The following case study is based on a claim filed with Blue Book Services. The facts described below set up an interesting but not uncommon type of dispute between a truck broker and a wholesaler, with a shipment arriving at destination one or two days late with defects marginally in excess of those set forth by the Perishable Agricultural Commodities Act (PACA) and its Good Arrival Guidelines.
Facts
The claimant, a truck broker, was hired by the respondent, a wholesaler, to transport apples from Washington state to Denver, Colorado. The shipment involved three (3) pickups, which were expected to be completed on March 13, 2017 but were not completed until mid-morning on March 14. The shipment was then delayed further when the carrier was found to be overweight, necessitating a return to the third pickup location, and delaying departure until approximately 1:00 pm in the afternoon. It does not appear that the delays at shipping point can be attributed to the carrier.
When the carrier arrived at the receiver’s location in Denver during the afternoon of March 16, the wholesaler complained that some of the pallets in the nose of the trailer had shifted and were leaning against the wall. The wholesaler instructed the carrier to have the pallets restacked elsewhere before returning. The restacking took longer than expected and the carrier did not return to the wholesaler’s facility until early afternoon on March 17.
When the carrier returned, the receiver accepted the restacked product, but the next day (March 18) called for a U.S. Department of Agriculture (USDA) inspection which showed the apples were affected with 16 percent average defects, five (5) days after they were loaded.
The wholesaler does not attribute these defects to the carrier, but rather contends, in essence, that the delay caused by the restacking delayed the USDA inspection of the apples and undermined any claim it would have had against the seller for breach of the warranty of suitable shipping condition. Based on this premise, the wholesaler suggested it had the right to claim the carrier for quality and condition problems with these apples in the same way it would have claimed the seller had the product failed to comply with the warranty of suitable shipping condition (i.e., failed to make ‘good arrival’). The truck broker questioned the basis for this claim and asked Blue Book to review it.
Assessment
At the outset, we note that claims against a free on board (FOB) produce seller and claims against a carrier are two distinct types of claims, which much be proven independently against either the seller or the carrier. It is not correct to assume that because a claim fails against the seller due to abnormal transportation conditions, that the same claim can then be brought against the carrier as if the carrier were a seller who failed to comply with the warranty of suitable shipping condition.
The following case study is based on a claim filed with Blue Book Services. The facts described below set up an interesting but not uncommon type of dispute between a truck broker and a wholesaler, with a shipment arriving at destination one or two days late with defects marginally in excess of those set forth by the Perishable Agricultural Commodities Act (PACA) and its Good Arrival Guidelines.
Facts
The claimant, a truck broker, was hired by the respondent, a wholesaler, to transport apples from Washington state to Denver, Colorado. The shipment involved three (3) pickups, which were expected to be completed on March 13, 2017 but were not completed until mid-morning on March 14. The shipment was then delayed further when the carrier was found to be overweight, necessitating a return to the third pickup location, and delaying departure until approximately 1:00 pm in the afternoon. It does not appear that the delays at shipping point can be attributed to the carrier.
When the carrier arrived at the receiver’s location in Denver during the afternoon of March 16, the wholesaler complained that some of the pallets in the nose of the trailer had shifted and were leaning against the wall. The wholesaler instructed the carrier to have the pallets restacked elsewhere before returning. The restacking took longer than expected and the carrier did not return to the wholesaler’s facility until early afternoon on March 17.
When the carrier returned, the receiver accepted the restacked product, but the next day (March 18) called for a U.S. Department of Agriculture (USDA) inspection which showed the apples were affected with 16 percent average defects, five (5) days after they were loaded.
The wholesaler does not attribute these defects to the carrier, but rather contends, in essence, that the delay caused by the restacking delayed the USDA inspection of the apples and undermined any claim it would have had against the seller for breach of the warranty of suitable shipping condition. Based on this premise, the wholesaler suggested it had the right to claim the carrier for quality and condition problems with these apples in the same way it would have claimed the seller had the product failed to comply with the warranty of suitable shipping condition (i.e., failed to make ‘good arrival’). The truck broker questioned the basis for this claim and asked Blue Book to review it.
Assessment
At the outset, we note that claims against a free on board (FOB) produce seller and claims against a carrier are two distinct types of claims, which much be proven independently against either the seller or the carrier. It is not correct to assume that because a claim fails against the seller due to abnormal transportation conditions, that the same claim can then be brought against the carrier as if the carrier were a seller who failed to comply with the warranty of suitable shipping condition.
Fundamentally, when produce is sold on an FOB basis, sellers promise that their product will be loaded in “suitable shipping condition,” meaning it will arrive at contract destination (Denver in this case) without abnormal deterioration (i.e., make ‘good arrival’) provided transportation is normal.
Fairly or unfairly, industry precedent provides that when product that makes ‘good arrival,’ even if by the slimmest of margins (say less than 1 percent), the buyer has no recourse against the seller. But if the product fails to make good arrival by just 1 percent, then the door opens wide for damages and sellers become responsible for the difference between the destination market value of the commodity in good condition and the value of the defective product that was delivered (as shown by a detailed account of sales reflecting a ‘prompt and proper’ resale of the product in question), plus incidental expenses, such as USDA or Canadian Food Inspection Agency (CFIA) inspection fees.
Carriers, on the other hand, make different promises under the contract of carriage. The most important of these is to deliver the product to destination with reasonable dispatch and to properly cool the trailer. When carriers breach the contract of carriage, they are responsible for the difference between the value that the product they picked up would have had, had they performed properly, and the value of the product that was actually delivered.
It goes without saying that a one-day delay, at proper temperatures, would not cause anywhere near 16 percent condition defects. At proper temperatures, any difference in the product’s condition over the course of a single day is very difficult to quantify.
The best we can do is look to an objective reference, such as the PACA Good Arrival Guidelines, which generally provides for an increase of average condition defects of one or two percent per day—arguably not an appreciable amount.
In other words, any claim against the carrier would need to be based on the difference in value between product affected with approximately 14 to 15 percent defects, as these apples most likely were on March 16 when they were supposed to deliver, and product affected with 16 percent defects, as these apples were on March 17. But because any difference based on sales proceeds would be minor and difficult to quantify, receivers of late product are typically left looking to establish damages based on market decline, with reference to USDA’s Market News reports.
However, damages, if any, resulting from market decline typically amount to only a relatively small percentage of the value of the product. Here, because the USDA’s Market News does not report prices in Denver, we look to the shipping point prices reported in Washington State on March 14 and 15 for evidence of market decline that might affect prices in Denver later in the week. The relevant report, however, shows shipping point prices holding steady during this timeframe, and therefore does not provide a clear basis for damages based on market decline.
That said, for mediation purposes at least, we have at times recognized damages for lateness when the market was holding steady, so long as a range of prices was reported. We’ve approached this by taking the difference between the average and low-end prices reported for product in “good condition” during the relevant timeframe, based on the theory that the older product would be likely to sell for less than the newest (freshest) product available at the same market.
For example, here the pack in question was selling for between $14.00 and $16.00 per carton at shipping point on March 13, 14, and 15. By taking the difference between the average reported selling price of $15.00 and the low-end price of $14.00, we arrive at estimated losses (really ‘theoretical losses’) of $1.00 per carton.
This method usually results in losses significantly less than the buyer is looking for; yet, given the difficulty of quantifying damage to the product after a one- or even two-day delay, greater damages cannot usually be supported.
Conclusion
Generally speaking, when sellers ship product that just barely makes good arrival, buyers are responsible for paying the full invoice price for product with significant defects. Converse-ly, when sellers breach the warranty of suitable shipping condition, even by just a few percentage points, buyers very often claim losses based on the difference between prevailing market prices for virtually defect-free product and product with between 15 to 20 percent defects. ‘Good arrival’ therefore may perhaps be thought of as an all-or-nothing game that hinges on just a few percentage points higher or lower on a USDA or CFIA inspection certificate.
And while this game arguably represents a sort of rough justice between produce vendors, it simply does not apply to carrier claims. A claim against
a carrier for a delay that causes product to be delivered with 1 or 2 percent more defects than it should have must be based on 1 or 2 percent additional defects, and not the total 15 to 20 percent defects reported on the inspection certificate.
In the situation described above, if not for the carrier’s breach (the shifting and resulting delay), it appears the apples in question would likely have been affected with approximately 14 percent defects. Consequently, the wholesaler owes the seller the full price for these apples, despite the significant defects. In this instance, the buyer finds itself on the losing side of the all- or-nothing game vis-à-vis the seller, left with only a minor claim against the late-arriving carrier.
