FMC adopts demurrage, detention interpretive rule

Container shippers hope guidelines will prevent abuses

By Bruce Abbe, strategic adviser for trade and transportation

Some good news happened last week for shippers. Finally, on April 28, the Federal Maritime Commission (FMC) formally adopted its proposed federal “interpretive rule” on demurrage and detention penalties for container shipping. After more than 18 months, including an extensive industry fact-finding effort, shippers hope the FMC guidelines will provide clarity and reforms that will prevent unfair, costly penalties issued by ocean carriers and port terminals.

However, we’re not out of the woods yet.

Background
Container shippers, including both exporters and importers, are given a certain amount of “free time” when their containers arrive at the port terminals. Everyone in the system, i
including ocean carriers, ports and shippers desire a continuous, fluid flow of containers through the ports and whole supply chain, with minimum congestion. Demurrage penalties are applied when containers sit too long at a terminal beyond that free time. Detention penalties may occur when the shippers or their truckers don’t pick up their containers within the allotted time. Detention and demurrage also can happen in rail shipping.

Shippers have complained to the FMC for many years about abuses in demurrage and detention penalties as practiced by some ocean carriers and terminals. It has become commonplace for shippers to get hit with charges for circumstances completely beyond their control. That can include rail delays, closed terminal gates at scheduled delivery times and myriad other factors.

Problems with abusive penalties have accelerated in the past few months due to disruptions in supply chains stemming from ocean carriers canceling sailings entirely or skipping some port calls for their reduced fleets of now larger container ships.

The penalties can run $150-$350 per container per day. If an exporter is shipping 20 containers to a customer and the cargo gets rolled for a week or more, the costs can quickly add up to several thousand dollars.

Smaller shippers, such as many Specialty Soya and Grains Alliance (SSGA) members, are particularly exposed to harm from unfair application of these per diem penalties. Inland ag exporters are also more exposed because the containers they ship often spend 10-14 days on railroads en route to the export ports. Ocean carrier or rail changes during that time more easily can push the shipments outside of the free time windows. Large volume shippers and importers can sometimes get language included in their contracts with ocean carriers to prevent or mitigate these penalties. Smaller shippers have more difficulty doing so.

FMC’s statement
The FMC’s final rule for “Docket No. 19-05, Interpretive Rule on Demurrage and Detention under the Shipping Act” will take effect soon, after it is published in the Federal Register.

If the FMC gets called on to address a problem, the agency said it will consider the extent to which detention and demurrage charges and policies by the carriers and terminals serve the “primary purpose of incentivizing the movement of cargo and promoting freight fluidity.”

The commission also said it may consider the “reasonableness” of the penalty practices and clarity in terminology.

Go here to view the statement by the FMC issued last week.

Additional coverage can be found here.

Will shippers see relief?
Since the announcement, shippers and forwarders, while much appreciative of FMC’s action, have been asking: How do we get the ocean carriers to comply?

Peter Friedmann, executive director of the national Agriculture Transportation Coalition (AgTC), of which SSGA is an active member, notes, “These are only guidelines. They do not make these unfair demurrage/detention charges ‘prohibited acts’ subject to enforcement by the FMC itself.”

Shipper groups including SSGA and AgTC plan to push FMC to take action to force carriers to adopt clearly stated policies and operational practices for applying demurrage and detention penalties that meet the new interpretive rules guidelines with the aim of preventing abuses  and to adopt simple, time- and cost-efficient ways for shippers to challenge penalties they feel are unfair.

John Butler, president and CEO of the World Shipping Council which represents ocean carriers, told the Journal of Commerce his organization is still reviewing the new rule. He said, “(Since) the purpose of the commission’s interpretive rule is to provide guidance to an administrative law judge in future complaint cases at FMC, it will take some time to determine the effect of the guidance, especially since the commission has properly pointed out that each case must be decided on its own facts.”

SSGA wants to hear from member shippers going forward if they feel they have been unfairly charged any demurrage or detention penalties, in the event the organization can potentially advise or intercede on members’ behalf. Shippers should be sure to maintain documents, time records and correspondence for any such disputed shipments. Contact Bruce Abbe with your comments.