Truck brokers and salvage returns

Produce truck brokers have a challenging job. Not only must they act as intermediary between truck drivers and produce vendors, they also face myriad operational challenges—last minute changes, relentless time pressure, and narrow margin for error—related to the perishable nature of fresh produce.

Of all the balls truck brokers keep in the air, however, the ball marked “managing salvage returns” seems to be the one that hits the ground with a thud more often than necessary. The good news, in most cases, is that managing salvage returns is largely a matter of following a few best practices and refusing to accept unsupported returns from the salvaging firm.

A Typical Scenario
A typical scenario involves a retail receiver refusing product due to temperature problems in transit, particularly when it’s clear the carrier failed to properly maintain temperatures. In our experience, truck brokers are usually quick to recognize the need to place the load with an area wholesaler and start the process of claiming the carrier (and/or its insurer).

Understandably, truck brokers may be inclined to rely on the integrity and expertise of wholesalers and simply assume the produce in question will be sold at a reasonable price. But if the next week the truck broker is presented with very low returns from the wholesaler/salvager, then what?

One option is for the truck broker to shrug it off and pass the greater-than-expected losses through to the carrier. And this may be especially tempting when the additional losses can be offset against outstanding freight payments owed the carrier. But, of course, any proper claim against the carrier requires proof of financial damages; claims must be supported, not merely claimed.

How can the extent of condition problems affecting the product be best determined?

Inspection certificates
With a U.S. Department of Agriculture (USAD) or Canadian Food Inspection Agency (CFIA) inspection certificate, of course! That’s an easy question for everyone in the produce industry and yet truck brokers and wholesalers handling rejected product seem to forget to call for a USDA or CFIA inspection certificate countless times each year. What’s going on here?

In many cases, the reason government inspections are not called for is not because truck brokers and wholesalers are forgetful, but because the product is not showing much in the way of appreciable defects upon arrival at the salvaging wholesaler’s facility.

And, an inspection certificate showing the product was in good shape generally isn’t much good to a wholesaler or truck broker trying to justify the significantly below-market salvage returns we sometimes see after produce is rejected.

Technically speaking, however, the absence of an inspection certificate will not help support a claim against the underlying carrier. On the contrary, the absence of an inspection certificate, per PACA precedent (indirectly applicable to carrier claims), creates a presumption that the produce in question was free from appreciable defects. And if the produce was free from defects, it follows that the product should have retained a high percentage of its market value despite the temperature problems that led to the rejection.

All this to say, the absence of a government inspection quantifying the condition of the produce, combined with very low returns, puts the truck broker in a difficult position.

If the commodities involved were selling for approximately $20,000 at the time, and if the truck broker cannot show the product in question was appreciably defective, then how is the truck broker going to explain that its claim against the carrier is based on salvage proceeds from the wholesaler of just $5,000? The unsupported salvage proceeds potentially leave the truck broker in a $15,000 hole.

Avoiding Shortfalls
So, how can $15,000 shortfalls in your claims be avoided?

First, we would recommend obtaining a USDA or CFIA inspection in nearly all cases. Even if the product is not showing a high level of defects, the objective information provided by an inspection certificate helps ‘fill in the blanks’ and facilitate a fair resolution. It doesn’t matter so much who calls for the government inspection, as long as one is obtained.

Ultimately, the wholesaler needs an inspection certificate to support the returns it offers, and the truck broker needs an inspection certificate to support the damages claimed against the carrier.

Second, when placing rejected product, we recommend truck brokers confirm, up front and in writing, your mutual understanding with the salvaging wholesaler that the produce will be handled on consignment (i.e., ‘for your account’) and that the wholesaler will provide a detailed (i.e., carton-level) accounting of its sales AND any government inspections necessary to support significantly below-market sales and any dumping or donation of product (beyond the 5 percent contemplated by PACA regulations).

Note that in order to support its returns, the wholesaler will often need to call for one inspection upon receipt of the product and a second inspection the following week before dumping or donating any unsold product.

Third, we would recommend not readily accepting unsupported returns from the wholesaler. If, for example, the wholesaler has provided no proof that the product was affected with appreciable defects, and yet the wholesaler’s detailed accounting reports none of the cartons sold for even one-half the delivered cost (f.o.b. price plus freight to the destination market) of the product, we would advise the truck broker promptly object and ask for additional support before accepting the proffered returns.

Sounds easy, but….
Of course, the approach outlined above is somewhat oversimplified. There are many situations where reasonable people might disagree as to what is a reasonable and good faith return on consignment in light of the commodities and other circumstances involved. The need for cooperation, reasonableness, and occasional compromise between business partners cannot be ignored in favor of simply implementing a handful of best practices.

Despite the challenges, however, a truck broker who resolves to develop and maintain a network of wholesalers it can rely on to properly handle rejected loads in a mutually beneficial manner, guided by agreed-upon best practices, would seem to enjoy a competitive advantage.

Doug Nelson is Vice President of Trading Assistance for Blue Book Services Inc.