FMC Issues Long-Awaited Decision on Demurrage and Detention

Client Alert

On April 28, 2020, the Federal Maritime Commission (FMC or Commission) issued its long-awaited interpretive rules on the reasonableness of carrier and marine terminal operator (MTO) policies and practices when assessing demurrage and detention.

This proceeding was initiated in 2016 due to a petition filed by the Coalition for Fair Port Practices, which involved a number of trade associations, including the National Customs Brokers & Forwarders Association of America (NCBFAA). As counsel for the NCBFAA, we were actively involved in submitting testimony, comments and arguments throughout this process.

Citing examples of situations where non-vessel operating common carriers (NVOCC) and shippers were assessed these charges even though they were not responsible for the delays underlying the charges, the petition requested that the FMC initiate a rulemaking proceeding for the purpose of clarifying what constitutes just and reasonable practices with respect to the assessment of demurrage and detention by the carriers and MTOs. And, to the extent that the assessment is deemed to be unreasonable, that would contravene the provisions of former section 10(d)(1) of the Shipping Act, now 46 USC 41102(c), and subject the carrier or MTO to pay reparations and attorneys’ fees.

Three and a half years later, after rounds of investigations by FMC Commissioner Dye and the filing of numerous briefs and comments, the Commission has now acted and issued final rules. These rules are set forth in a 95-page decision that carefully articulates the issues and contentions. Among other things, the decision concludes that arguments in favor of the status quo, raised almost exclusively by the carriers and MTOs, were largely self-serving, ineffectual and unpersuasive.

The final rules adopt, as the primary principle, the point that when assessing the reasonableness of demurrage and detention practices, the Commission will look to whether they are meeting their intended purpose as financial incentives to facilitate the prompt and efficient movement of freight (the “Incentive Principle”). Although the Commission recognized that these charges might be justified to reimburse regulated entities for the costs associated with the use of equipment and terminal space, tariff items of this nature should not be regarded as a blank check to run up charges without regard to the actual cost to the carriers and MTOs.

In essence, the rules list a number of factors the FMC would consider when determining the reasonableness of these types of charges in complaint cases. The FMC also indicated that the factors listed were not meant to be exclusive and that it would consider additional factors if presented in any given case.

Essentially, the rules list seven factors the Commission might consider when determining the reasonableness of demurrage and detention in any complaint case. These are:

1. Cargo Availability

The overriding principle is based on whether a carrier or MTO practice provides a shipper a reasonable opportunity to retrieve its cargo or return containers before assessing demurrage and detention. As to how the actual availability of cargo may vary from terminal to terminal, the Commission determined that it could not issue a general rule dictating when free time would start. The Commission nonetheless made it clear that “availability” at a minimum means that the container would need to be physically available. Depending on the facts of the case, the Commission might consider whether there is an appointment system, appointment availability, a trucker’s access to the terminal and chassis availability (when appropriate) in its analysis for determining whether the cargo is actually available. Practices that apply demurrage when a container is not actually available will likely be found unreasonable.

2. Empty Container Return

Under the rules, absent extenuating circumstances, instances where empty containers cannot be returned for no fault of the NVOCC or shipper and detention is nonetheless assessed will likely be found to be unreasonable. Similarly, in addition to simple refusals to accept empty containers, the following types of situations might also justify challenging detention bills: a requirement that the trucker engage in dual moves; uncommunicated or untimely communicated changes in container return requirements; or uncommunicated or untimely communicated notice of terminal closures for empty containers.

3. Notice of Cargo Availability

An essential prerequisite to any assessment of demurrage is that the carrier and/or MTO provide some notice that the cargo is physically available. When assessing the reasonableness of that notice, the rules state that the Commission may consider to whom notice is provided, the format of the notice, method of its distribution and the timing. In other words, the Commission is prepared to look into whether the type of notice was reasonably calculated to apprise shippers and their agents that a container is available for retrieval. If not, the free time clock should not have commenced until the NVOCC or shipper had reason to know the cargo was available.

4. Government Inspections

In the NPRM, the Commission had proposed three options with respect to assessing demurrage and detention when cargo was being held for government inspections. Rather than establish a single principle, the Commission revised its approach and will look to whether assessing demurrage and detention under the specific circumstances in any given case was warranted. As government inspections are complicated and the type of inspection can vary, the Commission will instead inquire whether the assessment of demurrage and detention serves the Incentive Principle; if not, assessing demurrage and detention in these circumstances would be considered suspect.

5. Demurrage and Detention Policies

In reviewing whether the carrier and MTO practices on assessing these charges are reasonable, the FMC would also consider the existence, accessibility, content and clarity of their demurrage and detention policies and whether they reflect the entities’ actual practices. So, if their policies on assessing these charges or resolving disputes are not clear or accessible, if you can’t get anyone to take the issue seriously or even return your calls, that might be a factor in determining whether the assessment of disputed charges was reasonable. The Commission accordingly indicated that it would look favorably on a carrier or MTO making its demurrage and detention policies easily accessible on a website, in addition to their inclusion in ocean carrier tariffs and MTO schedules. This would be expected to include points of contact, timeframes for resolving disputes and any evidentiary requirements that are allegedly needed. The rule also provides any policies that contained burdensome evidentiary requirements or failed to provide appropriate evidentiary guidelines may themselves be found to be unreasonable.   

6. Transparent Terminology

Another provision of the new rules indicates that the Commission may consider the extent to which carriers and MTOs have appropriately defined the terms used in their demurrage and detention tariffs and practices,  the accessibility of those definitions, and the extent to which the definitions differ from how the terms are generally used.

7. Non-Preclusion

Finally, the Commission added the “Non-Preclusion” provision. This makes it clear that the FMC is not bound to follow any prescribed formula in determining whether a challenged practice is reasonable, but may instead consider additional factors, arguments and evidence as appropriate. 

STB Decision on Demurrage and Accessorial Charges

Perhaps not coincidentally, a few days later, on April 30, 2020, the Surface Transportation Board (STB) issued three separate decisions pertaining to railroad demurrage and accessorial charges policies and practices. The primary decision was the STB’s final Policy Statement on Demurrage and Accessorial Rules and Charges, issued in Docket EP 757.

As was the case with the FMC’s decision, the STB policy statement proceeds from two fundamental principles: (1) “demurrage rules and charges may be unreasonable when they do not serve to incentivize the behavior of shippers and receivers to encourage the efficient use of rail assets. In other words, charges generally should not be assessed in circumstances beyond the shipper’s or receiver’s reasonable control,”; and (2) “transparency, timeliness and mutual accountability by both rail carrier’s and the shippers and receivers they serve are important factors in the establishment and administration of reasonable demurrage and accessorial rules and charges.” 

We will address this decision in further detail. But, suffice it to say here that the timing and issuance of decisions from both the FMC and STB on these issues indicate that the agencies are now willing to reign in unreasonable demurrage and detention practices, and not simply permit the carriers and MTOs to hide behind their tariffs and traditional lack of responsiveness.

Effective Date

Returning to the issues of the FMC’s new rules, they were issued in the decision in FMC Docket No. 19-05, Interpretative Rule on Demurrage and Detention under the Shipping Act. A copy of the decision is available on the FMC’s website at www.fmc.gov. The rules will be effective when published in the Federal Register, which should take place shortly.

The final rules will not mean the end to unreasonable demurrage and detention billing practices, as they only provide guidance on how the Commission is likely to rule if a complaint is actually filed with the agency. In other words, it is now up to NVOCCs and cargo interests to not accept the unreasonable application of these types of charges just because invoices and claims are made. Nonetheless, there is hope that this will encourage the carriers and MTOs to review their practices and commence acting more responsibly.

Please contact Ed Greenberg or Kristine Little with any questions you might have. 

Copyright © 2024. All Rights Reserved.