Reefer carriers and freight brokers that provide service to the produce industry at some point hear about this mysterious thing called “the PACA,” which seems to set the rules and police the industry. How wonderful that such a thing exists!
But chances are, if someone is taking the time to educate you about PACA, it’s not good news. More likely they’re referencing PACA (correctly or incorrectly) in support of some unfavorable action being taken against you, such as the rejection of a load or a deduction from your freight invoice.
In this article, we’re going to try to demystify PACA and explain when it is—and when it is not—relevant to the transportation of fresh fruits and vegetables.
What is PACA?
Key The Perishable Agricultural Commodities Act (PACA or the ACT) requires produce vendors and their agents who buy and/or sell wholesale quantities of fruits and vegetables in foreign or interstate commerce to be licensed by the U.S. Department of Agriculture (USDA).
This licensing authority comes with the ability to revoke the license for failing to pay suppliers for perishable agricultural commodities (i.e., unprocessed fruits and vegetables) and other violations of the Act and its regulations.
Additionally, the Act gives the USDA, through the PACA branch office which administers it, the authority to issue binding reparation decisions interpreting USDA inspection certificates, defining “abnormal deterioration,” and assessing various and sundry contractual disputes that arise between buyers and sellers of fruits and vegetables.
So PACA may be thought of as a specialty court that resolves disputes that typically don’t involve enough money to justify traditional litigation.
Not only do the administrative rulings coming from these reparation decisions resolve the disputes in question, but these rulings have created nearly a century (the Act was enacted in 1930) of precedent decisions to help the industry answer questions such as, does a load of strawberries affected with 15% average defects at destination establish a breach of the sales agreement?
Of course, the answer is, it depends. And PACA precedent decisions (informed by the reasoning and arguments of buyers and sellers over generations) help establish what it depends on.
For instance, was the product transported at normal temperatures? Was the product USDA inspected in a timely manner? Was the product sold with a grade such as U.S. No. 1?
Key But for all PACA does for the industry, it does not give the USDA jurisdiction over transportation companies or provide any mechanism for resolving disputes between produce vendors and transportation companies. And yet, PACA is often referenced in transportation claims involving fresh produce. Sometimes these references are misplaced, but sometimes they are relevant or even pivotal in resolving transportation claims.
Consequently, it’s helpful to have a solid understanding of PACA when assessing carrier claims involving fresh fruits and vegetables.
Good Order vs. Good Arrival
When told a shipment of fresh produce doesn’t make “good arrival” at destination, this may sound like a carrier problem. In fact, however, the warranty of suitable shipping condition (which is the “good arrival” warranty) is made by produce sellers—not carriers.
Key The Act’s regulations make it clear sellers are responsible for loading product that will hold up during normal transportation conditions. Carriers, on the other hand, are responsible for providing normal transportation conditions (more on this later).
Specifically, the regulations provide that produce must be “placed…at shipping point, in ‘suitable shipping condition’ (7 CFR 46.43(i)), defined as follows—
Suitable shipping condition…means that the commodity [at time of shipment] is in a condition which, if the shipment is handled under (1) normal transportation…conditions, will assure delivery (2) without abnormal deterioration at the (3) contract destination agreed upon between the parties…. (7 CFR 46.43(j))
So, by definition, only produce sellers can breach the warranty of suitable shipping condition.
Despite the clarity of the regulations on this point, produce vendors will sometimes rely on a clause in the bill of lading stating that the produce “was received [by the carrier at shipping point] in apparent good order” as support for the misguided idea that the driver’s signature somehow certifies the product was loaded in suitable shipping condition, and therefore, the carrier must be responsible for the failure of the product to make good arrival at destination.
But, of course, carriers are not expected to act as an arm of the shipper’s quality control team.
In fact, per PACA precedent, even USDA inspection certificates showing the produce in question was in good condition at shipping point (as opposed to the contract destination) are not sufficient to prove produce was loaded in suitable shipping condition.
In other words, a seller’s compliance with the warranty of suitable shipping condition is not something that can be determined at shipping point—not even by trained USDA inspectors.
It follows then that the driver’s signature, without any notations (i.e., a “clean” bill of lading at origin), only suggests there were no readily apparent problems, such as crushed or leaking boxes, with the product at shipping point and that the product was in fact placed in the trailer, properly loaded and braced.
If, for example, the driver signs the bill of lading “clean,” and yet boxes are crushed upon arrival at destination, the presumption arises that the damage was sustained in transit while the product was in the possession and control of the carrier.
But in the absence of temperature control problems or a significant delay in transit, claimants should typically be looking to their suppliers, not the carrier, if excessive condition defects (e.g., decay or other forms of spoilage) are discovered upon arrival.
Inspection Certificates Required
Not surprisingly, USDA inspection certificates are pivotal in vendor-to-vendor disputes: PACA precedent provides that a USDA inspection certificate (or a Canadian Food Inspection Agency inspection certificate for shipments into Canada) is required to quantify the percentage of defects affecting the produce upon arrival at destination, if the buyer hopes to show the produce was “abnormally deteriorated.”
Defects are classified by the USDA according to their nature and seriousness. A “quality defect” is one that is relatively permanent in nature and would not get worse during transportation, such as scarring or mishappen product.
A “condition defect,” on the other hand, is progressive in nature, such as bruising, mold, or decay. Condition defects naturally get worse over time, and will advance during transportation, especially when temperature control is not properly maintained.
The seriousness of the defects in question are typically classified on USDA inspection certificates as average, serious, or very serious. The seriousness of a defect such as bruising will depend on the size of the bruise, while defects such as mold and decay are always classified as very serious.
Key These classifications matter because the percentage of each type of defect corresponds to the percentages set forth by PACA’s Good Arrival Guidelines which, for all practical purposes, define abnormal deterioration under the warranty of suitable shipping condition.
Conversely, the question of whether the carrier complied with the contract of carriage doesn’t typically hinge on the percentage of a specific type of defect affecting the produce at destination, but on whether the carrier can show it used due care to protect the product in its possession.
Temperature records from a portable recorder and reefer-based temperature logger are often pivotable in assessing these claims.
But, of course, even in cases where claimants can establish a loss of temperature control, they must also support the amount of financial losses they are claiming—and the first step in doing so is calling for a USDA inspection in a timely manner.
An inspection certificate showing 35% average condition defects will naturally support a greater claim than an inspection showing just 17% average condition defects, assuming both inspections were timely.
So, how long after arrival may a USDA inspection be considered timely?
Key Although PACA precedent is not directly applicable to (or controlling of) transportation claims, PACA precedent provides a wealth of decisions related to the timeliness of USDA inspections and therefore provides a reference point when considering virtually the same issue in the context of a transportation claim.
Suffice it to say that inspections taken more than two or three days after arrival at the contract destination may be challenged as untimely, especially where highly perishable commodities like strawberries and asparagus are concerned.
What’s more, claimants with aging inspection certificates should be prepared to show that the product was properly stored during the interval between unloading from the carrier and the USDA inspection.
Presuming the inspection is timely, the next question is usually, what is the fair market value for this distressed produce? Answering this question starts with another: what is the extent of the damage we’re talking about?
Taking strawberries for example, how does the carrier know whether a shipment affected with 15% average condition defects still retains significant commercial value or is even salable? How about 15% very serious defects?
This is where PACA’s Good Arrival Guidelines can be helpful within the context of a carrier claim.
With a functional understanding of PACA’s Good Arrival Guidelines, carriers can more effectively evaluate or challenge the reasonableness of the alleged financial damages. The table below provides PACA’s Good Arrival Guidelines for strawberries.
Oversimplifying somewhat, the key numbers are those under the % of Defects Allowed column. The first number typically represents average condition defects; the second number represents serious condition defects; and the third number represents very serious defects and/or decay.
If the product arrives and is inspected on the fourth day after leaving shipping point, and the percentage of defects shown on the inspection certificate does not exceed the relevant standard (14-8-3 in this example), then the carrier is in a good position to argue that the produce in question was not abnormally deteriorated and therefore should have fetched market level returns.
If, on the other hand, a timely inspection certificate shows the defects far exceed these standards, such as 15% very serious defects, then the carrier should not be surprised to see poor returns, dumped product, and substantial financial damages alleged.
With PACA Good Arrival Guidelines as a measuring stick, a timely USDA inspection certificate allows the condition of fresh produce to be assessed in an objective and standardized manner to effectively settle any question with respect to the condition of the produce upon arrival at contract destination.
This notwithstanding, a claimant who only took pictures of the produce in support of its claim can be expected to argue that its pictures, combined with a detailed account of sales, should be good enough to support its alleged damages in the context of a carrier claim where the precise percentage of defects is less important than in a vendor-to-vendor scenario, where “good arrival” can easily hinge on a 2% difference.
Pictures, however, usually only represent the condition of a very small percentage of the lot. Needless to say, pictures of defects affecting individual pieces of fruit are not usually very helpful in assessing the commercial value of a truckload of produce.
Consequently, carriers presented with only pictures as proof of thousands of dollars’ worth of alleged damages are in a good position to point to PACA precedent and argue that pictures alone are not sufficient to quantify the defects affecting a truckload of produce.
Accounting for Salvage Returns
When a shipment of produce is rejected to a carrier, like it or not, the carrier (or freight broker) is put in a position where it must salvage a truckload of product, usually through an area wholesaler, to mitigate losses.
And particularly if a USDA inspection is taken showing the product is affected with excessive condition defects, the carrier might figure it’s stuck with whatever salvage returns the wholesaler offers after the product has been sold.
Key Yet PACA precedent is helpful in this regard, provided that when product is sold on consignment (or “for the account of whomever it concerns”), which is customary after fresh produce has been rejected, the wholesaler-consignee provides a detailed accounting of its sales.
This accounting must show the selling price for each case and must itemize all deductions taken from the salvage proceeds.
If the salvaging firm refuses to provide a detailed accounting, or if the accounting provided 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% average condition defects are not supported with a detailed accounting and amount to only 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 to support its returns with a detailed accounting reflecting a reasonable sales effort.
Finally, it’s worth noting that PACA precedent provides for a customary commission of 15% (the parties may agree to a different amount) when produce is handled on consignment, which the salvaging firm may deduct from the gross proceeds, along with any inspection fees.
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 controlling of transactions between produce vendors, this begs the question, if PACA precedent is reasonable when produce is consigned between vendors, why wouldn’t it be reasonable when a carrier or truck broker happens to be acting as a consignor?
In summary, PACA has done a great deal of work over many decades, mediating and resolving disputes between produce vendors. Through this process it has established the guidelines, customary practices, and rules that govern produce transactions between vendors.
Key And as a byproduct of these efforts, PACA has also helped shape expectations and standards for reasonableness that may be applied to transportation claims as well. Carriers and freight brokers with a basic understanding of PACA are better prepared to assess and negotiate resolution to carrier claims.
This Trading Assistance column ran in the May/June 2024 issue of Produce Blueprints.
Reefer carriers and freight brokers that provide service to the produce industry at some point hear about this mysterious thing called “the PACA,” which seems to set the rules and police the industry. How wonderful that such a thing exists!
But chances are, if someone is taking the time to educate you about PACA, it’s not good news. More likely they’re referencing PACA (correctly or incorrectly) in support of some unfavorable action being taken against you, such as the rejection of a load or a deduction from your freight invoice.
In this article, we’re going to try to demystify PACA and explain when it is—and when it is not—relevant to the transportation of fresh fruits and vegetables.
What is PACA?
Key The Perishable Agricultural Commodities Act (PACA or the ACT) requires produce vendors and their agents who buy and/or sell wholesale quantities of fruits and vegetables in foreign or interstate commerce to be licensed by the U.S. Department of Agriculture (USDA).
This licensing authority comes with the ability to revoke the license for failing to pay suppliers for perishable agricultural commodities (i.e., unprocessed fruits and vegetables) and other violations of the Act and its regulations.
Additionally, the Act gives the USDA, through the PACA branch office which administers it, the authority to issue binding reparation decisions interpreting USDA inspection certificates, defining “abnormal deterioration,” and assessing various and sundry contractual disputes that arise between buyers and sellers of fruits and vegetables.
So PACA may be thought of as a specialty court that resolves disputes that typically don’t involve enough money to justify traditional litigation.
Not only do the administrative rulings coming from these reparation decisions resolve the disputes in question, but these rulings have created nearly a century (the Act was enacted in 1930) of precedent decisions to help the industry answer questions such as, does a load of strawberries affected with 15% average defects at destination establish a breach of the sales agreement?
Of course, the answer is, it depends. And PACA precedent decisions (informed by the reasoning and arguments of buyers and sellers over generations) help establish what it depends on.
For instance, was the product transported at normal temperatures? Was the product USDA inspected in a timely manner? Was the product sold with a grade such as U.S. No. 1?
Key But for all PACA does for the industry, it does not give the USDA jurisdiction over transportation companies or provide any mechanism for resolving disputes between produce vendors and transportation companies. And yet, PACA is often referenced in transportation claims involving fresh produce. Sometimes these references are misplaced, but sometimes they are relevant or even pivotal in resolving transportation claims.
Consequently, it’s helpful to have a solid understanding of PACA when assessing carrier claims involving fresh fruits and vegetables.
Good Order vs. Good Arrival
When told a shipment of fresh produce doesn’t make “good arrival” at destination, this may sound like a carrier problem. In fact, however, the warranty of suitable shipping condition (which is the “good arrival” warranty) is made by produce sellers—not carriers.
Key The Act’s regulations make it clear sellers are responsible for loading product that will hold up during normal transportation conditions. Carriers, on the other hand, are responsible for providing normal transportation conditions (more on this later).
Specifically, the regulations provide that produce must be “placed…at shipping point, in ‘suitable shipping condition’ (7 CFR 46.43(i)), defined as follows—
Suitable shipping condition…means that the commodity [at time of shipment] is in a condition which, if the shipment is handled under (1) normal transportation…conditions, will assure delivery (2) without abnormal deterioration at the (3) contract destination agreed upon between the parties…. (7 CFR 46.43(j))
So, by definition, only produce sellers can breach the warranty of suitable shipping condition.
Despite the clarity of the regulations on this point, produce vendors will sometimes rely on a clause in the bill of lading stating that the produce “was received [by the carrier at shipping point] in apparent good order” as support for the misguided idea that the driver’s signature somehow certifies the product was loaded in suitable shipping condition, and therefore, the carrier must be responsible for the failure of the product to make good arrival at destination.
But, of course, carriers are not expected to act as an arm of the shipper’s quality control team.
In fact, per PACA precedent, even USDA inspection certificates showing the produce in question was in good condition at shipping point (as opposed to the contract destination) are not sufficient to prove produce was loaded in suitable shipping condition.
In other words, a seller’s compliance with the warranty of suitable shipping condition is not something that can be determined at shipping point—not even by trained USDA inspectors.
It follows then that the driver’s signature, without any notations (i.e., a “clean” bill of lading at origin), only suggests there were no readily apparent problems, such as crushed or leaking boxes, with the product at shipping point and that the product was in fact placed in the trailer, properly loaded and braced.
If, for example, the driver signs the bill of lading “clean,” and yet boxes are crushed upon arrival at destination, the presumption arises that the damage was sustained in transit while the product was in the possession and control of the carrier.
But in the absence of temperature control problems or a significant delay in transit, claimants should typically be looking to their suppliers, not the carrier, if excessive condition defects (e.g., decay or other forms of spoilage) are discovered upon arrival.
Inspection Certificates Required
Not surprisingly, USDA inspection certificates are pivotal in vendor-to-vendor disputes: PACA precedent provides that a USDA inspection certificate (or a Canadian Food Inspection Agency inspection certificate for shipments into Canada) is required to quantify the percentage of defects affecting the produce upon arrival at destination, if the buyer hopes to show the produce was “abnormally deteriorated.”
Defects are classified by the USDA according to their nature and seriousness. A “quality defect” is one that is relatively permanent in nature and would not get worse during transportation, such as scarring or mishappen product.
A “condition defect,” on the other hand, is progressive in nature, such as bruising, mold, or decay. Condition defects naturally get worse over time, and will advance during transportation, especially when temperature control is not properly maintained.
The seriousness of the defects in question are typically classified on USDA inspection certificates as average, serious, or very serious. The seriousness of a defect such as bruising will depend on the size of the bruise, while defects such as mold and decay are always classified as very serious.
Key These classifications matter because the percentage of each type of defect corresponds to the percentages set forth by PACA’s Good Arrival Guidelines which, for all practical purposes, define abnormal deterioration under the warranty of suitable shipping condition.
Conversely, the question of whether the carrier complied with the contract of carriage doesn’t typically hinge on the percentage of a specific type of defect affecting the produce at destination, but on whether the carrier can show it used due care to protect the product in its possession.
Temperature records from a portable recorder and reefer-based temperature logger are often pivotable in assessing these claims.
But, of course, even in cases where claimants can establish a loss of temperature control, they must also support the amount of financial losses they are claiming—and the first step in doing so is calling for a USDA inspection in a timely manner.
An inspection certificate showing 35% average condition defects will naturally support a greater claim than an inspection showing just 17% average condition defects, assuming both inspections were timely.
So, how long after arrival may a USDA inspection be considered timely?
Key Although PACA precedent is not directly applicable to (or controlling of) transportation claims, PACA precedent provides a wealth of decisions related to the timeliness of USDA inspections and therefore provides a reference point when considering virtually the same issue in the context of a transportation claim.
Suffice it to say that inspections taken more than two or three days after arrival at the contract destination may be challenged as untimely, especially where highly perishable commodities like strawberries and asparagus are concerned.
What’s more, claimants with aging inspection certificates should be prepared to show that the product was properly stored during the interval between unloading from the carrier and the USDA inspection.
Presuming the inspection is timely, the next question is usually, what is the fair market value for this distressed produce? Answering this question starts with another: what is the extent of the damage we’re talking about?
Taking strawberries for example, how does the carrier know whether a shipment affected with 15% average condition defects still retains significant commercial value or is even salable? How about 15% very serious defects?
This is where PACA’s Good Arrival Guidelines can be helpful within the context of a carrier claim.
With a functional understanding of PACA’s Good Arrival Guidelines, carriers can more effectively evaluate or challenge the reasonableness of the alleged financial damages. The table below provides PACA’s Good Arrival Guidelines for strawberries.
Oversimplifying somewhat, the key numbers are those under the % of Defects Allowed column. The first number typically represents average condition defects; the second number represents serious condition defects; and the third number represents very serious defects and/or decay.
If the product arrives and is inspected on the fourth day after leaving shipping point, and the percentage of defects shown on the inspection certificate does not exceed the relevant standard (14-8-3 in this example), then the carrier is in a good position to argue that the produce in question was not abnormally deteriorated and therefore should have fetched market level returns.
If, on the other hand, a timely inspection certificate shows the defects far exceed these standards, such as 15% very serious defects, then the carrier should not be surprised to see poor returns, dumped product, and substantial financial damages alleged.
With PACA Good Arrival Guidelines as a measuring stick, a timely USDA inspection certificate allows the condition of fresh produce to be assessed in an objective and standardized manner to effectively settle any question with respect to the condition of the produce upon arrival at contract destination.
This notwithstanding, a claimant who only took pictures of the produce in support of its claim can be expected to argue that its pictures, combined with a detailed account of sales, should be good enough to support its alleged damages in the context of a carrier claim where the precise percentage of defects is less important than in a vendor-to-vendor scenario, where “good arrival” can easily hinge on a 2% difference.
Pictures, however, usually only represent the condition of a very small percentage of the lot. Needless to say, pictures of defects affecting individual pieces of fruit are not usually very helpful in assessing the commercial value of a truckload of produce.
Consequently, carriers presented with only pictures as proof of thousands of dollars’ worth of alleged damages are in a good position to point to PACA precedent and argue that pictures alone are not sufficient to quantify the defects affecting a truckload of produce.
Accounting for Salvage Returns
When a shipment of produce is rejected to a carrier, like it or not, the carrier (or freight broker) is put in a position where it must salvage a truckload of product, usually through an area wholesaler, to mitigate losses.
And particularly if a USDA inspection is taken showing the product is affected with excessive condition defects, the carrier might figure it’s stuck with whatever salvage returns the wholesaler offers after the product has been sold.
Key Yet PACA precedent is helpful in this regard, provided that when product is sold on consignment (or “for the account of whomever it concerns”), which is customary after fresh produce has been rejected, the wholesaler-consignee provides a detailed accounting of its sales.
This accounting must show the selling price for each case and must itemize all deductions taken from the salvage proceeds.
If the salvaging firm refuses to provide a detailed accounting, or if the accounting provided 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% average condition defects are not supported with a detailed accounting and amount to only 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 to support its returns with a detailed accounting reflecting a reasonable sales effort.
Finally, it’s worth noting that PACA precedent provides for a customary commission of 15% (the parties may agree to a different amount) when produce is handled on consignment, which the salvaging firm may deduct from the gross proceeds, along with any inspection fees.
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 controlling of transactions between produce vendors, this begs the question, if PACA precedent is reasonable when produce is consigned between vendors, why wouldn’t it be reasonable when a carrier or truck broker happens to be acting as a consignor?
In summary, PACA has done a great deal of work over many decades, mediating and resolving disputes between produce vendors. Through this process it has established the guidelines, customary practices, and rules that govern produce transactions between vendors.
Key And as a byproduct of these efforts, PACA has also helped shape expectations and standards for reasonableness that may be applied to transportation claims as well. Carriers and freight brokers with a basic understanding of PACA are better prepared to assess and negotiate resolution to carrier claims.
This Trading Assistance column ran in the May/June 2024 issue of Produce Blueprints.
Doug Nelson is Vice President of Trading Assistance for Blue Book Services
