Produce professionals, vendors, and transporters alike, are a driven bunch. The fast pace and long hours demand the ambition and work ethic everywhere you look in the fresh produce industry (the Maytag repair man wouldn’t have lasted long).
Specialized knowledge and natural sales skills also seem to be defining characteristics of industry pros.
And yet, the nature of fresh produce—low margin-high volume, highly perishable, and subject to the vagaries of Mother Nature—also requires careful attention to detail to avoid costly setbacks and broken business connections.
Is attention to detail a defining characteristic of the fresh produce industry? Well, perhaps more so today than in the past. But our sense is that for many produce pros it is learned from experience (i.e., the hard way).
For this article our Trading Assistance team has identified seven common mistakes that can usually be avoided with some additional attention to the devilish details.
#1 Failing to specifically note problems on the delivery receipt
A receiver that fails to specifically note problems upon arrival of the shipment, such as a missing temperature recorder, missing product, warm pulp temperatures, or crushed boxes, risks needlessly undermining the strength of its claim.
Where a shortage is alleged, a specific notation, such as “200 cartons missing,” gives the carrier a fair opportunity to investigate the facts for itself.
Generic notations like, “subject to count” or “subject to USDA inspection” do not allege a specific problem and therefore the carrier has no reason or opportunity to investigate facts that may later be alleged.
#2 Not confirming modifications to agreements in writing
When trucks are booked, or sales are agreed to, documents like sales or rate confirmations and purchase orders tend to follow as a matter of course.
But when the original terms are later modified by agreement between the parties, documentation is sometimes neglected.
It’s important to remember that the proponent of a modification to the original agreement has the burden of proving it, should the other party suffer a memory lapse. Confirming modifications is easy enough, an email or text stating, “As discussed, the price for PO #123 will be reduced by $2.00 a box” will typically suffice.
#3 Not promptly objecting in writing to misrepresentations of fact
When documentation of any kind (e.g., invoices, sales confirmation, emails, texts) misrepresents the facts or falsely alleges an agreement, it’s important to promptly object in writing to the sender.
Picking up the phone and setting the matter straight verbally may seem to be the natural response but responding in writing (in addition to any verbal conversation you may have) will do far more to protect you in the event of a dispute.
#4 Failing to call for a government inspection
The classic “own goal” in the produce industry is failing to obtain a U.S. Department of Agriculture (USDA) or Canadian Food Inspection Agency (CFIA) inspection certificate.
Even if all parties agree there was a breach (e.g., product failed to make good arrival, carrier froze the load, etc.) and seem committed to “working things out,” inspections are needed to quantify the extent of the damage and show the reasonableness of the salvage return.
Pictures, of course, can be helpful in communicating problems, but because they do not quantify the extent of the defects across the shipment (are we talking 5 percent decay or 25 percent?), pictures should not be relied on as a substitute for an inspection certificate.
Anytime you may be called upon to justify below-market sales and/or the dumping or donation of produce, a government inspection should be called for.
#5 Failing to provide a detailed account of sales reflecting a prompt and proper resale of distressed product
When products or services fail to meet contract specifications buyers are generally entitled to damages equal to the difference between the market value the product should have had (had it delivered in good condition as contracted) and the market value of the distressed product received, plus incidental damages such as inspection fees.
The most contentious piece of this damages formula tends to be the market value of the distressed product because of the difficulty in assessing the value of produce with high levels of defects.
Per Perishables Agricultural Commodities Act (PACA) precedent (directly applicable to vendor-to-vendor claims and indirectly applicable to cargo claims against carriers of fresh produce) the first and best way to assess the market value of distressed product is with a detailed account of sales showing a “prompt and proper” sale of the product in question.
Practically speaking, a buyer’s accounting will typically be deemed the best available evidence of the market value of the product, provided the buyer can present an accounting showing (1) reasonably timely sales, (2) a selling price for each carton sold (as opposed to a summary account of sales), and (3) selling prices that suggest a good faith and reasonable sales effort was made under the circumstances.
Assuming these conditions are met, the buyer will get the benefit of the doubt with respect to the value of distressed product. When these conditions are not met, the buyer risks undermining its claim for damages.
Nevertheless, some buyers are unwilling or unable to submit an accounting that meets these requirements.
Perhaps one reason is that the accuracy of a detailed accounting could (in theory) be audited by PACA. However, for firms dealing in good faith (like yours!), presenting a proper accounting in support of alleged damages is easily managed.
#6 Accepting unsupported salvage returns on behalf of another
When a reseller or truck broker is working with a third party to salvage produce after a rejection by the original receiver, it’s important to avoid a “pass through” mindset.
You don’t want to be thinking, “What do I care if the losses are unsupported, I’m just going to claim the losses against the shipper or underlying carrier who caused the problem in the first place.”
This line of thinking ignores the fact that if the salvaging firm doesn’t support its returns to you (with for example a USDA inspection certificate and detailed account of sales showing a prompt and proper salvage effort), then you will be unable to support your damages against the breaching party.
#7 Casually agreeing to payment terms other than PACA Prompt
Every produce seller understands that extending payment terms beyond 30 days forfeits the seller’s PACA trust protection (you have the PACA trust language on the bottom of your invoices right?).
What’s less understood is the risk involved in agreeing to payment terms within 30 days, but different than “PACA Prompt” which per PACA regulation (7 CFR 46.2(aa)(5)) provides “Payment for produce purchased by a buyer, within 10 days after the day on which the produce is accepted.”
When a seller is arm-twisted into agreeing to say, 21-day terms, this isn’t the end of the world.
But keep in mind that the seller will now need to take on some additional administrative tasks to strictly comply with PACA trust regulations and avoid the potential for challenges to its trust rights down the road.
First, the seller is required to enter into a pre-transaction agreement with the buyer memorializing these terms. Second, all invoices and other documentation setting forth payment terms must reflect these new terms. Not overly burdensome, but still, additional details to manage.
Conclusion
So do these make sense? Are there others that should be on the list?
As always, we welcome your feedback.
This is a Trading Assistance column from the July/August 2023 issue of Produce Blueprints Magazine. Click here to read the whole issue.
