Supply chain disorder continues to hamper the global economy, with certain components such as microchips having a disproportionate impact across all industries. This, coupled with other geopolitical uncertainties and raw material shortages, is a major cause of disputes and risk to businesses. In this article, we look at the challenges being faced in the UK and Canada in particular, and how disputes can be headed off before they begin. 

UK: disruption set to continue

Both the UK and Canada are major global car exporters, with the car industry contributing billions towards their respective GDPs. In the UK, the lack of microchips has had a significant impact across the manufacturing industries, and across vehicle manufacturing in particular. The average non-electric car will have at least 1,000 microchips in it, and this number increases substantially for electric cars (around 3,000). The shortage of microchips began in 2020 and remains an ongoing supply chain global crisis. As a result of this shortage, the production of cars in the UK fell by 41% in 2022. 

Research shows that as many as 91% of supply chain leaders see the current issues with supply chains getting worse or remaining the same. This indicates that the supply chain issues experienced to date will continue for at least the medium term.

Canada: investing in industry

The global microchip shortage has had a similar impact on Canada's car production, as the supply of microchips fails to keep up with demand.

In anticipation of shortages and in recognition of the colossal impact that a lack of microchips will have on everyday consumers, the Canadian government dedicated $150 million worth of investment into the semiconductor (microchip) industry in 2022. The government's hope is that this will push Canada to become one of the world's leading microchip manufacturers. 

Until supply picks up, however, the lack of microchips continues to put pressure on supply chains which could lead to tense relationships or potential disputes between manufacturers, suppliers and their end users.

So, what can be done about it?

Active contract management

In anticipation of shortages, suppliers and their contractors should be having discussions now about what reasonable steps can be taken to avoid disputes and mitigate losses. Review key contracts to understand what conduct might trigger a breach and consider whether high-risk clauses need to be updated or varied (by mutual agreement) in light of the unprecedented microchip shortage.

Businesses should also be looking at their governing law and jurisdiction clauses, to consider which law would apply and which jurisdiction would hear any potential disputes. Local laws on concepts such as termination, force majeure and good faith can mean that the same clause could operate very differently depending on the applicable law. As the world's biggest law firm, Dentons can provide support for clients in more than 180 locations.

If a dispute does occur, please get in touch with our Commercial Litigation team in your jurisdiction, who can provide pragmatic, clear advice on next steps.