FMC Issues Proposed Rule on Demurrage/Detention Practices
Client Alert
On September 13, 2019, the Federal Maritime Commission issued a Notice of Proposed Rulemaking in its Docket No. 19-05, Interpretive Rule on Demurrage and Detention Under the Shipping Act. (A copy of the text of the NPRM can be found here). This NPRM arises out of the Commission’s Fact-Finding No. 28 Investigation which was undertaken and supervised by Commissioner Rebecca Dye. And, of course, that investigation was initiated in response to the petition filed by the NCBFAA and a number of other trade associations that were concerned about the demurrage and detention problem.
As you may recall, Commissioner Dye issued the final report of that investigation on December 3, 2018, and the full Commission has now considered that report and voted to issue the NPRM. Given the continuous and growing concern about carrier and port demurrage and detention practices, this proceeding is extraordinarily important to the NVOCC industry.
The NPRM is based upon the conclusions reached in Fact-Finding No. 28. Although detention and demurrage charges were intended to serve as financial incentives to encourage the productive use of containers and terminal space, the investigation provided significant evidence demonstrating that there is reason to question the reasonableness of these charges when they can’t facilitate the movement of cargo on or off the pier.
Consequently, the interpretive rule is intended to provide guidance as to when demurrage and detention charges may be found to be unreasonable in violation of Section 46 U.S.C. §41102(c). Essentially, the NPRM proposes that where carrier detention and demurrage tariffs and policies don’t provide for the suspension of charges when those charges either won’t or cannot accomplish their purpose, if brought to the FMC’s attention the imposition of charges would likely be found to be unreasonable in violation of the Act. Accordingly, in situations where cargo cannot be timely retrieved or if empty containers cannot be returned to the ports for reasons that are not the fault of the cargo interest or trucker, the proposed interpretative rule would now make it significantly easier to avoid or challenge the propriety of the charges.
The NPRM has laid out a number of general principles and now seeks public comment on these matters. The thrust of the proposed rule is:
- In order for carriers or marine terminal operators (MTOs) to commence the start of free time, the cargo must actually be available for a trucker to pick-up; if it isn’t, the proposed rule would conclude that application of demurrage and/or detention prior to availability may be an unreasonable practice. By the same token, it would be an unreasonable practice not to suspend existing demurrage charges or the running of free if the situation in the yard changes so that the trucker cannot get access to the container at this time. Similarly, detention charges should not be applicable if a terminal is closed to the return of empty containers.
- This raises the issue of how one is to know if cargo is actually available. The NPRM seeks comments as to whether the carriers should be required to issue a formal Notice of Availability that would be sufficient to apprise the cargo interest that the container is actually available; if they don’t should the carrier practice necessarily be deemed to be unreasonable and in violation of the Shipping Act? Any comments on this might also address the issue of to whom that Notice of Availability should be sent, the format and method of its distribution, and whether there should be “push notifications” that can alert cargo interest s and truckers to any change in the status of the container.
- The NPRM next addresses the issue of government inspections of cargo and the propriety of assessing demurrage and detention during those holds. While the NRPM does not go so far as to suggest that any assessment of demurrage or detention during these holds might be unreasonable, it does seek comments as to whether it was appropriate for the carriers and/or MTOs operators to escalate charges (i.e., impose penalty demurrage) in these situations. Similarly, comments are requested as to whether the carriers should be required to provide for mitigation of those charges below their tariff levels during government holds or even whether the failure to have maximum caps on demurrage and detention during government holds is itself an unreasonable practice.
- The NPRM also focuses on the current lack of clear carrier policies for addressing complaints about the assessment of these charges and seeks comments as to whether the carriers and NVOs should have published dispute resolution policies. Although the NPRM seeks public comment on what would be reasonable policies for the carriers to implement, it suggests that they should at least cover the following points:
- Having points of contact for disputing charges
- Providing clear time frames for raising, responding to and resolving disputes
- Clearly explaining the process for disputing these charges
- Having a dedicated dispute resolution staff
- Allowing priority appointments when free time has expired
- Having a mechanism to ensure that responses are made in response to requests for free time extensions or waiver of these charges
- Having a process for elevating disputes after the carrier’s initial response
- Allowing a trucker to do business with a carrier during the pendency of a dispute
- Detailing the type of evidence that would be necessary in order to satisfy their dispute resolution process. For example, what kind of information should truckers be required to have in order to demonstrate that their attempts to retrieve cargo; and should truckers be required to have log records tracking their attempts to make appointments.
- Are those sufficient or are there other points that should be covered in these carrier policies?
Finally, the NPRM seeks comments as to whether the carriers and MTO tariffs should have clear terminology defining what is demurrage (which is typically thought of as a charge for the use of real estate assets) as compared to detention (which pertains to the use of containers). Today, there is a lack of consistency or understanding in the industry as to what is being assessed and whether there are duplicative charges from the carriers and MTOs for the same cost.
In view of the importance of this issue, we encourage you to review this carefully and consider taking the time to submit comments to the FMC on these issues. There is a deadline of October 17, 2019 to provide comments. And there is a mechanism for seeking confidential treatment for any information that is considered to be proprietary that should not be disclosed to the general public. So, if you have any questions or wish assistance in drafting comments, please let us know by contacting Ed Greenberg at egreenberg@gkglaw.com.
Comments can be filed electronically by email to secretary@fmc.gov, or by mail to Rachel E. Dickon, Secretary, Federal Maritime Commission, 800 North Capitol Street, NW,; Washington, D.C. 20573-0001. In all cases, the subject line should reflect Docket 19-05, Demurrage and Detention Comments.
