FMC’s detention-demurrage proposal divides shipping industry

The container shipping industry remains far apart on whether the Federal Maritime Commission’s (FMC’s) proposed rule on detention and demurrage will resolve or exacerbate the problems plaguing beneficial cargo owners (BCOs).

Stakeholders are not only deeply divided on when the clock should start and be paused when it comes to detention and demurrage, but also whether regulators should pass the rule, amend the rule, or throw it out.

Public comments, from cargo owners to container lines, reveal unresolved disagreements about when the clock to retrieve cargo should begin, what events should pause the clock, and the costs each party incurs when terminal fluidity is disrupted.

The Oct. 31 deadline for public comment is the latest round in a long-running dispute between cargo owners and truckers, and marine terminals and carriers on when detention and demurrage fees should be levied. Cargo owners complain that they shouldn’t be held responsible when weather or other factors prevent timely pick-up of cargo and return of equipment, while carriers and marine terminals counter they can’t eat higher operating costs either.

The debate has been particularly fraught because some cargo owners accuse carriers and terminals of using the fees as a revenue generator, of which the latter deny, saying the fees are simply meant to encourage better cargo flow.

The FMC’s approach to an interpretive rule reflects an agency seeking to encourage commercially driven solutions and firm up how such disputes are reviewed without plunging into a complex tangle of business agreements.

Commissioner Rebecca Dye has said the agency isn’t seeking to determine “fault” or whether the factors of calculating detention and demurrage fees are fair. Instead, she said the recommendations focus on how the agency will consider whether fees are reasonable to encourage supply chain fluidity.

Does the FMC have the power?

Equally important is the debate within the shipping industry on whether the FMC is taking the right approach, with the top group representing container lines arguing the interpretive rule “is neither an interpretive rule nor is it properly constructed.”

“There is more work to be done here before a proper and useful interpretive rule can be adopted,” said John Butler, CEO of The World Shipping Council, representing ocean carriers.

The group filed a 20-page comment outlining why the FMC’s rule is too broad and must not go ahead.

“In short, the Commission uses a broad brush to make new substantive law under the guise of merely providing guidance, and in so doing exceeds its authority under the Shipping Act of 1984,” the Council wrote.

The National Industrial Transportation League (NITL), which represents BCOs, counters that the FMC is correctly clarifying how it determines whether penalties truly incentivize cargo flow.

“The proposed Interpretive Rule strikes the right balance in outlining key principles and examples of reasonable practices that will be considered by the Commission … while providing flexibility to account for differing factual circumstances inherent in the receipt and shipment of containerized cargo throughout the nation,” NITL wrote.

“We believe the Commission has produced thoughtful guidance that will have a significant beneficial impact on the working relationships between and among cargo interests and will ultimately improve the flow of cargo at the nation’s ports,” added David French, senior vice president for the National Retail Federation.

Weather issues not clear in any way

What might be the most straightforward situation is anything but clear. Shippers contend that it’s unfair to charge a demurrage penalty when weather shuts down a terminal. When Hurricane Dorian closed terminals in the Southeast this September, shippers could not retrieve containers. Should they lose a free day when trucks cannot access the terminal?

“Weather is everyone’s problem,” said J. Peter Hinge, who retired after a nearly 20-year stint with CMA CGM.

“Why should marine terminals and ocean carriers be the only ones to bear the cost of idle containers in such case?,” Hinge wrote. “What if a container were available for pick-up during the free time period, but after the expiration of free time circumstances beyond anyone’s control made the container unavailable? Would the free time and detention and demurrage clocks stop? That would clearly be unreasonable.”

Hinge noted ocean carriers and terminal operators incur financial losses when weather closes a marine terminal and questioned whether it’s reasonable to eat those costs or pass on to BCOs via demurrage charge.

Cargo availability

The weather issue is part of the larger question of when a container is available.

If it’s unavailable, should BCOs lose free time, or should the clock stop? One example is when customs officials take a container for further inspection.

“When a container is on hold, the application of demurrage is just bad practice,” said Tracy Dsilva, vice president for Yusen Logistics (Americas) Inc. “If the container has been pulled out for inspection, then it already moves to a designated area that is assigned to the government. Why then should the carriers charge a demurrage-detention to logistics providers and, ultimately, to the customer who is importing these goods?”

The Sea Group Shippers’ Association, a non-vessel-operating common carrier (NVO), disagrees.

“The FMC is correct these charges are designed to provide an incentive to shippers to keep containers moving and to get them off the terminal. However, these charges also are designed to allow the carriers, terminal operators, and inspection facilities to recover certain costs they incur when a container is taken out of circulation or is taking up space on their facilities,” the group wrote. It argues the FMC doesn’t take this into account.

NITL wrote that ocean carriers could make headway on the problem by using push notifications, such as those sent to smartphones.

“The League believes that ‘push notifications’ will reduce the inefficiencies associated with repeatedly having to check on container status on either or both carrier or terminal web sites to inquire as to status, even when the cargo is not yet available,” the group wrote.

When the clock starts

Shippers were unanimous in their opinion that the clock to retrieve cargo should start only when the BCO is notified the container is available for pickup. Some ocean carriers begin when the vessel arrives in dock, even though it could take days to discharge all containers.

“Knowing when cargo is actually available will help ensure that pickup is timely scheduled — reducing idle time and wasted hours waiting for containers to become available,” the Tea Association of the USA wrote. “You cannot incentivize efficient cargo pickup if the cargo may not yet be available (i.e. held in a closed yard or location at the terminal).”

Billing practices

Shippers and ocean carriers seem to agree that the current demurrage billing practices should continue as is. One proposal called for marine terminal operators (MTOs) to invoice for excessive use of land and ocean carriers charge for holding equipment. Some marine terminal operators have asked to delineate the charges because the ocean carrier may mark up the terminal demurrage penalties to collect more revenue.

The NRF, however, noted there are situations when marine terminal operators hold truckers hostage by refusing a driver onto the property without immediate payment of an outstanding bill.

“We believe that policies where the ocean carrier bills the BCO for detention and demurrage are the most straightforward and least likely to become complicated and non-transparent, and the easiest to dispute because of the underlying relationships involved,” French wrote. “NRF’s members do not have commercial relationships with MTOs.”

Source: JOC

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