Broker Challenges in Transporting Food Under FSMA
John H. Burnside | Benesch, Friedlander, Coplan & Aronoff LLP
Stephanie Penninger | XPO Logistics
Since the U.S. Food and Drug Administration’s (FDA) publication of the Final Rule regarding Sanitary Transportation of Human and Animal Food on April 6, 2016, 21 CFR 1.900, et seq. (the “STF Rule”), there has been an increase in food cargo claims and confusion surrounding compliance. Below, we will summarize the STF Rule and describe common issues that all parties – ranging from shippers and carriers to brokers and loaders – should be aware of in this new food transportation landscape.
STF Rule Lowdown
The STF was mandated by the Food Safety Modernization Act of 2011. With safety in mind, the FDA crafted the STF Rule to better ensure that food would be transported under sanitary conditions, and controls were implemented to prevent food from becoming adulterated during transportation. The STF Rule is comprised of obligations to reduce the incidence of cross-contamination and ensure that: (1) foods are kept at the requisite temperatures to ensure safety during transport; (2) food safety protocols are in place for safely transporting food; (3) records are maintained that memorialize food safety requirements; and (4) entities along the food supply chain continuum are held accountable for compliance with the STF Rule.
1. Who Is Covered?
Covered entities – shippers (defined to include freight brokers), receivers, carriers (rail and motor) and loaders – had to comply with the STF Rule by April 6, 2018. Although the STF Rule was designed to regulate the transportation of perishable foods, including produce and meat, contacting parties along the foods’ supply continuum have, through contact, caused other types of food products to be treated like foods covered by the STF Rule.
2. “Un-exempting” Exempt Foods
For instance, one of the notable STF Rule exemptions excludes foods that are completely enclosed by a container and do not require refrigeration for safety. Nonetheless, shippers and brokers tend to contractually require certain foods that typically only require temperature control for increasing their shelf life or quality, like baby carrots enclosed in sealed plastic baggies, to be treated as covered foods when they would not otherwise be. The same is oftentimes true for frozen foods, which the FDA explicitly stated in the comment section were not intended to be subject to the STF Rule due to lack of safety concerns attributed to temperature variance during transport.
3. What the Heck Is a Loader and Why Should I Care?
Loaders serve an important role in the shipment of food and, indeed, their negligent actions could jeopardize an entire shipment. It is, therefore, imperative that parties fully understand the scope of the loader’s responsibilities and clearly allocate responsibility for their acts in shipper/broker and broker/carrier or shipper/carrier agreements.
Upon the carrier’s arrival at pickup, the loader is generally responsible for:
• Inspecting and ensuring compliance with the vehicle’s, and any other equipment’s, sanitary condition requirements associated with the commodity being transported.
• Inspecting and confirming that there is no evidence of product adulteration.
• Confirming with the carrier the required operating temperature.
• Confirming that the vehicle and other transportation equipment utilized by the carrier can maintain and accurately record the requisite operating temperature during transport.
• Placing any required seal on the vehicle, trailer or transportation equipment, and instructing the carrier to not remove the seal, but to have the receiver remove the seal.
If the food is to be transported in a bulk vehicle, then loaders also have a responsibility to:
• Ascertain from the carrier when and how the bulk vehicle was most recently cleaned.
• Ascertain from the carrier the nature of the previous cargo transported in the bulk vehicle since the last appropriate cleaning.
If the loader does not fulfill its responsibilities and a question of damage arises, then the loader, or whomever was responsible for the loader, could be held liable for food loss or damage. The loader may be considered an agent of the shipper, but if the shipper is not loading, then it could be independently responsible for cargo loss or damage or considered the agent of another entity. Consequently, parties should make clear at the outset under whose authority the loader is acting (if not solely its own) and, even better, who will be responsible for its actions.
Brokers Are Stuck in the Middle with You
One of freight brokers’ biggest challenges is passing along equipment and temperature control requirements assumed in shipper/broker agreements to the contract carriers. Ideally (from a broker perspective), a freight broker would limit its role in the food transportation transaction to that of a messenger, relaying shipper food safety instructions to the motor and rail carriers. Shippers tend to be in the best position to know how to keep food product safe during transportation, and carriers best know how to sanitarily maintain their trailers and how reefer units work. Yet, many brokers find themselves in a position where they have agreed that their customers can destroy food product, without salvaging or mitigating their damages, if it arrives at destination with a broken seal, or if temperature was not maintained within a certain temperature range (even if the temperature is only off by a couple of degrees) during transport.
Meanwhile, savvy carriers are pushing back and requiring shippers (or brokers standing in their shoes who have taken an assignment of the right to pursue a cargo claim) to prove actual physical damage to food before they will pay a claim. Thus, freight brokers are increasingly “stuck in the middle,” having assumed certain contractual requirements that they cannot meet or pass along to their contract carriers. Meanwhile, these brokers face challenges in obtaining evidence; e.g., temperatures of the food product at the point of origin from their customers to dispel a carrier’s defense to a Carmack Amendment claim that the shipper’s act of loading food product “hot” caused the temperature variance.
While freight brokers are not ordinarily subject to the Carmack Amendment, there is a recent trend of freight brokers assuming primary liability for cargo loss and damage, contractually, to secure business from the larger shippers. Others fall into the trap of holding themselves out to their customers as if they were the actual carrier transporting a shipment and, therefore, are sometimes held liable to the shipper for a cargo loss or damage as if they were the actual carrier. Accordingly, freight brokers wind up paying food claims (even if they should not) and resorting to seeking reimbursement from the contract carriers. These are all matters to be considered at the onset of the parties’ relationship and discussed and addressed through contractual arrangements.
Fake Food Product Damage?
The outright rejection or immediate disposal of food at destination, without knowing if the shipment was actually damaged, may present challenges in being able to establish the damages element of a Carmack Amendment Claim. Unless a contract provides otherwise, despite the STF Rule, a claimant must still establish a Carmack claim (49 U.S. Code § 14706) by showing that: (1) a shipment was tendered in good condition, (2) it arrived in bad condition, and (3) damages occurred in order to recover for a lost or damaged shipment. Carriers that do not secure their own cargo inspection will likely experience difficulty in defending against a Carmack claim. Accordingly, a better practice is for the parties to obtain a third-party inspection; e.g., by the U.S. Department of Agriculture or an agreed upon individual qualified to make both a safety determination and quality assurance assessment prior to disposal. The greater the number of tools available to assess a particular claim, the less likely expensive litigation will ensue. Details regarding the inspection and who will pay for it (not to mention the cargo storage fees) in contracts also tend to avoid confusion and streamline the cargo claim process.
Meticulously maintaining records and implementing and enforcing standard operating procedures for food shipments are imperative to mitigate risk exposure associated with cargo loss and damage. For example, procedures for recording pulp temperature at pickup, taking photos of various stages of loading and transporting the food product, noting temperature variance on the bill of lading (drivers should be meticulous about this), and verification of load security prior to shipment should prove helpful in prosecuting and defending cargo claims.
1. Broken Seals
Broken seal claims are another contentious issue when determining whether a food shipment was actually damaged. Since the implementation of the STF Rule, broken seal claims have been on the rise, even if the STF Rule (aside from the comment section) does not address broken seals. Given the risks involved in food transportation, recent court decisions acknowledge the importance of seal requirements to help ensure food safety during transport. Although the trend is for food product to be rejected at destination without allowing salvage, in the event of a broken seal, the broken seal does not per se prove that the food was actually damaged (unless a contract provides otherwise). Instead, Comment 46 to the FDA Rule states:
A broken cargo seal or any evidence of food cargo tampering would not necessarily create a per se presumption of adulteration. However, we advise persons engaged in transportation operations that, if such situations should arise, they should carefully evaluate the facts and circumstances of each incident, on a case-by-case basis, to determine whether the safety of the food cargo may have been compromised.
Again, one of the best practices for navigating the incidence of a broken seal is to maintain records regarding the same and to inspect the food product prior to discarding it. Also, as a rule of thumb, seal integrity cases should be treated differently when a party knows the source of the seal removal. For instance, a load might be delivered to a different customer of the shipper who removed the seal before realizing that it was not their load. In these cases, customers may be more willing to accept the food, or it might be easier to mitigate the damages. On the flip side, the shipper might still take the position that the seal was removed, so the load must be destroyed. To avoid broken seal disputes at the point of delivery, parties should discuss and agree to a “broken seal” procedure at the outset of their transactions.
2. Variant Temperatures
If a party is aware of a possible material failure of temperature control or other condition that may render a food product unsafe in connection with its transportation, then the food must be held and cannot be further distributed or sold until a safety determination has been made by someone qualified to do so. Similar to the broken seal cases, courts have tended to find that maintaining a certain temperature threshold is a reasonable safeguard for assuring food integrity (and also protecting the shipper or consignee’s brand).
Temperature variance during food transportation can be a sign of physical damage to the food product. However, shipments containing multiple monitoring devices, e.g., a “reefer download” (obtained from the trailer’s temperature recording unit), “Temp Tale” (an external device placed on the cargo pallets) and/or satellite data (obtained from an external GPS tracking device), could present different (and even conflicting) data sets and, therefore, prove difficult to reconcile. When deciphering temperature variance from these devices, you might consider:
• The reefer download is generally considered more accurate than the TempTale.
• One should be cognizant of where the TempTale is placed since TempTales typically record the highest temperature spike received during the trip, or record the temperature every minute associated with the location in which it was placed.
• One should also be cognizant of whether: (1) the food product was loaded in the trailer in such a way that it could have potentially blocked the chute inside the trailer and, therefore, prevented the air from getting all the way to the back of the trailer; (2) whether the entire shipment was impacted by the temperature variance (if not, this could mean that the chute was blocked or not functioning properly); and (3) the temperature of the food product, at the time it was loaded, could have impacted the temperature inside the trailer and its recording device.
• In the reefer download, the “return air temp” data is oftentimes more relevant if the truck is too warm (since it is influenced by the outside ambient temperature) while the “supply air temp” tends to be more relevant if it is too cold.
Also, both the range and time at which the temperature variances occurred may significantly impact the determination of whether food was actually damaged during transport. The Blue Book Services’ Transportation Guidelines, a source of industry best practices, customs and rules which, if agreed upon, may apply to the transportation of fresh fruit and vegetables by motor carriage, states that plus or minus five degrees is considered a “slight variance” (depending upon how close it is to the freezing point). With that said, the longer the time during which the temperature variance occurs, the greater the chance that food product damage exists. All of this information should be considered when assessing the integrity of a food shipment where there has been temperature variance. Since there is no bright line rule as to the impact of temperature variance on a product, at the end of the day, whoever has the most data usually prevails in food cargo claim disputes.
A final note on temperature variance: motor carrier insurance coverage typically will not cover food product damage due to a temperature variance during transport unless the variance was caused by a reefer breakdown. Therefore, the motor carriers’ drivers should be particularly careful when setting the reefer temperature recording unit in compliance with shipper instructions and monitoring temperature control during transport. Also, brokers might consider alternative insurance products that specifically cover such loss in the event that the carrier’s insurance will not “kick in” and cover it.
Given today’s heightened food safety concerns, it is important for transportation companies involved in shipping food products to understand the various pitfalls ahead. Since the implementation of the STF Rule, we have seen an increase in food cargo claims and confusion surrounding compliance and food safety responsibilities. However, if one understands how each party fits in, understands the best practices and procedures for minimizing the risks of damage and liability, and acts accordingly, then life should be simply business as usual.
John H. Burnside is an attorney with Benesch, Friedlander, Coplan & Aronoff LLP in the firm’s Transportation & Logistics Practice Group. He can be reached at firstname.lastname@example.org.
Stephanie Penninger is the Senior Director, Transportation Counsel for XPO Logistics located in Charlotte, NC. She can be reached at email@example.com.
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