Inspired by Law? A Contractual Approach to Closed-Loop Supply Chains

In the ongoing pandemic, options for repair and recycling face challenges. Instead, takeaway options have become the preferred – albeit often the only available and thus not entirely voluntary – choice. Contractual frameworks for a closed-loop supply chain are required as they may facilitate recycling even in pandemic times. The paper will pursue a contract-chain approach combining both top-down and bottom-up approaches. The contractual relations involved along a closed-loop supply chain (manufacturer-retailer-logistic service provider (3PL)-costumer) will be examined from a contractual perspective. Taking into account the operational processes, it will be assessed to what extent contractual and policy-related improvements are possible to achieve a closed-loop supply chain. For that purpose, international uniform law and German law will provide the main legal basis. The current COVID-19 situation has led to a boost in e-commerce and challenges the target of sustainable production and consumption. For commercial parts of an international supply chain, either national law or international conventions on the transportation or sale of goods apply. None of the currently applicable rules pay attention to sustainable production or consumption. The sales contract – between manufacturer and retailer or retailer and costumer – is an agreement with a definite duration and with a designated end-of-life product status. There are no rules on whether the 3PL, the retailer or the manufacturer is obliged to take back the goods to recycle them. Exercising a right to cure after several months is not combined with pick-up and packing services. This contradicts the desired decrease in packaging waste. Defect-unrelated return systems for end-of-life products are not included in sales law. Ensuring a closed-loop supply chain will also require securities or insurances along the supply chain to combat insolvency risks and compensate for the unavailability of individual participants. The paper will discuss at which points along the contractual supply chain new duties should be implemented and where regulatory measures may be required. One way could be to extend the logistic contract between the retailer and 3PL to a return service. This may even offer advantages to retailers attempting to prove the poor condition or quality of goods to their respective partners and to seek remedies. An alternative would be to include “buy-back” or “pick-up for recycling” options or “recycling guarantees” in the contracts between retailer and manufacturer or costumer and retailer. Further, renting or lending packing container or package that conveys the goods (“packing units”) could reduce waste in the transit of goods. The options could be combined with, for example, a “reward-penalty” approach to make a closed-loop regime also economically attractive to all participants. The topic relates to SDG 12 (Responsible Consumption and Production) and notably to targets 12.5 and 12.6. Furthermore, it addresses the question of how contractual models can offer incentives for recycling despite pandemic-related restrictions.