The daily rush of buying, selling, and servicing customers—not to mention running your business—probably leaves little time for brushing up on the industry trading rules you’ve learned over the years.
Fortunately, PACA, DRC, WGA, and Blue Book all have dedicated staff just a phone call away when a deal starts to go sideways. Still, a proactive review of the fundamentals from time to time can be helpful.
In these three posts, we review a sampling of 15 trading rules or principles in a true/false format. Here’s Part 1 on consignments and good arrivals.
Of course, feel free to reach out to us if you’d like to discuss any of these points further. Good luck!
Consignment & Price-After-Sale
1. When product is handled on consignment (i.e., handled for the account of another) title to the product does not pass from the consignor to the consignee.
True. When product is handled on consignment, the consignee sells the product on the consignor’s behalf. Accordingly, consignees are required to provide consignors with a detailed accounting of sales and customarily earn a 15 percent commission based on gross proceeds.
2. When product is sold on a price-after-sale basis, title to the product does not pass from the seller to the buyer.
False. A price-after-sale (PAS) transaction is simply a sale where no price is agreed to until after the buyer resells the product. Although PAS buyers are not required to provide an accounting, if no agreement on price can be reached it is typically in the buyer’s best interest to provide a detailed accounting of its sales. Customarily, PAS buyers earn 20 percent of gross proceeds for “profit and handling.”
3. When handling rejected product on consignment or on a price-after-sale basis, there is no need to call for an inspection certificate.
False. Inspection certificates are needed to quantify the extent of any quality or condition problems with the product, and ultimately to evaluate the sufficiency of the returns. If no inspection certificate is provided, the product may be presumed to be free from appreciable defects.
4. The warranty associated with PACA and DRC Good Arrival Guidelines is called the warranty of suitable shipping condition.
True. The warranty of suitable shipping condition is the seller’s promise that the product will arrive at the contract destination without abnormal deterioration, provided transportation conditions are normal (PACA and DRC guidelines help define abnormal deterioration at destination).
5. When product is sold without a grade, quality defects (known as permanent defects in Canada) do not score against the warranty of suitable shipping condition (or “good arrival”).
True. When product is sold without a grade, only condition defects score against the warranty of suitable shipping condition. Condition defects such as decay, bruising, and live insects progress rapidly with time and warm temperatures; quality defects, such as scarring, misshapen, or dead insects, are more permanent in nature. Both USDA and CFIA inspectors will clearly identify quality or permanent defects on their inspection certificates.
6. There is never a reason to get product inspected for quality defects if it was purchased without a grade; an inspection for condition defects only will suffice.
False. If significant levels of quality defects are observed, it may make sense to get the product inspected for quality and condition defects. Significant levels of quality defects may help support lower salvage proceeds. Also, very high levels of quality defects (e.g., 33 percent or more) may establish a breach of the warranty of merchantability, which could be important if the percentage of condition defects is not sufficient to establish that the product failed to make good arrival.
7. If the commodity in question is not listed in the Good Arrival Guidelines, then it cannot be found to be abnormally deteriorated in breach of the warranty of suitable shipping condition.
False. Although Good Arrival Guidelines help assess whether the product in question is abnormally deteriorated, this determination is not dependent upon a good arrival standard. Since 15 percent average defects for a 5-day trip is the most common standard, arguably, this is an important reference point when assessing whether a commodity not listed in the Guidelines is abnormally deteriorated upon arrival at destination.