Ag Shippers Blame Ocean Carriers, Terminals for Demurrage

Ocean carriers and terminal operators are largely to blame for congestion at terminals and then profit off those conditions by charging demurrage fees, according to a group of agricultural shippers.

The Agricultural Transportation Coalition (AgTC) made the claims in a filing to the Federal Maritime Commission (FMC) late on Oct. 31, the agency’s deadline for accepting comments on its proposed rule on the highly charged subject of detention and demurrage.

It’s another example of the deep divide between beneficial cargo owners (BCOs) and ocean carriers and terminals about how detention and demurrage became such a huge problem and whether the penalties truly incentivize cargo flow or line the pockets of international companies.

The AgTC’s comments are part of a long-running dispute between cargo owners and truckers, and marine terminals and carriers on when to levy detention and demurrage fees. Cargo owners don’t believe it’s fair to be penalized when crippling congestion prevents the timely pick-up and return of containers, while carriers and marine terminals counter they lose business and incur higher operating costs when equipment is idle.

“The exporters and truckers did not and do not cause the congestion and delay, but are suffering greatly from it. To pile on demurrage and detention charges, warrants the Commission’s attention,” the AgTC wrote. “At least one of our members [is] being assessed over $15 million (in charges), others in the $500,000 to $800,000 range, and all our exporters, thousands of dollars.”

FMC 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 agency’s recommendations focus on how it will consider whether fees are reasonable to encourage supply chain fluidity.

Who created the congestion issue?

“That congestion and delay is caused by the carriers/terminals themselves jamming massive ships into terminals not built for such volumes, by ‘box rules’ that limit chassis access, and other actions. It is extraordinarily unfair for the Commission to allow those under its jurisdiction who cause the congestion and delay, to impose penalties on others,” AgTC wrote.

Ocean carriers and marine terminal operators provide a different view, arguing that BCOs are equally responsible for the massive containerships and terminal congestion. With BCOs shopping around for rates, market forces required ocean carriers to find ways to provide lower rates to win business. To deliver those savings, ocean carriers ordered larger vessels capable of holding more containers. They also had to develop a strategy as cargo volumes began to rise after the recession of 2008-09.

Ocean carriers also privately point out it’s the BCOs who keep the system of box rules going because the below-cost chassis are a real bargain. The math shows that the difference between a $7 or $8 per day chassis under a door contract using box rules versus a $15 at-cost chassis pool, such as the North American Chassis Pool Cooperative, can save at least $100,000 per year. By comparing the below-cost chassis with a $20 to $25 daily rental — the rate of TRAC Intermodal, Direct ChassisLink Inc., or Flexi-Van Leasing, Inc. — a high-volume BCO can save more than $500,000. The chassis savings alone can wipe out much of demurrage costs.

Marine terminal operators can also point to improvements to address supply chain fluidity, whether it’s moving chassis depots off site to increase container storage capacity, buying more container handling equipment, building additional container stacks, implementing appointment systems to meter truck flows, or providing early morning and weekend hours.

The problem with the appointment systems and off-peak hours, which perhaps are the most critical to spreading the flow of trucks evenly throughout the day rather than in concentrated bursts, is that many BCOs don’t operate distribution centers on a 24-7 basis. While the Port of Virginia, for example, is open to truckers at 4 a.m., the consignee receiving the container may not open until 9 a.m. or might be closed on Saturdays and Sundays.

It’s the same issue when railroads blame shippers for storage charges, arguing that they are open on the weekends so the customer should be, too. It’s a contentious dynamic between cargo owners and terminal operators.

“The carriers’ argument that they need an incentive for shippers to move their cargo/containers faster, is backwards … Thus far, no one has been able to identify an exporter who wants his/her cargo to move more slowly,” the AgTC counters. “With contractual delivery deadlines and perishable condition time limits, [BCOs] are always pushing the carriers and the terminals to move the containers more quickly, never more so than recently as the ships have become larger, sailings less frequent and more tardy.”

Are detention charges necessary?

The AgTC also took ocean carriers to task for charging detention fees when an empty container isn’t promptly returned to a terminal, asking the FMC to examine whether ocean carriers are actually harmed if a box is a day late. There are hundreds, if not thousands, of empty containers sitting on the property of the largest United States marine terminals on any given day.

“This practice of offering larger shippers (with more containers) much longer free time, either in the contract or in practice, undermines the carriers’ arguments that they really have to have the containers back very quickly,” the AgTC wrote. “If they need the containers back in five days, then require that of all shippers; exempting the shippers with the largest number of containers from the five-day limits suggests a lack of carrier commitment to rapid return of containers.”

Ocean carriers believe the detention issue is more about preventative measures because privately they acknowledge one late empty container won’t translate into an exporter being unable to get a box. Given the trade imbalance, there are enough empty containers available for US exporters.

It’s about discouraging bad behavior, the ocean carriers argue. If one BCO returns an empty container a day late, it’s not a problem. If hundreds or thousands, however, were to return containers a day late, then it would amount to a logistics problem.

The FMC rulemaking, if it goes forward, won’t wade this deep into the issues because Dye has been clear about using commercial solutions rather than government edicts to resolve disputes between parties. If a dispute rose to the FMC level, however, the rule could lay the groundwork for the agency to examine the reasonableness of detention and demurrage fees on a case-by-case basis.

Source: JOC

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