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Signs of the Apocalypse and the Freight Business –  Los Angeles is Burning

2020 is the year for signs of the end times.  Apart from rioting, a plagueeconomic collapsethree hurricanes in the Gulf of Mexico at oncereligious and political leaders falling from grace, the West Coast of the US is on fire.

A lot of our clients are in trucking and transportation, and the overwhelming majority are on the East Coast.  It might not be immediately obvious why Washington state, Oregon, and California becoming scorched hellscapes should matter to them.  Apart from the titillating disaster-porn aspect of the news, there are two good reasons: 1) a lot of the freight on the roads lands at ports in California, and 2) the fires themselves and the response to these disasters both affect the rest of the country and suggest responses for later disasters here – say, those three hurricanes, for example.  FLS Transport even listed the lack of wildfires in 2019 as one of the reasons 2020 would be nothing like last year.

In response to the wildfires on the West Coast the Federal Motor Carrier Safety Administration has issued and granted an emergency declaration granting limited “emergency relief from Parts 390 through 399 of Title 49 Code of Federal Regulations.” The Department of Homeland Security has suspended enforcement, “except in the event of a serious public safety threat,” which is vague and ambiguous.  The Department of Housing and Urban Development has taken steps including preventing foreclosure and providing insurance to areas where a disaster declaration has been made.  We’re at the point where we might be deploying the military to help fight the fires.  Essentially, we can’t stop the disaster, all we can do is try to contain the damage.  Quoting the New York times:

“Over the past 50 years, excluding the last four, wildfires averaged about the same in direct damages: a billion dollars per year, adjusted for inflation.

But in three of the past four years, including this one, fires are on track to cause damages in excess of $10 billion.”

Regardless of all this, we know from previous disastrous fire seasons that fires in California can impact freight more broadly.  The ports of Los Angeles and Long Beach themselves handle “approximately 40% of all inbound containers for the entire United States.”  At a time when COVID is testing the supply chain, the fires are making a bad situation worse.  FedEx warns of service delays.  UPS is not making pickups in affected areas on certain days.  USPS actually closed some post offices due to the fires.  California may be on fire, but we’re all likely to get burned in the long run: “California has the highest economic output of any American state, accounting for around 14% of the entire country’s tab. Add in Oregon, Washington State and Idaho and the region accounts for 19% of US output.”  I haven’t even started with the fact that ships themselves are having problems

From a practical standpoint, all an East Coast carrier can do is examine its exposure.  Contracts with companies from the West Coast, contracts involving freight originating from or destined for the West Coast, and deadlines delayed by disruptions along the supply chain are all worthy of a second glance.  Ensuring force majeure or “act of god” clauses are defensively important, and liquidated damages clauses may be equally important on offense.  I also think it’s important to take some time on disaster preparedness here – what do you do if a category 5 hurricane runs up the East Coast, or flooding disrupts the Midwest?  Have you even considered the possibility?  Chances are, there again, we can’t stop the disaster, all we can do is try to contain the damage.

If you have questions about this article, please contact Dov Szego (dszego@setlifflaw.com) at 804-377-1263 or Steve Setliff (ssetliff@setlifflaw.com) at 804-377-1261.

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