The mantra of U.S. freight brokers is that they're not shippers. Brokers arrange the transportation of their customers' goods. But the freight belongs to somebody else, and brokers never touch the shipments or the equipment used to haul them.
The Food and Drug Administration (FDA) has other ideas. In publishing its long-awaited final rules last Tuesday on the sanitary transportation of human and animal food, the agency did what the brokers asked it not to do: Classify them as shippers.
This means brokers must comply with the regulations as if they were the shippers. The food producers are indemnified once they turn over their shipments to the broker. The producers will instruct the broker on the requirements for the product's safe carriage and handling. However, the responsibility of guaranteeing a clean shipping environment—and the corresponding liability if the ball is dropped during transportation—rests with the broker.
In broad strokes, brokers will be tasked with establishing controls for the transport of food that comes in contact with the environment. (The rule exempts the transport of frozen foods as well as food completely enclosed in containers, unless temperature controls are required.) Brokers must also notify the carrier and cargo loader of the conditions the shipping equipment needs to be in to achieve compliance. For example, brokers must certify in writing that a trailer has been precooled to a proper temperature, although there is nothing that said the freight itself must be precooled.
Failure to comply with the rules could lead to civil and criminal penalties if folks are sickened by food that went bad during transport. It could also leave brokers exposed to significant out-of-pocket costs—not to mention the inherent aggravation of tangling with insurance companies—if food becomes adulterated while in transit.
Chris Burroughs, senior government affairs manager for the trade group Transportation Intermediaries Association (TIA), said that although the industry knew it had a key role to play in the process, it felt the manufacturer should be classified as the shipper because it had the deepest knowledge of the product's characteristics. Despite that, the industry is prepared for the regulations because it already follows many of the practices the FDA outlined, Burroughs said.
Food is a huge and established commodity for brokers, though TIA could not quantify its size.
Brokers will "embrace this, and (will) be prepared to educate our shipper partners and ourselves on how to best comply," said Robert Kemp, president and CEO of DRT Transportation LLC, a broker based in Lebanon, Pa. That doesn't mean Kemp's looking forward to the experience. "This ruling is just another example of the government getting in the middle of the intermediary business, without really fully understanding what we do," he said in an e-mail today.
Implementing the law
The final rules, which implement the Food Safety and Modernization Act signed into law in 2011, represent the FDA's first foray into regulating transportation. For larger companies, the rules take effect one year after their publication date, which is expected to be early to mid-June. Smaller companies, defined as shippers with less than $27.5 million in revenues and carriers with fewer than 500 employees, would get two years from the publication date to comply.
Ironically, the FDA said in January 2013, when it first proposed the regulations, that it had no plans to add more layers to current sanitary food practices. The agency said at the time that its goal was to ensure that the status quo wouldn't trigger unnecessary risks to the food supply chain. In a statement issued when the rules became final, the FDA said it wants to "prevent practices during transportation" that could jeopardize food safety. Robert D. Moseley, an attorney for the law firm Smith Moore Leatherwood LLP, said in a note published Monday on the firm's website that the final rules are not as broad-based as what was first proposed.
There are a host of exemptions. For example, the rules do not apply to Mexican or Canadian firms shipping food through the U.S., as long as the food doesn't enter U.S. distribution. Shippers, carriers, and receivers of milk products that are inspected under a separate program are also exempt. Waivers were also granted to the unloaders of the goods, though the receivers of the product must still comply.
The FDA dropped its requirement for specific monitoring technology to be installed on or in the trailer, leaving it up to the broker and carrier to determine the devices to be used. Brokers will also not be liable for products, such as chocolate and butter, whose characteristics may change during transportation but wouldn't present a hazard if consumed in its altered form.
In two more breaks for brokers, the FDA said one batch of spoiled product would not render the entire load adulterated. The agency added that deviations in temperature between what appears on the bill of lading and what is actually recorded in transit or upon arrival must be "material," and not incidental, for the shipper to be liable.
TIA said in its 2014 comments to the proposed rule that a full load would be considered adulterated even if there was a mere 0.5-percent deviation in temperature levels, and that the broker would be on the hook for the total cost. Currently, the burden of proof falls on the producer and, at worst, the broker would be responsible for a portion of the cost of the damaged goods, according to the group.
The FDA has also left open the possibility that a shipper or carrier can rebut a charge of contamination if it can get a qualified individual to attest that the circumstances surrounding the transportation did not render the freight unsafe. Noting the provision, Moseley advised that it "would be a good time to get a retired FDA inspector on speed dial."
By DC Velocity | Mark B. Solomon