How can you make your contracts flexible and protective in a changing trade climate?

1 Choose the right Incoterms

Incoterms are standardized terms that define the responsibilities and risks of the seller and buyer in international transactions. They specify who pays for the transportation, insurance, customs clearance, and delivery of the goods. Choosing the right Incoterms can help you avoid disputes and protect your interests in case of delays, damages, or losses. For example, if you are the seller and want to minimize your exposure to tariffs, you can opt for EXW (Ex Works), which means you only deliver the goods at your premises and the buyer takes care of everything else. On the other hand, if you are the buyer and want to have more control over the shipment, you can choose DDP (Delivered Duty Paid), which means the seller pays for all the costs and duties until the goods reach your destination.

2 Include force majeure clauses

Force majeure clauses are clauses that allow the parties to suspend or terminate the contract in case of unforeseeable events that prevent them from fulfilling their obligations. These events can include natural disasters, wars, strikes, riots, or government actions. Force majeure clauses can help you avoid liability and penalties in case of disruptions or interruptions caused by factors beyond your control. However, you need to be careful and specific when drafting these clauses, as different jurisdictions and courts may interpret them differently. You should define what constitutes a force majeure event, how it affects the performance of the contract, how long it lasts, how the parties should communicate and cooperate, and what remedies are available.

3 Use arbitration clauses

Arbitration clauses are clauses that require the parties to resolve their disputes through arbitration rather than litigation. Arbitration is a private and confidential process where an impartial arbitrator or a panel of arbitrators decides the outcome of the dispute based on the evidence and arguments of the parties. Arbitration clauses can help you save time and money, as arbitration is usually faster and cheaper than going to court. They can also help you avoid the risks and uncertainties of dealing with foreign laws and courts, as arbitration is based on the agreement of the parties and the rules they choose. You should include arbitration clauses in your contracts if you want to have more flexibility and protection in resolving your trade disputes.

4 Review the applicable laws and regulations

Even if you have a well-written contract, you still need to comply with the laws and regulations of the countries where you operate. These can include export and import controls, customs duties, taxes, licenses, permits, standards, and sanctions. You should review the applicable laws and regulations before entering into a contract, and update yourself on any changes or developments that may affect your trade operations. You should also consult with legal experts or trade professionals who can advise you on the best practices and procedures for complying with the relevant rules. By doing so, you can avoid fines, penalties, or legal actions that may jeopardize your contract or your reputation.

5 Monitor the trade climate and adjust accordingly

Finally, you should always monitor the trade climate and adjust your contracts accordingly. The trade climate is influenced by many factors, such as political, economic, social, and environmental issues, that can create opportunities or challenges for your trade operations. You should keep track of the trends and developments that may affect your trade partners, markets, competitors, and customers. You should also communicate and negotiate with your contract parties if you need to modify or amend your contract terms to reflect the changing trade conditions. By doing so, you can maintain your competitive edge and your customer satisfaction.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?