Trading Tip: Good Arrival – The Sixth Day

Doug Nelson

The warranty of suitable shipping condition is at the center of countless disputes and decisions each day. Although there is some devil in the details, the main idea is straightforward enough.

F.O.B. sellers warrant that their product will arrive at destination without “abnormal deterioration.” (7 C.F.R. 46.43 (j)). In other words, sellers promise to load product that will hold up in transit to the contract destination provided transportation conditions (e.g., time and temperature) are normal.

But how in the world are we going to define abnormal deterioration?

Well, fortunately, the PACA has defined (so to speak) abnormal deterioration with its Good Arrival Guidelines. These guidelines build on the U.S. grade standards and, for each commodity, provide a percentage of defects that would not be considered abnormal deterioration at destination. The percentages vary by the type of defect (i.e., average, serious, very serious) and the time in transit, from one to five days.

If, for example, you’re selling northern onions on an F.O.B. basis, and if normally the shipment would arrive at the contract destination on the fifth day, then referring to the Good Arrival Guidelines, you will see that 8% average defects (and 4% very serious defects) is not considered abnormal. The buyer would need to show more than 8% defects to establish a breach.

But what if the U.S. Department of Agriculture or Canadian Food Inspection Agency inspection is not performed until 24-hours later, on day six, and shows 9% average defects? In this case, assuming all the product was made available for inspection, and assuming normal transportation conditions, has the buyer established a breach?

Probably not, because an inspection certificate showing 9% average defects on day six does not prove the product was affected with more than 8% on day five when the product arrived. It must be remembered that upon receiving the product, the buyer bears the burden of proving that the seller breached.

But what if the inspection certificate taken on day six shows 11% average defects? Would this be sufficient to show that the product was abnormally deteriorated on day five?

Yes, it probably would, assuming the onions were properly stored after arrival. Although buyers bear the burden of proving a breach after receiving a shipment, they only need to prove a breach by a “preponderance of the evidence,” that is, by only the slimmest of margins.

Now, you may ask, why am I avoiding the more difficult scenario? What if the inspection certificate taken on day six shows 10% average defects, would this be sufficient to establish a breach?

I’m avoiding this more difficult scenario because it must be remembered that the Good Arrival Guidelines are just guidelines. They are not really meant to be applied with microscopic precision.

So, if you find yourself counting hours and reviewing momentary blips on the temperature tape to make your case, this is probably a sign that this transaction should be settled amicably between the parties with a simple price adjustment.

Doug Nelson is vice president of trading assistance for Blue Book Services Inc.