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Take a second look at contracts in shifting markets

Photo: Twitter screenshot Bangladeshi bulker on fire after missile strike
The Third Engineer of the bulker Banglar Samriddhi was killed in missile strike
Shipbuilding and other contracts signed before February 2022 deserve a second look in the wake of the Ukraine war and changing economic landscapes.

That was the message from Reed Smith associate Hyun Woo Kang in a recent blog post looking at the business impact of conflict in Ukraine and the related sanctions.

While shipbuilding may not have faced the direct impacts of the war like the food industry and car manufacturers, there are still risks, said Hyun.

“Businesses lucky enough to have avoided any direct consequences of the conflict so far should remain vigilant. The global landscape has changed in many ways. Korean shipbuilders recently agreed to an 8% increase in steel plate prices as a result of higher steel prices. This has delayed their anticipated return to profitability despite increased orders and higher prices for new ships,” said Hyun.

The risks are higher for contracts signed before 2022, and beyond checking the date, there are more factors to look for. Companies should be on the look out for whether contracts require future performance by a party, whether parties might be exposed to the changing economic landscape. It is also worth checking whether contracts contain provisions for changing markets and price fluctuations, said Hyun.

“Many markets are feeling the effects of the conflict. Charter rates have been sky-high, but are expected to soften. Bunker prices have been pushed up. Shipping and other commercial contracts concluded some time ago and filed away for safe-keeping, but requiring ongoing performance, would benefit from a fresh look to understand where any enhanced, or completely new, risks may lie,” said Hyun.