The Federal Maritime Commission (FMC) announced their final rule this week with respect to demurrage and detention practices. This long-awaited reform should be codified into law in the very near future.
Demurrage and Detention
Demurrage and detention charges have their place to incentivize the rapid removal of cargo from marine terminals and encourage the speedy return of containers back to the carriers. The charges are generally based on an escalating scale that increases the daily amount the longer the container sits. The theory is that the higher the daily and aggregated charges, the more incentive to pick up or return the container. The problem comes when containers cannot be picked up or returned beyond the control of the cargo owner, particularly when it is due to the inaccessibility of the container or return station. The FMC’s posture on this, in cases where the cargo owner can no longer be incentivized to move or return the container, is that charging demurrage or detention, in such cases, would be considered an unreasonable practice.
Getting to the Final Rule
The announcement of the final rule follows several years of FMC research and initiatives starting in 2014 with regional forums. These were followed by a public hearing, a fact finding investigation (FF-28), more testimony, assembly and input from innovation teams, a Notice of Proposed Rulemaking (NPRM) followed by a comment period, and a final report including analysis of more than 100 written comments from stakeholders. Mohawk Global Logistics was an active participant in every step of the process and is cited throughout the final rule, as presented.
The comments received from truckers, beneficial cargo owners (BCOs), forwarders, Customs brokers, and Non-Vessel-Operating Common Carriers (NVOCCs) were overwhelmingly supportive in favor of the demurrage and detention reform. The comments from the ocean carriers and marine terminals that assess these fees were fewer and understandably not supportive of the FMC’s action. In their 95-page interpretive rule, most of the verbiage coming from the FMC refutes the negative arguments made by the terminals, ocean carriers, or their representatives. The actual rule itself is only about one page long and listed below for easy review. The entire rule can be found here.
There were some new inclusions in the final rule that differed from the NPRM. Specifically:
- Charging demurrage while cargo is on government hold may be considered unreasonable.
- Statement that nothing in the rule precludes the FMC from considering factors, arguments, and evidence not specifically listed in the rule.
The first of these is very much welcomed by both the importing and exporting community. Previously, only the Port of Long Beach did not assess free-time against cargo on government hold. It is our hope that more terminals will begin making formal announcements regarding a change in their position on this. Already, we have begun filing comments with any terminal or carrier that put us on hold notice with a statement that includes charges following last free day. The second point addresses concerns from naysayers claiming this was more than an interpretive rule, which would be considered outside the purview of the Commission. Instead, it serves to highlight the fact that any cases brought before the Commission would be judged on the basis of all facts presented.
Here is how the rule will read once published:
§ 545.5 Interpretation of Shipping Act of 1984-Unjust and unreasonable practices with respect to demurrage and detention.
(a) Purpose. The purpose of this rule is to provide guidance about how the Commission will interpret 46 U.S.C. 41102(c) and § 545.4(d) in the context of demurrage and detention.
(b) Applicability and Scope. This rule applies to practices and regulations relating to demurrage and detention for containerized cargo. For purposes of this rule, the terms demurrage and detention encompass any charges, including “per diem,” assessed by ocean common carriers, marine terminal operators, or ocean transportation intermediaries (“regulated entities”) related to the use of marine terminal space (e.g., land) or shipping containers, not including freight charges.
(c) Incentive Principle. (1) General. In assessing the reasonableness of demurrage and detention practices and regulations, the Commission will consider the extent to which demurrage and detention are serving their intended primary purposes as financial incentives to promote freight fluidity.
(2) Particular Applications of Incentive Principle. (i) Cargo Availability. The Commission may consider in the reasonableness analysis the extent to which demurrage practices and regulations relate demurrage or free time to cargo availability for retrieval.
(ii) Empty Container Return. Absent extenuating circumstances, practices and regulations that provide for imposition of detention when it does not serve its incentivizing purposes, such as when empty containers cannot be returned, are likely to be found unreasonable.
(iii) Notice of Cargo Availability. In assessing the reasonableness of demurrage practices and regulations, the Commission may consider whether and how regulated entities provide notice to cargo interests that cargo is available for retrieval. The Commission may consider the type of notice, to whom notice is provided, the format of notice, method of distribution of notice, the timing of notice, and the effect of the notice.
(iv) Government Inspections. In assessing the reasonableness of demurrage and detention practices in the context of government inspections, the Commission may consider the extent to which demurrage and detention are serving their intended purposes and may also consider any extenuating circumstances.
(d) Demurrage and Detention Policies. The Commission may consider in the reasonableness analysis the existence, accessibility, content, and clarity of policies implementing demurrage and detention practices and regulations, including dispute resolution policies and practices and regulations regarding demurrage and detention billing. In assessing dispute resolution policies, the Commission may further consider the extent to which they contain information about points of contact, timeframes, and corroboration requirements.
(e) Transparent Terminology. The Commission may consider in the reasonableness analysis the extent to which regulated entities have clearly defined the terms used in demurrage and detention practices and regulations, the accessibility of definitions, and the extent to which the definitions differ from how the terms are used in other contexts.
(f) Non-Preclusion. Nothing in this rule precludes the Commission from considering factors, arguments, and evidence in addition to those specifically listed in this rule.