When produce transactions start to go sideways, it’s helpful to have a clear understanding of industry trading rules.
Not to outmaneuver customers and suppliers with technicalities—Blue Book sees fewer people operating with this mentality these days—but to help guide a resolution that recognizes rights and responsibilities, mitigates losses, and ultimately keeps business flowing with as little disruption as possible.
Toward this end, we wanted to call attention to three misconceptions related to the warranty of suitable shipping condition (7 CFR 46.42(j)), the granddaddy of produce warranties, aka “good arrival.”
This warranty is essentially the seller’s promise that its product will hold up en route to the contract destination, provided transportation conditions are normal.
#1 Abnormal transportation conditions void the warranty of suitable shipping condition.
The warranty of suitable shipping condition requires FOB sellers to load product that will arrive at contract destination without abnormal deterioration provided transportation conditions are normal.
The seller complies with (or breaches) this warranty when title passes at shipping point before the product has been transported.
However, we can’t know whether the seller complied with the warranty of suitable shipping condition until the product has been inspected at contract destination. Even then, abnormal transportation conditions may make it difficult or impossible to prove the seller failed to load the product in suitable shipping condition.
For example, let’s say a truckload of strawberries is delayed by a mechanical breakdown for 72 hours and that during this time temperature control was 10 degrees too warm. And let’s say that a USDA inspection taken upon arrival at destination shows the product was affected with 12% decay.
In this scenario the inspection certificate would not be sufficient to show the seller breached the warranty of suitable shipping condition.
The transportation conditions were too far from normal for the buyer to meet its burden of proving by a preponderance of the evidence (i.e., to a more-likely-than-not standard) that the strawberries would have failed to make good arrival even if they had arrived 72 hours earlier at normal temperatures.
And while you might say this “voids” the warranty, as a kind of shorthand, in fact, the warranty has not been nullified or voided due to the abnormal transportation—the buyer has simply failed to prove the seller breached.
Let’s look at a different example. Let’s say normal time to the destination city is 3 days, but a mechanical breakdown delays arrival for 24 hours; therefore, the transportation is by definition abnormal.
But if it is undisputed that temperatures in transit were good throughout the trip, and yet a USDA inspection upon arrival shows 12% decay (no more than 3% is allowed for even a 5-day trip), this would be compelling evidence that these strawberries would have been abnormally deteriorated upon arrival even if they had arrived 24 hours earlier.
In other words, this inspection certificate would support the buyer’s contention that the seller failed to load the product in suitable shipping condition.
Similarly, if delivery was timely, but temperatures in the trailer were slightly out of range (too hot or too cold) and yet a timely inspection at destination shows a very high level of defects, say 40% decay just to make the point, in a situation like this, the buyer may very well be able to establish that the seller failed to load the product in suitable shipping condition even though temperatures en route were not normal.
To be clear, however, sellers only warrant that their product will hold up under normal transportation conditions.
If the transportation is not normal, even though the warranty of suitable shipping condition is not voided, the buyer is going to need to present compelling evidence to establish the product would have been abnormally deteriorated even under normal transportation conditions.
If the buyer cannot make a clear and convincing showing, sellers will likely enjoy the benefit of the doubt.
This is an excerpt from the Trading Assistance Department of the March/April 2022 issue of Produce Blueprints Magazine. Click here to read the whole issue.
