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.
#2 When product makes “good arrival” it “makes grade” as well.
When product makes “good arrival” at destination the assumption is often that it must have been within grade at shipping point. But really these are two different questions that must be considered separately.
Let’s take bell peppers shipped coast-to-coast on an FOB basis with a U.S. No. 1 grade. The seller is expected to provide product that will (i) meet the U.S. No. 1 grade requirements at loading (when title passes to the buyer) and (ii) arrive at destination without abnormal deterioration as defined, in essence, by the Good Arrival Guidelines.
If a USDA inspection at destination shows the peppers were affected with 11% scarring, a quality defect, and 2% bruising, a condition defect, for a checksum of 13%, these peppers would make good arrival because PACA Good Arrival Guidelines provide for 15% average defects on 5-day trips.
But this inspection certificate would also indicate these peppers were out of grade at shipping point due to the 11% scarring, a quality defect that by definition would not worsen in transit.
Because the U.S. No. 1 grade standard only permits 10% average defects, and these peppers were affected with 11% scarring, they would be deemed to have failed to made grade.
The more permanent nature of quality defects allows an inspection taken at destination to speak to the grade of the product at shipping point.
Conversely, an inspection certificate showing 11% bruising, a condition defect, at destination would not be sufficient to show the product was out of grade when title passed at shipping point because condition defects worsen over time and presumably would have increased en route to the contract destination.
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.
To read the previous excerpt about Misconception #1, click here.