Federal rulemakers consider a rulemaking petition on demurrage and detention charges

Federal rulemakers consider a rulemaking petition on demurrage and detention charges

The Federal Maritime Commission has undertaken a process to consider how international shipping companies and marine terminals assess demurrage, detention, and delay damage that may lead to significant changes in the shipping marketplace.  A significant number of shipping and maritime interests have provided public comments supporting and opposing the potential Commission action.

On December 20, 2016, an industry group composed primarily of shippers, trucking companies, and logistics companies called the “Coalition for Fair Port Practices” filed a petition with the Commission seeking rulemaking.  The Commission is charged by Congress in 46 U.S.C. §41102(c) to ensure that ocean carriers and marine terminals apply only “just and reasonable rules and practices.”  The Coalition argues that the practices of some carriers and ports of charging shippers, trucking companies, and logistics companies for delays over which the customers had no control were unfair and unreasonable.  The Commission requested comment from the international shipping community and may consider formal rulemaking or adoption of a new federal policy to address the alleged unfair practices.

Demurrage is a charge levied by most marine terminals when cargo occupies space at the terminal.  Most terminals, including Virginia International Terminals (VIT), provide a certain number of days as “free time,” after which the terminal starts to charge demurrage.  Similarly, most ocean carriers provide some free time for use of the containers, after which detention charges begin to accrue.

The Coalition claims that “[s]hippers, consignees, and drayage providers are experiencing demurrage and detention charges and practices that penalize them when they cannot retrieve cargo or return equipment for reasons beyond their control.”  The Petition points to recent hurricanes, harsh winters, labor strikes, port congestion, and the Hanjin bankruptcy as events beyond the control of shippers that have limited their ability to retrieve cargo or return equipment within their allotted free time.

The Petition suggests the Commission should require ocean carriers and terminals to extend free time during any period in which cargo cannot be tendered for delivery or equipment returned, regardless of the cause of the delay.  The rule proposed by the Coalition would also prevent charges during such periods, even if the free time had previously expired.

“A new rule from the Federal Maritime Commission would impact all the significant players in international marine shipping,” says Dustin Paul, a partner and member of the Transportation Law group at Norfolk-based law firm Vandeventer Black. “In light of the profit margins in the shipping industry, the allocation of the costs for demurrage and detention charges can significantly impact profitability.”

A host of maritime industry groups has come out strongly against the Petition.  The National Association of Waterfront Employers (NAWE), which represents the interest of a number of terminal operators, suggested in public comments that the “uncertainty and the resulting complexity [of a new rule] will greatly increase the amount of litigation over free time and demurrage/detention issues.”  NAWE further explained that there are already numerous options and market forces in place to address issues of port congestion without additional regulation.

The Port of Houston has also provided comments to the Commission opposing any rulemaking.  Describing the proposed rule as unnecessary, unfair, and anti-competitive, the Port of Houston has requested that no changes be made.   The comments from the Port of Houston claim that the “overwhelming number of situations complained of by the Coalition” are occurring at the Port of New York/New Jersey and the Port of Los Angeles, and that no nationwide rule is needed.

The Port’s comments further explain that maritime law has long held that demurrage and other delay charges can be assessed regardless of fault, so long as “the party seeking to impose the charge may not be held responsible for the delay.”  The Port of Houston states that “considerations of the market and of good customer relations” result in simple, cost-efficient resolution of most demurrage issues.

Also in opposition to the Petition is Ports America, which describes itself as “the largest marine terminal operator and stevedore in the U.S.”  Ports America suggests the proposal would “erode and interfere with the market-driven allowances and contract risk-allocation mechanisms used around the world to encourage efficient terminal use.”

In contrast, the Tidewater Motor Truck Association (TMTA) provided comments to the Commission urging it to act on the Petition.  Writing on behalf of the Association which represents certain Virginia trucking interests, the TMTA’s President, Marilynn Ryan, described “repeated incidents of severe congestion at the Port of Virginia.”  She stated that “port delays were beyond the control of drayman” and that “too frequently shippers and truckers are being charged demurrage and detention penalties for late pickup or return of contains when it is not their fault.”

VIT has not provided any separate public comments to the Federal Maritime Commission on the proposed rulemaking.  VIT’s rules on free time and demurrage can be found in its Schedule of Rates.  The Schedule already contains some provisions to address delays outside of the control of the Port’s customers—the Schedule, for example, provides that the port gives extra free time at the commencement of a longshore strike.

Paul of Vandeventer Black says “When there are delays in moving cargo or returning equipment, there are going to be cost impacts.  Anyone who ships goods or uses the area’s ports should be paying attention to potential changes coming from the Commission.”