The recently finalized Food Safety Modernization Act (FSMA)-related FDA Regulations on Sanitary Transportation of Human and Animal Food has the potential to significantly affect risk management strategies employed by food suppliers and transportation companies for years to come. The more insurance companies and their agents can educate their customers on the scope of this ruling, offer services that help manage this new risk, and provide insurance products that adequately cover new exposures, the better they can serve their clients.
The goal of the rule is to create a modern, risk-based framework for the safe transportation of food. The rule aims to prohibit transportation practices that create food safety risks, such failing to properly refrigerate food, inadequately clean vehicles between loads, and failing to properly protect food that may become adulterated during transit.
The new regulation is complex and has many components. In general, it affects shippers, loaders, rail and motor carriers, and receivers involved in transporting food for humans and animals. It establishes requirements for vehicles and transportation equipment, transportation operations, training and records.
Who is Subject to the New Ruling?
The ruling potentially impacts all businesses involved in the transportation of food and beverages. It specifically applies to shippers (which includes freight brokers and freight forwarders), receivers, regardless of whether the receiver is the final point of destination, loaders and carriers who transport food in the U.S. by motor or rail vehicle, who have average annual revenues of $500,000 or more, regardless of whether the food product is offered for, or enters, interstate commerce.
Who is Excluded?
Importantly, the rule does not apply to:
- Exporters who ship food through the U.S. (such as from Canada to Mexico) by motor or rail vehicle if the food does not enter U.S. distribution
- Shippers, carriers and receivers who are inspected under the National Conference on Interstate Milk Shipments (NCIMS) Grade “A” Milk Safety program
- Food establishments holding valid permits issued by an appropriate regulatory authority when engaged as receivers, shippers and carriers in which food is relinquished to customers after being ransported from the establishment, such as restaurants and supermarkets
- Products that are imported for future export and are neither consumed nor distributed in the U.S.
- Food located in food facilities that are regulated exclusively by the U.S. Department of Agriculture
- Products that are completely enclosed in a container, except when such productsrequire temperature control
The ruling contains many complex details. All affected parties should study these closely to understand all of the various exemptions and waivers.
It’s not difficult to imagine circumstances giving rise to new exposures in the supply chain. What happens when a trailer gets to point B but doesn’t look quite right? What if there’s an unknown odor, foreign substance on the floor, ants on the wall, or dirt where it shouldn’t be? The receiver that notices this condition may believe some part of the load may have become contaminated or adulterated. Therefore, the cargo has to be removed from the supply chain unless it’s reconditioned according to the shipper’s practices or a qualified individual concludes otherwise.
What if temperature-sensitive food products appear compromised but there’s no official record of temperatures? Or what if there is a record of temperature deviation but the carrier or receiver does not know what the permissible variations may be?
The possibilities of what can go wrong with food in transit are practically infinite, and all have significant implications for risk managers.
Expect Changing Practices
The overall emphasis of FSMA’s food safety goal is to focus on transportation practices that create safety risks with an overt intention to allow for flexibility and shipper direction, given shippers are usually in the best position to know what practices are the best. As a result, the rule will drive new practices throughout the supply chain, affecting all parties engaged in the transportation of human or animal food and beverage.
The onus is on everyone in the supply chain to identify violations of the regulation and remove cargo that doesn’t meet the requirements. Therefore, it’s all parties to the supply chain that have the biggest task of implementation and who will ultimately be responsible for enforcement. It will likely take the supply chain years — perhaps a decade or more — to get fully up to speed with all of the consequences of this new rule.
All affected businesses are expected to comply with the new requirements within the next two years, depending on their size.
Insurance Companies Can Lead the Way
With a myriad of new exposures created by the new rule, it’s incumbent upon marine insurance companies to lead the way in the unchartered new world of food safety. With food and beverages representing the most frequently shipped commodity in the U.S., the potential impact is significant.
Leadership starts with gaining the necessary knowledge and focused training and education. Insurance companies must learn the FSMA inside and out before they can educate clients about how it might affect them.
Next, insurers can assist their clients with risk management by helping to determine where they have exposure and what measures may be necessary to reduce risk. They can recommend areas where lawyers should be called upon to assist with new contracts covering risk transfers and other specific issues, especially as fundamental and long-established shipping laws evolve.
Finally, and most importantly, marine insurers should fully embrace the new exposures by providing coverage forms that expressly and specifically cover food safety-related exposures, which their clients need. While it may take a while for the transportation industry to forge new practices that effectively minimize food safety risks, the supply chain needs marine insurance partnerships now more than ever.