Claims against carriers for damage to fresh produce present multiple challenges. The first question is often whether responsibility for the damage at destination rests with the carrier or the shipper.
We’ve written several articles on this in the last few years, including “Warm When Loaded—Maybe” (September/October 2023) or “Case Study: Carrier vs. Shipper” (January/February 2023).
But in this article, we look past the “finger pointing” stage and discuss how Blue Book assesses damages when the carrier is found to be responsible for the losses in question.
In theory, damages are supposed to make the aggrieved party “whole.”
In other words, damages are supposed to place the aggrieved (or “injured”) party in the same position it would have been in had there been no breach. This is the North Star to follow when assessing damages.
If, based on the available information, the injured party isn’t at least arguably made whole, or if the injured party makes out better than it would have had there been no breach, these are indications that damages have not been properly assessed.
Managing Trouble
Let’s take a relatively straightforward example: a buyer in New York purchases a load of produce out of California on an FOB basis for $12,000; then, the buyer hires a carrier to haul the load for $6,000.
Upon arrival, the buyer complains of warm temperatures.
Specifically, the destination pulps, the portable readings, and the return air temperature readings recorded by the reefer download all suggest temperatures were 5 to 10 degrees too warm throughout the trip.
Now, let’s assume that all parties agree the product was damaged in transit and the buyer would “handle the product for the carrier’s account.”
The buyer (a wise industry veteran) understands that the carrier’s acknowledgement of a pending claim does not relieve it of its responsibility to fully support the amount of its losses, and promptly calls for a U.S. Department of Agriculture (USDA) inspection certificate.
The inspection confirms the warm pulp temperatures and shows, let’s say, 18% average condition defects, but no serious defects or decay. This product is distressed and unlikely to fetch full price but appears to retain significant commercial value.
Now the buyer goes to work selling the product and documenting the quantities and selling price for each sale. Once the sales are complete, the buyer is expected to provide the carrier with a detailed accounting reflecting a “prompt and proper” sales effort.
Consistent with precedent decisions issued under the Perishable Agricultural Commodities Act (PACA), assuming reasonable good faith efforts were made to resell the product, and further assuming the accounting is accurate (not showing obvious errors), the gross proceeds shown by the accounting is typically deemed to be the best available measure of the market value of the distressed produce.
Damage Calculation
Provided the buyer clears this relatively low bar, damages may be calculated by first taking the difference between the destination market value of the commodity in question and the salvage proceeds realized from the distressed product. It may be helpful to think of this as “base damages.”
The USDA’s Market News Service publishes price reports that are considered objective or “disinterested” evidence of destination market prices.
If, for example, the average selling price for the commodity in good condition was $20 per case, and the load consisted of 1,000 cases, the value the load should have had upon arrival can objectively (i.e., with “disinterested” evidence) be shown to be $20,000.
As for the salvage proceeds, let’s say the account of sales documents that the distressed product was sold for $12,000.
By taking the difference between the destination market value of the commodity in good condition, or $20,000, and the value of the distressed product, or $12,000, we arrive at base damage of $8,000.
However, because the parties agreed that the distressed product would be handled for the carrier’s account, which is typical in these scenarios, we would also recognize a 15% commission (customary when handling fresh produce on consignment) from the salvage proceeds.
We essentially treat this as an additional “sales expense” similar to what would have occurred if the product was refused by the buyer and handled by a third-party consignee. Otherwise, there would be little meaning to the parties’ agreement to have the buyer handle the product for the carrier’s account.
So, reducing the salvage proceeds by 15% or $1,800, we arrive at damages, “adjusted base damages” if you will, of $9,800.
And finally, to arrive at total damages, we need to add the cost of the USDA inspection certificate as “incidental damages” because the expense of the inspection is incidental to the breach and necessary to support the buyer’s claim. If the inspection fee was $400, total damages in our example would be $10,200.
The buyer would then apply this amount against the $6,000 freight invoice to arrive at an amount due from the carrier of $4,200.
Conclusion
Of course, the injured party may not be made whole in any absolute sense.
If, for example, the claimant loses a long-term customer as a result of the trouble load, the losses may, in fact, be far greater than the foreseeable losses that may be properly claimed against the carrier.
Losses that are unforeseeable, overly speculative, or not backed with objective supporting documentation may simply be unrecoverable. But properly documented losses from routine trouble scenarios can typically be assessed in a manner that, at least in theory, makes the injured party whole.
As always, we value your feedback. Please contact us at tradingassist@bluebookservices.com with any questions or comments.
