With global supply chains still recovering from years of disruption, we have been closely monitoring how the new administration’s policies will shape trade, manufacturing, and regulatory priorities. To better understand where pain points in the industry lie, we sat down with Dr. Robert Handfield, a seasoned supply chain expert, to discuss the most pressing issues companies face today and learn what’s next for logistics, resilience, and risk management amid the current climate.
With deep expertise in procurement, supplier relationships, contractual disputes, and supply chain risk—including intellectual property matters—Dr. Handfield has advised more than 25 Fortune 500 companies across the pharmaceutical, electronics, oil and gas, and industrial manufacturing sectors. Let’s take a look at his perspective on the current state of the global supply chain and what companies need to prepare for next.
WIT: How might companies need to restructure force majeure clauses to accommodate future tariff-induced price fluctuations, and what litigation patterns could emerge if these clauses are tested?
Dr. Handfield: Based on my experience, force majeure is not particularly helpful when it comes to digging out of tariff-related events, because tariffs are NOT an unexpected event. When Trump was elected, many expected tariffs to hit the Western world, so it was almost a certainty that there would be some impacts. For that reason, it is almost irrelevant when it comes to contractual negotiations after a disruption occurs. As a precaution, the Chinese government issued a wave of force majeure notices to protect their manufacturing base who were supplying Western firms, to prevent litigation.
In that respect, force majeure is a bit of a red herring. If there is a genuine force majeure, the parties could use impossibility as a basis for withdrawing from their contracts. We are really seeing the legal community, particularly external law firms, invoking impossibility. When disruptions occur, we need to find ways to work at this together, which can lead to a mutually aligned position around dealing with uncertainty.
WIT: With rapidly changing trade regulations, where do you anticipate the highest litigation risk exposure for companies that may struggle to properly document compliance with new tariff requirements?
Dr. Handfield: This will depend on the company. However, it is important to think through the scenarios that might occur through stress testing. Dynamic Supply Chain Stress Testing (DSCST) involves the creation of a platform to continuously monitor and predict potential shifts across supply chains in real time. DSCST is more akin to continuous heart monitoring, such as using smartwatches or health apps, which provide immediate warning of shocks to your system, and also recommendations for health.
In a similar manner, DSCST employs continuous monitoring tools powered by AI and advanced analytics to predict the potential risks that might arise from sudden shifts in tariffs, labor disruptions, and weather events, which allow managers to plan ahead for disruptions before they happen. By employing scenario planning that responds to current events, managers can identify where they are vulnerable and develop supply base continuity plans, as opposed to waiting for the next disaster to overwhelm them.
WIT: What legal strategies should companies consider implementing to distribute tariff-related costs across the supply chain, and how might these lead to potential contract disputes?
Dr. Handfield: Effective legal strategies are especially relevant to managing supplier relationships in a period of major tariffs. We saw firsthand during COVID how major U.S. retailers issued widespread force majeure notices to property owners, stating their intent to withhold lease payments or abandon their leases altogether. Given the rapidly changing situation with tariffs, it is important to be in constant communication with suppliers to address and resolve issues, including how the tariff costs will be shared.
Many companies in the early stages of supplier relationship management struggle to understand from whom they are buying products and services. Without knowing your own business, you cannot embark on a journey to build closer relationships with your suppliers, as such relationships are based on metrics — the most important element required to drive continuous improvement. Defining the suppliers and attributes of those suppliers with whom you are doing business, as well as your spending patterns, is a fundamental component of Supplier Relationship Management (SRM). To begin with, your organization must identify:
- The suppliers you are buying from
- The contracts you have with them currently and for the next three years, and
- The market conditions that exist in the industry in which these suppliers are competing.
WIT: As companies potentially accelerate reshoring efforts to avoid tariffs, what transition-related litigation risks could develop between companies and their overseas suppliers?
Dr. Handfield: Reshoring is not always possible. Significant inherent limitations prevented several companies we spoke with from changing their supply chain designs. While managers and scholars alike tend to assume that executives can and should make their companies agile, my research found that their access to resources and the existing structure of their supply chains severely constrained their pursuit of supply chain agility. During a disruptive period, the leaders of companies in industries with high fixed costs for existing facilities, as well as those with high regulatory oversight, can change their supply chain designs very little or not at all. Several executives explained that their suppliers were all located in one place and that the cost of moving them was prohibitive, nor could they find alternative suppliers. For one company, fixed costs and immobile suppliers made it difficult to respond to disruptions with agility. In the case of compound supply chain disruptions, these executives carry on as usual, hoping for the best.
WIT: How might sudden shifts in inventory strategy (like stockpiling pre-tariff goods) create future litigation risk around storage contracts and fulfillment obligations?
Dr. Handfield: The one-two punch of the US-China Trade War and port problems has forced many companies to reduce product lines, factories, and sourcing locations. By simplifying, companies can become more agile while improving the visibility of inventory throughout the supply chain. This new visibility allowed company leaders to model how factory closures would affect assembling the final product and reroute production accordingly and can also help plan inventory stock levels. By simplifying product portfolios, managers can improve standardization, lower inventory costs, and bring suppliers opportunities to cut costs too.
WIT: As companies rapidly adopt supply chain technologies to offset tariff costs, what intellectual property and data privacy litigation trends could emerge?
Dr. Handfield: Using AI is now becoming a major cybersecurity risk. When companies use programs such as ChatGPT, there is a risk that confidential data will be exposed to the internet. Executives also all agreed that creating a more agile and resilient supply chain requires companies to invest strongly in improving their ability to track material in motion and in storage. As one astute executive put it, “You can’t manage what you can’t see.” Digital tools can alleviate many disruptions, allowing managers to identify blockages, quickly moving orders to different suppliers or facilities, and planning the mitigation of likely problems. Many also described using digital twins, detailed models of their supply chains, to map scenarios like the shutdown of a supplier in China or a port delay in Los Angeles.
WIT: How might reshoring efforts impact labor litigation risks in domestic markets as companies adjust staffing for new operations?
Dr. Handfield: Many companies have begun to nearshore and are encountering challenges in staffing. Many current companies are struggling to retain workers with a 4.1% unemployment rate. Some companies have begun using a source in Mexico to supply customers in the US, but this requires a company to invest in assessing suppliers, contracting, minimizing logistical risk, and planning the movement of materials across the border. Companies that use domestic suppliers do not face these issues, or at least they are significantly less complex.
WIT: How could changing supply chain routes to avoid tariffs create new environmental compliance risks and resulting litigation exposure?
Dr. Handfield: There are major costs being incurred by ships landing at US ports, which are Chinese freighters. Each port landing will cost $1M per call. This issue may cause companies to question whether shipping directly to US ports will work, and they may elect to use shipments from a port in Canada or Mexico. This will increase the carbon footprint for logistics.
WIT: What deceptive trade practice claims might arise if companies cut corners to maintain margins in the face of continued tariff pressures?
Dr. Handfield: Some companies may seek to exploit tariffs to artificially increase prices. Such behavior will undoubtedly result in poor customer relationships. Contracts of the future should include revisions around dealing with uncertainty and how that may alter the nature of payment terms. This could be no more than a behavioral commitment for parties to sit and work together to reevaluate the situation and re-set terms.
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