For transportation and logistics companies looking forward to a gradual turnaround from the "freight recession" that marked 2024, the seemingly endless announcements of tariffs from the new U.S. administration is unsettling, if not an outright existential threat. Whether some, all, or none of the threatened tariffs come into force on April 2, 2025, the uncertainty will almost certainly have a negative impact on cross-border shipping.
Reduced freight traffic and rising costs are likely to put the squeeze on transportation and logistics service providers. Companies may be asking whether anything can be done to avoid liability if continuing to provide services becomes uneconomic. To the extent such cost increases are the result of unanticipated tariffs, service providers should be doing a careful review of their contracts to see if they might have an out, including whether there is helpful language in a force majeure clause.
Force majeure is a common provision in logistics and transport service contracts that describes the circumstances under which a provider can be relieved of liability for non-performance, due to unanticipated events beyond their control.
Consider the following two examples we have come across in our litigation practice:
Example One [Service Provider, "SP"] shall not be responsible for non-performance of its responsibilities if SP is unable to carry out such responsibilities because of acts of God, war, seizure under legal process, strikes, lockouts, riots and civil commotion, or telecommunications breakdown or power outage or any other reason of a similar nature beyond the SP's reasonable control.
Example Two SP shall not be liable for its failure to perform any of the terms of this Agreement by reason of events beyond its reasonable control, including but not limited to strikes, lockouts, trade disputes, acts of God, riots or insurrection, domestic or foreign government action, regulation or decree.
In the first example, it is unlikely that tariffs imposed by the U.S. government could be argued to be a circumstance relieving the service provider from liability for non-performance. On the other hand, the second example arguably provides two fitting circumstances: "trade disputes" and "foreign government action, regulation or decree". Small differences in wording could be the decisive factor in negotiations or litigation.
Whether the tariffs on aluminum and steel, the auto industry, or the threatened 25% across-the-board tariffs continue for any length of time, transport and logistics service providers will likely be among the first businesses to be affected. When faced with a dispute, experienced counsel can help businesses evaluate whether the contract, including the force majeure clause, offers a basis to renegotiate pricing terms or supports their position in litigation. Thoughtful advocacy may become an essential tool for businesses navigating through the onslaught of trade measures coming from south of the border.
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