The U.S. Federal Maritime Commission is pressing forward with a plan to finalize its fact-finding investigation report into demurrage and detention, with an eye toward producing recommendations that bring clarity for how and when these fees are assessed by carriers and marine terminal operators against shippers.
FMC Commissioner Rebecca Dye, who released the Fact Finding 28 interim report on Sept. 4, laid out what she called “phase two” of the investigation during the commission’s public meeting on Wednesday. The final report for the fact-finding investigation is due Dec. 2.
Demurrage pertains to the time an import container sits in a container terminal, with carriers generally responsible for collecting penalties on behalf of container terminals. Detention relates to shippers keeping hold of containers for too long outside of a container terminal.
Based on the FMC’s review, there’s an industry-wide need for “transparent, standardized language for demurrage, detention and free time practices,” Dye said. “A lack of transparent, standard terminology can obscure what exactly a shipper is being charged — use of terminal space or of carrier equipment — and by whom.”
When it comes to the assessment of demurrage and detention charges by the carriers and marine terminals, shippers lack “clarity, simplification and accessibility regarding billing practices and dispute resolution processes,” she said. “Too often shippers do not understand the details of VOCC (vessel-operating common carrier) or MTO (marine terminal operator) charges or how to dispute charges they believe are unwarranted.”
The FMC’s interim report recommended that shippers should have guidance from the ocean carriers and marine terminals to the types of evidence required to seek mitigation, waivers or refunds for demurrage and detention fees.
The report found that clarity is needed for how ocean carriers and marine terminals give shippers “reasonable notice” of container availability and provide “reasonable opportunity” to take delivery of cargo before assessing demurrage and detention fees, which Dye said will “probably be the central focus of phase two” of the Fact Finding 28 report.
Dye’s report also stated that simplified billing model for assessing demurrage and detention fees should be considered.
“Under this approach, terminal operators directly bill cargo interests for cargo storage on terminals, while carriers directly bill cargo interests for use of containers — whether on terminal or outside the port,” she said. “Each provider would bill for use of its assets.”
Dye said the FMC could in the future set up a shipper advisory board to continue addressing issues involving demurrage and detention, but the commission is concerned about the resources necessary to operate this type of platform. “I hope we can find a way to make that happen,” she added.
The commissioner emphasized that the FMC doesn’t intend to dictate how ocean carriers and marine terminals assess their demurrage or detention fees or how many free days they must offer shippers. “That’s what markets and commercial negotiations are for,” she said.
“In particular, we want to determine, in thoroughly practical terms, how to ensure that ‘reasonable notice of cargo availability’ and ‘reasonable opportunity to pick up cargo’ can be achieved — especially in an environment in which the use of terminal appointment systems is expanding,” Dye said.
Shippers long have contended that ocean carriers and marine terminals use these fees not only as a punitive measure to combat excess free time but as revenue generators. The problem most recently came to a head during a period of intense congestion at U.S. West Coast ports in late 2014 and early 2015 and also during the aftermath of Hanjin Shipping’s bankruptcy in August 2016.
Twenty-six trade associations formed the Coalition for Fair Port Practices and filed a petition in December 2016 calling on the FMC to adopt rules to clarify what constitutes “just and reasonable rules and practices” for how demurrage, detention and per diem charges are assessed. This action eventually was followed by two days of public testimony before the commission in January during which numerous shippers and ocean transportation intermediaries complained of mismatched fee assessments by ocean carriers and marine terminals that make it difficult for them to avoid.
The FMC commissioners concluded that further investigation was warranted and on March 5 initiated a fact-finding investigation into the conditions and practices related to these fees. Dye was put in charge of Fact Finding Investigation No. 28. She solicited further information from 23 ocean carriers, 44 marine terminals and numerous shippers and ocean transportation intermediaries, as well as drayage providers, during the past six months to develop the findings for the interim report.
To prepare the Fact Finding 28 investigation’s final report recommendations, Dye will spend the next two months meeting with ocean carriers, marine terminals, shippers, ocean transportation intermediaries and drayage service providers. These meetings will be conducted both at her office, as well as outside Washington. Dye said she maintains an “open-door” policy and wants to hear from any party with a view on this topic.
Dye said she’s frequently asked whether the final report will recommend a rulemaking on demurrage and detention. “At this point, any recommendations on that matter are premature,” she said.
FMC Chairman Michael Khouri concurred with Dye that a rulemaking is not the preferred method for the agency to bring clarity to demurrage and detention assessments. He told American Shipper immediately following the meeting that it’s important for the industry to “solidify that process” in the form of clearer commercial contractual relationships.
The National Industrial Transportation League (NITL), which is a member of the Coalition for Fair Port Practices, said it’s pleased with how the FMC has conducted the fact-finding investigation and commended Commissioner Dye for her commitment to understand this issue and how it affects the various ocean shipping industry stakeholders.
“We’re continuing to review the interim report’s recommended next steps with our members and other shipper organizations and will remain actively engaged in the investigation by offering additional information as requested,” said Jennifer Hedrick, NITL’s executive director.
“We agree with the report’s conclusion that detention and demurrage practices can be improved with the cooperation across industries. Workable solutions are achievable,” she added.
“The commission’s interim report accurately reflects the concerns raised by the stakeholders,” said John Butler, president and CEO of the World Shipping Council. “However, the commission is wise not to jump to a rulemaking without first looking at commercial solutions. If we turn to regulation too quickly in a complex operational situation, we risk getting something wrong that disrupts commercial operations or makes matters worse.”
Butler said the industry must continue to work together to find a commercial solution to the drivers of demurrage and detention charges. Otherwise, the FMC might be compelled to take regulatory action. “Any solution must ensure that cargo moves freely through our terminals and the entire intermodal system,” he said.
Butler said he’s “encouraged” that the industry continues to place more emphasis on automating cargo information. “At the end of the day, as these efforts bear fruit, hopefully we’ll see these issues related to demurrage and detention become a thing of the past,” he said.