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Revamping Supply Contracts; Taking Emergency Steps; New Vaccine Hurdles

By Paul Page

 

Container ships anchored off the ports of Long Beach and Los Angeles on Monday. PHOTO: MARIO TAMA/GETTY IMAGES

The impact of pandemic-driven strains on supply chains is starting to seep into the wording of contracts. Procurement experts tell the WSJ Logistics Report’s Lydia O’Neal that companies increasingly are looking to add detailed provisions covering issues like health crises and accelerating inflation in contracts between suppliers and their manufacturing and retail customers. The closer attention to contracting terms comes as commodity costs and shipping prices have soared, while shortages of key components like semiconductors have hampered production. Contracting experts say the persistent disruptions across supply chains over the past two years have overwhelmed the guideposts in many supplier agreements, leading to conflicts over how to account for rising costs and delivery breakdowns. Declarations of force majeure allowing suppliers to be excused from contract terms have skyrocketed since 2019. Some companies want such language to be fine-tuned. Others suggest indexes should be used to account for rapid cost increases.

 
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Supply Chain Strategies

General Mills said it now expects input cost inflation between 7%-8% in its fiscal 2022. PHOTO: LISA BAERTLEIN/REUTERS

Food supplier General Mills is reviving some of the emergency strategies it undertook at the start of the pandemic. The maker of Cheerios cereal and Betty Crocker cake mix has resumed “control tower meetings” and stepped up communications with suppliers, the WSJ’s Jesse Newman and Dave Sebastian report, as the company grapples with growing labor, transport and supply-chain costs that are squeezing deliveries and profit margins. The company is facing hundreds of disruptions across its operations, ranging from pricier raw ingredients to a shortage of truck drivers, which executives said will push up prices for customers. Executives say supply chain challenges are hampering the company’s ability to fill orders, with service levels in the 80th percentile, far behind its goal of the high-90th percentile. Other food companies are also raising alarms, adding to strains in the sector as supermarkets seek to buy goods earlier ahead of the holidays.

 
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Quotable

“It’s almost whack-a-mole right now. It really changes on a daily and weekly basis.”

— Jon Nudi, head of General Mills’ North America retail business, on supply-chain challenges
 

Supply Chain Strategies

Boxes of the Moderna vaccine donated by the U.S. arriving at the airport in Nairobi. PHOTO: BRIAN INGANGA/ASSOCIATED PRESS

Coronavirus vaccine supply chains are about to come under new stresses. The U.S. will purchase 500 million additional doses of the Covid-19 vaccine developed by Pfizer and BioNTech for developing countries, expanding a commitment aimed at getting doses to populations left behind in the vaccination push. The new batch of Pfizer vaccines will be manufactured in the U.S. and begin shipping out in January. The WSJ’s Gabriele Steinhauser, Sabrina Siddiqui and Stephanie Armour report that the doses will join a distribution effort that has been hampered by inadequate logistics infrastructure for shipping the vaccines, which need specialized cold storage and handling. U.S. officials say the government has been seeking to provide support, including $8.6 million in cold-chain storage containers provided by the Defense Department to 16 countries. Some countries won’t have the ultracold freezers or other infrastructure in place this year to receive the Pfizer shots.

 
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Number of the Day

$111.3 Billion

Total value of North American transborder freight in July, up 22% from the same month a year ago and 8.6% more than July 2019, according to the Bureau of Transportation Statistics.

 

In Other News

The Environmental Protection Agency is completing new rules to reduce the use of coolants in air conditioners and refrigerators that are potent greenhouse gases. (WSJ)

The Federal Reserve signaled it could start reversing its pandemic stimulus programs in November and could raise interest rates next year. (WSJ)

Existing-home sales in the U.S. slipped 2% in August in a slowdown of the turbocharged housing market. (WSJ)

Oil and gas producer Tenrgys filed for chapter 11 bankruptcy protection. (WSJ)

Flexible Funding, which provides alternative financing to trucking companies, and its Instapay factoring unit filed for bankruptcy protection. (WSJ)

The impact of Covid-19 on the logistics labor force is a major factor in the late deliveries troubling supply chains. (The Atlantic)

Global aluminum prices are hovering at a 13-year high. (Nikkei Asia)

Two U.K. energy suppliers collapsed under soaring gas prices. (Financial Times)

Electric vehicle company Workhorse Group halted deliveries of its C-1000 delivery vans. (MarketWatch)

FedEx plans to test Aurora's self-driving truck technology on Texas linehaul routes with truck-maker Paccar. (Dow Jones Newswires)

Unilever says a freight optimization initiative is helping the consumer-goods supplier reach operational, financial, and environmental goals. (Supply Chain Quarterly)

Apparel manufacturer Resonance Cos. is opening its first U.S. production facility in New York City. (Sourcing Journal)

A group of large companies and organizations called on the shipping sector to accelerate its decarbonization efforts to reach zero emissions by 2050. (Reuters)

Mining giant BHP says port congestion is consuming 15% of global dry-bulk shipping capacity. (TradeWinds)

Seaspan is reportedly buying 10 mid-sized container ships from China State Shipbuilding under a charter agreement with Ocean Network Express. (Lloyd’s List)

Japan’s “K” Line is buying eight car carriers with liquefied natural gas-fueling capability. (Ship & Bunker) 

Taiwanese intra-Asia container line TS Lines is considering trans-Pacific services if U.S. West Coast port congestion is resolved. (The Loadstar)

Singapore-based GLP raised $1.75 billion for its third fund focused on China logistics properties. (Bloomberg)

Shenzhen, China-based warehouse automation startup Hai Robotics raised $200 million in a new funding round. (TechCrunch)

Pernod Ricard is buying online alcohol retailer The Whisky Exchange. (The Spirits Business) 

 

About Us

Paul Page is editor of WSJ Logistics Report. Write to him at paul.page@wsj.com.

Follow the WSJ Logistics Report team: @PaulPage, @jensmithWSJ, and @pdberger. and @LydsOneal. Follow the WSJ Logistics Report on Twitter at @WSJLogistics.

 
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