FMC Finally Addresses Unfair Demurrage & Detention Charges
The Federal Maritime Commission (FMC) announced in a press release on Friday (September 6th, 2019) that it would “address detention and demurrage charge issues” by adopting a set of recommendations Commissioner Rebecca Dye made.
Unfair Practices and Fees
One of shippers’ biggest complaints in the international shipping industry is unfair detention and demurrage fees carriers levy against them. Actually, it’s not just shippers making these complaints but trucking companies and freight forwarders too.
They are right to complain.
Despite best efforts to pick up cargo from port terminals and return equipment on time, truckers, shippers, and freight forwarders are often hit with big fees over delays completely out of their control. Demurrage and detention fees really seem to have ballooned over the last decade, not coincidentally during a time when ocean carriers, collecting the fees, have struggled with profitability.
In a Journal of Commerce (JOC) article back in February, Ari Ashe wrote:
Ten years ago, these fines were rare, but today they are quite common. Beneficial cargo owners (BCOs) want to retrieve their goods from ports, but terminal congestion, bad weather, chassis shortages, or other unforeseen factors can get in the way. It’s easy to pay $10,000 in fines per year in detention and demurrage, but that figure can balloon to $100,000 or more in certain circumstances. Detention and demurrage weren’t major issues until 2014, when longshore labor strife paralyzed ports on the US West Coast and wreaked havoc on the supply chains that depend on them. Income from these penalties increased 90 percent in 2014 and 86 percent in 2015, according to the Federal Maritime Commission. They jumped 30 percent in 2017 and remain above pre-2014 levels.
Andrew Nutting, senior logistics manager for 1A Auto, told JOC.com some BCOs pay $1 million annually in penalties, but most do not. Shippers moving more than 500 containers annually, however, generally incur more than $10,000 in detention and demurrage fines, and a six-figure total is not uncommon, he said.
Obviously, these big demurrage and detention costs are unfair to shippers and ultimately affect prices consumers have to pay for goods. Therefore, shippers are right to turn to the FMC over this problem. After all, the FMC’s mission is to “ensure a competitive and reliable international ocean transportation supply system that supports the U.S. economy and protects the public from unfair and deceptive practices.”
Commissioner Dye’s Recommendations
Commissioner Rebecca Dye led an 18-month fact finding investigation into demurrage and detention fees. While you can read her full Fact Finding 28 Final Report here, Commissioner Dye also made recommendations to her fellow FMC commissioners in a letter dated August 27th, 2019. Here are the recommendations in her letter:
I recommend that the Commission issue the attached Notice of Proposed Rulemaking, which proposes an interpretive rule that clarifies how the Commission will assess the reasonableness of demurrage and detention practices. The rule flows from the longstanding principle that practices imposed by tariffs, which are implied contracts by law, must be tailored to meet their intended purpose. In the case of demurrage and detention charges, the purpose is to act as financial incentives to cargo interests to retrieve cargo and return equipment.
These financial incentives operate to ensure that cargo interests do everything customarily required to be positioned to retrieve cargo and return equipment within the time allotted. Absent extenuating circumstances, however, when incentives no longer function because shippers are prevented from picking up cargo or returning containers within time allotted, charges should be suspended.
Focusing on this incentive principle and cargo availability, and supporting innovations such as a “push notice” of container availability, will improve port performance and overall freight delivery system effectiveness.
The interpretive rule also includes other factors that the Commission may consider as contributing to the reasonableness inquiry. These considerations include the existence, accessibility, and transparency of demurrage and detention policies, including dispute resolution policies (and related concepts such as clear bills and evidence guidelines), and clarified language.
Also, consistent with my Final Report, I recommend that the Commission establish a Shipper Advisory Board to allow us to evaluate the implementation of the Fact Finding No. 28 recommendations and to obtain the advice of American importers and exporters concerning other Commission matters.
I further recommend that the Commission continue to support the Memphis Supply Chain Innovation Team in its efforts to improve the performance of the international ocean container freight delivery system.
The “push notice” idea Commissioner Dye mentions in her recommendations is a good one but also brings some controversy as it’s a tool terminal operators would have to create. Some terminal operators say, possibly out of not wanting the time and cost burden of creating an automated system to notify cargo interests and truckers that their cargo is available for pickup, “push notifications” won’t be effective.
Here’s an excerpt from the Fact Finding 28 Report that discusses “push notifications”:
Some marine terminal operators were amenable to the idea of “push notifications” that affirmatively notify a cargo interest or trucker that a container is available. But others stated that there was nothing unreasonable about relying on cargo interests to track their own cargo. One marine terminal operator suggested that it could be useful if a system could automatically generate a notification when the availability clock started, similar to how airline passengers receive an email notifying them that they can check in for a flight. Another terminal operator pointed out that it provides advanced availability functionality that allows cargo interests to determine the future availability of a container, and make an appointment, five days prior to the arrival of a vessel.
The problem, according to some marine terminal operators, was that cargo interests and truckers do not use available information to their advantage and often wait until the last free day to attempt to retrieve containers. In other words, the terminal operators stated, they are being asked to create tools that are not effective for the market.
Cargo interests stated that the Commission should require carrier websites to uniformly provide information about container availability, free time, and holds. They also believed that marine terminal operators should notify carriers about, and post on their webpages, any yard closures. Cargo interests also advocated a push notification system wherein carriers would send notification of container availability to cargo interests via email or other electronic means. Ocean transportation intermediaries asserted that vessel arrival notices should be updated after vessel arrival to provide information about the last free day and the free time window for container return.
Addressing the demurrage and detention fee issue in international shipping is overdue, but shippers should be happy to finally see something being done.
Ultimately, let’s hope the adoption of Commissioner Dye’s recommendations will result in shippers being protected from unfair demurrage and detention charges, even making such fees rare like they were a decade ago.