Dock to Dock: A ‘pass-through’ mindset has consequences for freight brokers

The Problem

Carrier contesting the amount of damages claimed.

The Key Point

Avoid a “pass-through” mindset following a carrier breach.

The Solution

Remember that claims require proof of resulting damages.

Q:  We are a freight broker working to expand our presence in the fresh produce space. A couple months ago, we arranged for the transportation of a load of strawberries from Mexico to a customer of ours in the Northeast. Unfortunately, the carrier we hired failed to properly maintain temperatures in transit.

The customer wanted to reject, but we got them to agree to handle the product for the carrier’s account. We also had them request a USDA inspection, which showed some of the product was warm, and some of it was starting to show condition defects.  

A week later, the customer sent us a summary accounting showing salvage returns of just $7.00 a carton, resulting in a claim against us of nearly $30.00 a carton. The returns seemed low but we’re transportation people, not produce sellers. We settled with the customer and then deducted our losses from freight invoices we owed the carrier on other shipments. 

The problem is the carrier is now refusing to recognize our claim and threatening to place us for collection on its past-due freight invoices. Please advise.  

A: We can appreciate your wanting to settle with your customer rather than challenging the selling prices they reported, especially because it sounds like they initially planned to reject but agreed to receive the product at your request. It must be remembered, however, that financial damages claimed following a carrier’s breach must be reasonable and fully documented.

We’d caution against taking what we call a “pass-through” mindset where questionable salvage returns are accepted without careful review with the intention of simply passing the losses along to the carrier. 

This may be particularly tempting in instances where you’re in a position to deduct your losses from the carrier’s invoices. But the carrier is unlikely to take such a casual approach when reviewing the damages claimed against it.  

Given that the selling prices reported by your customer were far below market despite a USDA inspection showing much of the product was defect-free and pulping within a normal range, it’s not surprising you’re meeting resistance from the carrier. Your settlement with your customer appears to have been premature and is not binding on the carrier.  

At this point, we’d encourage you to ask your customer to provide a detailed carton-level accounting of its sales and expenses deducted from the returns. This is not an unreasonable request. In fact, this additional detail is typically required in support of below-market returns between produce vendors, and no lesser standard applies when claims are brought against carriers.

A detailed (per carton) disclosure of the salvage sales and any deductions taken from the gross proceeds will help better assess the reasonableness of your customer’s returns.

Based on the documentation provided so far, if this must ultimately be resolved formally, through arbitration for example, it’s possible an arbitrator would find that the proceeds from the salvage sale are not supported.

Such a finding could limit your damages against the carrier to a minor adjustment based on the percentage of condition defects shown on the USDA inspection certificate, a commission (e.g., 15% of the estimated destination market value of the product), and the cost of the USDA inspection, leaving you to absorb significant losses.