PACA and Transportation Claims Part 3: Salvage Returns

When a shipment of produce is rejected to a carrier, the carrier (or truck broker), may be put in a position where it must consign a truckload of produce, usually through a wholesaler, to mitigate losses.  And if a USDA inspection is taken showing the product is affected with excessive condition defects, the carrier might assume it is stuck with whatever salvage returns the wholesaler offers after the product has been sold.

But, in fact, PACA precedent provides that consignees (the wholesaler in this scenario) must provide consignors with a detailed accounting of its sales.  This accounting must show the selling price for each carton and itemize all deductions taken from the salvage proceeds.

If the salvaging firm refuses to provide a detailed accounting or if the accounting does not reflect a “prompt and proper” or “reasonable” effort to sell the product, then per PACA precedent, the wholesaler’s proffered returns may be discarded and a reasonable return imputed. For example, if salvage proceeds from a shipment with 20% condition defects are not supported with a detailed accounting, and amount to just 15% of the market value of the commodity in question, then the proffered return would likely be deemed unreasonable, and a new figure would be imputed.

One method for imputing a salvage value to produce in this situation is to simply reduce the destination market value of the commodity in question by the percentage of defects shown on the USDA inspection certificate.  While this method tends to overestimate the value of distressed produce, it must be remembered that this method is only used when the consignee fails in its obligation to provide the consignor with a detailed accounting reflecting a prompt and proper sales effort.

Transportation professionals should also be aware that PACA precedent provides for a customary commission, when produce is handled on consignment, of 15% (the parties may agree to a different amount) which the salvaging firm may deduct from the gross proceeds, along with any inspection fees and cartage expenses incurred.  Conversely, PACA precedent disallows deductions for storage fees, profit and handling, or dumping fees not supported with a dump receipt.

And while a salvaging firm may correctly point out that this precedent is only directly applicable to transactions between produce vendors, the carrier or truck broker is in a strong position to argue that if PACA precedent is reasonable and customary when produce is consigned between vendors, then there would seem to be no good reason why this same precedent would not be reasonable when a carrier or truck broker happens to be acting as a consignor.

In summary, PACA has, over many decades, helped shape the guidelines, customary practices, and rules that govern produce transactions between vendors. In the absence of a similar authority governing transportation claims involving fresh produce (note that most of these claims are too small for traditional litigation), PACA also helps shape expectations and standards of reasonableness in the context of transportation claims.  Consequently, carriers and truck brokers with a functional understanding of PACA are better equipped to assess and negotiate a fair resolution to carrier claims.

 

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