "breaking" amid plant closures.

"Every side of the spectrum is looking for advice," said Blank Rome LLP partner John D. Kimball, a member of the firm's maritime emergency response team. His clients include ship owners, commodity trading companies, terminals, passenger ships, insurance companies and more.

Supply chain attorneys quickly got busy in New Jersey, a major center of trade where three major airports, a massive network of roads and railways, a famous turnpike and a shipping port ferry goods to and from a wide swath of the nation and beyond.

For Corinne McCann Trainor of Fox Rothschild LLP, the first order of business was figuring out what to do if the disruption affected clients' ability to provide or right to receive goods.

"The advice we are giving clients right now is to find your contracts so that we can review them. In New Jersey in particular, the more specific the force majeure condition, the more likely that it is enforceable," said Trainor, who counts complex litigation among her specialties.

One of Trainor's recommendations for establishing contract "wiggle room" is for a supplier to agree to remove its exclusivity requirement so the receiver can seek out other sources if that supplier is unable to deliver due to an interruption of operations.

The good news is that most clients aren't rushing to sue the minute contract performance comes into question, according to Kimball.

"Most of the time, we're seeing companies looking for ways to reduce their obligations or adapt to their circumstances, as opposed to trying to get out of them. Most understand that their contract partners are facing the same unprecedented pressures they are," he said.

As the pandemic continues, conversations with clients that started out as brainstorm sessions about quick fixes have evolved to include counseling sessions about the resiliency of supply-chain plans moving forward, attorneys said.

A surge of investment in Garden State warehouse space could be one of the long-term effects of the coronavirus, said McCarter & English LLP partner Ronald M. Leibman, leader of the firm's transportation, logistics and supply chain management practice.

Supply chains are crucial to industries like pharmaceuticals and trucking, both of which have a huge presence in New Jersey, according to Leibman.

"I really believe that companies that make critical goods are going to maintain a stock of at least essential goods nearby in critical markets, and this is a multimodal crossroad to one of the densest population centers in the world and a logical place to be," Leibman said.

Companies that continue to look to other countries for supplies and business will be adding pandemics to the list of existing flashpoints — labor strikes, political instability, natural disasters — that could disrupt supply chains, Leibman said.

The disruption caused by the pandemic has highlighted what Leibman considers to be a historic problem with supply-chain strategies, which he said are typically under-reviewed and rarely updated.  

Resilience planning, Leibman said, must be as ingrained a part of the corporate culture as a budget, with regular reviewing and updating.

--Editing by Kelly Duncan and Alanna Weissman.

For a reprint of this article, please contact reprints@law360.com.

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