In late 2017, industry stakeholders raised a petition to address the question whether demurrage and detention charges in the shipping industry were justified..
In response, in March 2018, the Federal Maritime Commission initiated Fact Finding 28 investigation to ascertain whether demurrage and detention fees charged to shippers for storing containers and using equipment beyond the carrier’s or terminal’s allowed “free time” were just and reasonable..
Although there are several causes for demurrage and detention, this question and commission arose on the back of demurrage and detention charges levied by the port, terminal and shipping lines to the shippers especially in the key USA gateways of Los Angeles/Long Beach on the West Coast and New York/New Jersey on the East Coast..
Commissioner Rebecca Dye launched the first phase of her investigation by ordering ocean common carriers and marine terminal operators providing shipping services throughout the United States, to provide information and documents explaining demurrage, detention, and free time practices..
Carriers were directed to provide detailed information about their detention and demurrage practices, especially under circumstances where customers were not able to retrieve cargo..
“The ultimate resolution of this investigation will have the potential to affect every ocean common carrier calling the United States. It is vital that the information we gather is representative of business and operational practices, as well as market conditions, nationally,” said Commissioner Dye..
She emphasized that it is critical that shippers, trucking companies, and other affected parties who can document specific allegations and provide supporting materials of unreasonable port detention and demurrage practices and fees step forward and cooperate with the investigation..
Interim Report & Phase II
An interim report released by FMC found that while the frequency of the demurrage and detention charges has been increasing over the past few years, it also identified that both parties – customers (importers/exporters) and service providers (carriers/ports & terminals) could be complicit in this..
An example given was that the ports and terminals do not encourage storage of containers in their CY as they need quick turnaround of boxes to generate more revenue and a stagnant stock does not help with that.. But from the customer’s end there were concerns about the delays at ports and terminals which sometimes did not allow them to take the delivery or drop off containers when they wanted it..
Phase II of the investigation was aimed at seeking inputs on the efficiency and feasibility of some solutions like below suggested by the commission and these inputs were to be considered in a final report scheduled for release around December 2018..
When releasing the interim report, in September 2018, Commissioner Dye advised the Commission that she has identified six areas to be developed:
- Transparent, standardized language for demurrage, detention, and free time practices;
- Clarity, simplification, and accessibility regarding demurrage and detention billing practices and dispute resolution processes;
- Explicit guidance regarding types of evidence relevant to resolving demurrage and detention disputes;
- Consistent notice to shippers of container availability;
- An optional billing model wherein
- MTOs bill shippers directly for demurrage; and
- VOCCs bill shippers for detention; and
- An FMC Shipper Advisory or Innovation Team.
True to word, the commission finalised its findings and released its final report of the Fact Finding 28 investigation in December 2018..
The core findings of the investigation was
- Demurrage and detention are valuable charges when applied in ways that incentivize cargo interests to move cargo promptly from ports and marine terminals;
- All international supply chain actors could benefit from transparent, consistent, and reasonable demurrage and detention practices, which would improve throughput velocity at U.S. ports, allow for more efficient use of business assets, and result in administrative savings; and
- Focusing port and marine terminal operations on notice of actual cargo availability would achieve the goals of demurrage and detention practices and improve the performance of the international commercial supply chain.
To summarise : While the presence of demurrage and detention charges may provide an incentive to cargo owners to move their cargoes in and out of the ports expeditiously, if the carriers and terminal providers provide notice of when cargo is actually available, it may eliminate many of the circumstances that leads to the imposition of demurrage and detention charges..
“The work done since March of this year has yielded four main ideas that I am confident will make a difference and are the concepts to pursue to finality. We do not want to miss a rare opportunity to make things better and toward that goal, we will promptly convene innovation teams to ensure implementation is commercially viable,” said Commissioner Dye..
Commissioner Dye recommends that the FMC organize Innovation Teams composed of industry leaders to meet on a limited, short-term basis to refine commercially viable demurrage and detention approaches in the following areas:
- Transparent, standardized language for demurrage and detention practices
- Clear, simplified, and accessible demurrage and detention billing practices and dispute resolution process
- Explicit guidance regarding the types of evidence relevant to resolving demurrage and detention disputes
- Consistent notice to cargo interests of container availability
“The handoff of a container from carrier to terminal to trucker to destination is not a linear process. In reality, everything is happening at once and that is why it is so daunting a task to get a handle on these issues. The teams process is ideally suited to creating the engagement necessary between subject matter experts to allow for private sector driven process improvements,” Commissioner Dye added,