US Commission issues interpretive rule on demurrage and detention charges – possible relief for shippers
On April 28, 2020, the US Federal Maritime Commission (FMC) issued an interpretive rule on demurrage and detention charges under the Shipping Act 1984. The rule was the result of a petition submitted to the FMC in December 2016, objecting to the way that vessel operating common carriers and terminal operators assess charges on intermodal containers. The new interpretive rule signals that the FMC is willing to review charges on a case by case basis and could lessen the burden on shippers, receivers, ocean transportation intermediaries and drayage truckers. The interpretive rule will govern how the FMC will determine whether demurrage and detention practices are justified and reasonable.
Fixed charges for excess of allowed time
As calculated by ocean common carriers and marine terminal operators, shippers have a set number of days in which to load cargo into an empty container and return that container to the carrier’s marine terminal. There is a charge for every day used in excess of the allowed time. Likewise, a receiver has a set number of days to arrange delivery of a container off of the importing terminal, unload the container and return the empty back to the carrier. The receiver will be charged a fixed amount for every day used in excess of the free time. In addition to the charge for excess free time, the marine terminal operator may also charge storage on any container that sits on the terminal in excess of allowed time. The storage may be charged in addition to the charges assessed by the carrier for use of the container.
The amount charged by carriers and marine terminal operators are generally a fixed sum that does not depend upon any extraneous facts, such as the inability to collect a container due to a worldwide pandemic. The charges may end-up being greater than the actual cost of the container if a container is held-up due to events outside the control of the cargo interests, such as governmental order, lost financing or terminal congestion.
Along with the cargo interests, non-vessel operating common carriers, forwarders and truckers that pick-up a container from the terminal are also at risk for paying demurrage and detention charges. The NVOCC will generally be listed as the shipper on the ocean carrier’s bill of lading, so under the carrier’s tariff, the NVOCC is liable. It is up to the NVOCC to try to pass the charges on to its customer. Likewise, whenever a trucker removes a container from a terminal, that trucker undertakes to return the container within the agreed free time. If the trucker cannot return the container, the carrier may look to the trucker to pay the charges. Again, it does not matter if the delay is beyond the control of the trucker.
New interpretive rule – additional factors considered
The new interpretive rule states that the FMC will look at several factors in determining whether charges are reasonable and justified. The FMC’s stated goal is to ensure that the charges act as an incentive to “promote freight fluidity.” The FMC gave a list of factors that the Commission will consider on a case by case basis, including:
- Cargo availability
- Whether empty containers can be returned to the terminal
- Whether notice of cargo availability was given
- Whether there are government inspections that delayed movement
- Whether the carrier and terminal operator have clearly stated their demurrage, detention and storage terms and charges for failure to abide by the time periods given
- The Commission made it clear that the areas of enquiry contained in the interpretive rule are not exhaustive and that the Commission may consider other relevant facts.
It is yet to be seen whether the FMC will be inundated with requests to review charges. Ocean carriers and marine terminal operators should be reviewing how their demurrage, detention and storage charges are communicated to the participants in the container carriage transaction and would be wise to collect all elements of the charges in one easily accessible place in the tariff, on the party’s website and with notice on the bill of lading.
Likewise, Ocean Transportation Intermediaries (OTI) should draft a clear statement that any charges assessed by the carrier will be passed-on to the OTI’s customer and that the OTI is not liable for any charges. This notice should be communicated to the OTI’s customer on documentation and should be included on the OTI’s website. The FMC’s interpretive rule does not eliminate demurrage and detention charges, it simply tries to make the process more transparent and reasonable.
While the Commission’s action was not the result of the COVID-19 pandemic, the timing is fortuitous. The various shut-downs and stay at home orders that have been issued in response to the pandemic have had an impact on cargo transportation. We anticipate that the FMC will consider the delays caused by the pandemic if called upon to review demurrage and detention charges assessed when cargo movement was limited by COVID-19.
Read others items in London Market Brief - July 2020
Read others items in Marine Brief - November 2020