This commentary appeared in the print edition of the Jan. 6, 2020, Journal of Commerce Annual Review and Outlook.
The FDA’s Food Safety Modernization Act (FSMA) is intended to help maintain the safety of both human and animal food during transportation by establishing criteria for vehicle and transportation equipment conditions, operational practices, training, and recordkeeping. Basically, the focus is to enforce sanitary practices to ensure the safety of food in transit. The legislation aims to make sure the US food supply is consistently safe by focusing on the prevention of contamination instead of the response to it.
The rule affected shippers, receivers, and carriers who transport food in the United States by motor or rail. Full compliance was mandated by April 2018 for all involved parties and was onerous for many in the supply chain, creating new administrative costs.
There was widespread concern in the cargo insurance space about a potential spike in adulterated food claims due to FSMA. Often, it is not clear whether adulteration was due to the actions of the shipper or those of the carrier. FSMA rules contain a provision that if a product is shipped in a condition that may have been adulterated, then it is considered adulterated. This puts cargo carriers in the precarious position of being liable for a loss for which they were not at fault. In those instances, it’s unclear how the cargo insurers will respond, as standard policies only cover instances when cargo was actually damaged.
It’s important for anyone involved in the transporting of food and beverage cargo to understand their exposures and how their insurance will respond. Traditional policies did not contemplate this exposure. While initial concern about a significant increase in food adulteration claims has not yet been realized, relevant players in the supply chain should avoid surprises. Anyone who has cargo insurance and is involved with the transporting of food and beverage cargo is potentially at risk.