A question of risk
FMC investigates the application of detention and demurrage fees
- April 17, 2018
The Federal Maritime Commission (FMC) has launched an investigation into the fees charged by marine terminal operators and ocean carriers when shippers and motor carriers are delayed picking up cargo and returning containers.
FMC Commissioner Rebecca Dye will lead the commission’s Fact Finding Investigation No. 28, which will outline the conditions under which detention and demurrage fees are applied in ocean shipping. “Fact-finding investigations occur when the commission wants to look at larger issues that are more systemic in nature,” says John DeCrosta, spokesman for the FMC. “They’re looking at things with a much broader and comprehensive scope.”
After containers arrive at port terminals, motor carriers and shippers have a set number of days — called free time — to pick them up before fees are applied. In addition, once motor carriers pick up containers from the terminals, they must be returned within a specific amount of time before ocean carriers can begin applying fees.
The difficulty comes when shippers and motor carriers are charged fees when port terminals are inaccessible because of weather, labor disputes or congestion at the port terminals.
In December 2016, the Coalition for Fair Port Practices, a group of 26 trade associations representing shippers, motor carriers and freight forwarders, filed a petition asking the commission to adopt a rule when detention or demurrage fees could be charged when circumstances were beyond their control.
The FMC received 115 comments after the petition was filed. Many documented specific complaints about fees being applied when terminals were too congested for motor carriers to reach their containers in time.
The question centers on the application of risk in maritime contracts, says Thomas Berkley, an attorney with Pender & Coward in Virginia Beach. “What the petition is asking is to shift the risk of port congestion away from the shippers and towards the terminals and the ocean common carriers,” says Berkley. “When U.S. customs comes and detains cargo, who bears the risk for detention and demurrage when that happens? One reason they’re pushing this is that they’re dealing with millions of dollars of risk.”
In January 2018, the commission held two days of public hearings on the fees. “They heard from all interested or affected parties,” DeCrosta of the FMC says. The panels included motor carriers, shippers, freight forwarders, terminal operators and ocean carriers. “The goal of the hearing was for the commissioners to interact with interested parties and get more than just what was in the filings and response to the filings.”
After the hearings, the commissioners voted unanimously in March to launch the investigation. The final report, which will document Dye’s findings and investigations, is due to the commission by Dec. 2. An interim report is due Sept. 2.
“While many questions remain after the hearing, I do believe it effectively established that the practices surrounding detention and demurrage charges can be out-of-date, confusing, inconsistent and, in my view, unfair,” Commissioner Daniel Maffei said in a statement following the order.
The FMC’s order said Dye’s report should assess:
- How the alignment of commercial, contractual and cargo interests enhances the ability to move cargo efficiently through terminals, including assessing how these fees are handled in other countries;
- Whether, and if so, when the carrier or terminal operator has tendered cargo to a shipper or motor carrier;
- How detention and demurrage fees are invoiced;
- What the current practices are for assessing fees when outside delays or intervening events occur;
- What the practices are for the resolution of demurrage and detention disputes between carriers and shippers.
In recent years, the growth in the size of container ships has contributed to congestion at many marine terminals. And that has made disputes more frequent, says Berkley.
“I think it really goes to who’s going to bear these risks of these unforeseen events beyond their control,” he says. “Do we need more federal regulations to control contractual relationships or do we allow freedom of contract? And to me that’s kind of the overarching issue over all of this. Do we continue to allow freedom of contract or does the federal government need to step in and control how the parties contract even more?”