New ruling provides essential protections, but lingering issues remain.
Shippers, brokers and many others in the supply chain industry are praising a new final ruling from the Federal Maritime Commission (FMC) cracking down on unfair demurrage and detention (D&D) practices. (See sidebar on Enforcement Action)
FMC states that the ruling, Demurrage and Detention Billing Requirements — which was finalized in February, concluding a multi-year process to regulate D&D — “establishes new requirements for how common carriers and marine terminal operators (MTOs) must bill for demurrage and detention charges, providing clarity on who can be billed, within what timeframe, and the process for disputing bills.”
“Overall, we believe the FMC’s rule on detention and demurrage billing will be positive for the supply chain,” Jonathan Gold, National Retail Federation (NRF) VP of Supply Chain and Customs Policy, concurs.
A Question of Fairness
“Detention and demurrage billing is a critical policy empowering terminal operators to incentivize cargo fluidity at ports,” states Cary S. Davis, president and CEO of the American Association of Port Authorities, (AAPA), and FMC agrees.
However, many industry experts feel D&D fees have overstepped that objective, unfairly penalizing shippers and others. Bill Westman, executive director, Meat Import Council of America (MICA), says some MICA members were billed millions in D&D charges in recent years. “It’s important to keep detention and demurrage charges limited to their intended purpose of incentivizing the movement of goods,” he warns.
Gold says NRF has been raising concerns about the lack of clarity around D&D charges for years. “These challenges were further highlighted by the significant costs we saw during the pandemic due to congestion and the inability of shippers to pick up their cargo because of issues beyond their control.”
Addressing this question of fairness, the ruling requires carriers and MTOs to state the reason D&D charges were assessed on the invoice and certify that “the billing party’s performance did not cause or contribute to the underlying invoiced charges.”
“This new rule will provide clarity to the billing process which was sorely needed,” Gold responds.
Not everyone agrees the ruling was necessary, however. “AAPA … is concerned that the Final Rule does not align with Congress’ intentions in the Ocean Shipping Reform Act,” says Davis. “Shippers should have fairness and redress to make sure D&D charges are correct and justified, but Congress examined this carefully and specifically decided port and terminal practices were consistent and fair.”
Robert Murray, President of the National Association of Waterfront Employers (NAWE), explains further, “The final version of OSRA 2022 struck MTOs from the law’s substantive demurrage billing requirements. MTOs and members of Congress urged the FMC to follow this Congressional intent, however, the FMC chose to adopt a broader final rule that included MTOs. While this aspect of the final rule was concerning, it is positive that the final rule recognizes both the ability of MTOs to require payment of demurrage charges before releasing cargo and the fact that MTO schedules are implied contracts, ensuring continued supply chain fluidity by incentivizing the movement of cargo through terminal demurrage charges to all relevant parties.”
Contractual Complications
A high-profile aspect of the FMC ruling specifies that D&D charges only apply to parties that have a contractual relationship with the carrier or MTO.
Vincent Iacopella, EVP Strategic Growth at Alba Wheels Up International and AAEI Board of Governors member, calls this a big win, saying the ruling helps intermediaries and truckers significantly. “In the past, the carriers have tried to make the connection that intermediaries were commercial parties,” he explains. “Many times, ocean carriers would bill parties on the Bill of Lading, such as customs brokers, that were not part of the contractual agreement.”
The new ruling removes the unnecessary, pervasive ambiguity and confusion that exists when parties who are not privy to the D&D terms negotiated by the contracting parties are bound by those terms, according to Westman from MICA.
“This will greatly eliminate duplicate invoices being issued to multiple companies for the same charges,” adds Capt. Allan Couto, VP of Transportation for the NYNJFF&BA (New York New Jersey Freight Forwarders & Brokers Association) and President of AZTECK GLOBAL LLC.
However, Iacopella counters, “One issue I think may not be resolved with this ruling is the definition of the contracted party. Are people going to start debating who is a party to the agreement?”
For example, Couto, questions the legal implications for an ocean carriers’ terms and conditions, which makes merchants, who are broadly defined and not limited to the contract party, joint and severally liable for freight payment and performance obligations.
Murray of NAWE agrees the rule contains several ambiguities. Numerous questions remain for MTOs that collect demurrage on behalf of ocean carriers, which has the potential to add significant complications to well-established commercial practices and could negatively impact cargo fluidity, he points out.
In addition, Couto asks, “What happens when an NVOCC has finished its job and made a container available for pickup at the port but a trucker working for the receiver delays picking up or returning a container on time or even damages it? Under the new rules, the ocean carrier would bill the NVOCC, despite the longstanding Uniform Intermodal Interchange Agreement (UIIA) between the ocean carriers and the truckers governing billing and liabilities for their equipment. This will now mean an NVOCC will have to reevaluate its contract with truckers and end consignees.”
So even though this part of the ruling has wide support, unanswered questions remain.
Imposing Transparency
The FMC final ruling also requires a range of information to be included on D&D invoices, including the start and end dates of free time; dates D&D was incurred; daily D&D rates; and much more.
“For years, obtaining timely and accurate data on detention and demurrage charges from steamship line carriers has been a challenge,” says Castro of JF Moran.
“The inclusion of these and other key pieces of information helps to reduce confusion, improves processing, and mitigates frustration,” Ed Berkhouse, VP Data Management Services at Descartes asserts.
However, he adds, “Some may view the provision that eliminates any obligation for the billed party to pay applicable Detention and Demurrage charges when the VOCC or MTO fails to include the required information as excessive, preferring that they should be given an opportunity to correct invoices within a specified period.”
30 Day Deadline
Shippers also appreciate the FMC requirement that VOCCs and MTOs must send D&D invoices within 30 days. The ruling specifies that if a carrier or MTO misses the 30 day deadline, the shipper is not required to pay the charge.
“The 30 day timeline on invoicing is huge,” says Iacopella from AAEI. “During the pandemic and the congestion in 2020-2022 we were getting detention bills very late — we received bills one to two years later.”
Couta adds, “The requirement for clear and specific invoicing and defined 30-day time periods for issuing, disputing, and resolving charges should speed the process and make it more efficient. It should help reduce confusion and disputes between carriers and shippers.”
Going Far Enough?
While most experts that spoke with AJOT about the ruling applaud the FMC’s guidance on these matters, several questions about D&D still need to be clarified.
Westman says important issues like government holds and earliest return date — including changes to that date — still remain. Iacopella and Couto ask whether D&D at inland railyards and interior ports will be subject to the requirements.
“Did the ruling go far enough? I am sure people will say it did not, but I think the positives of the ruling outweigh the negatives,” Iacopella clarifies.
The ruling takes effect on May 28, 2024, except for the section regarding invoice information, which must be approved by the U.S. Office of Management and Budget. The impact of the final rule on the maritime supply chain will remain unclear until the rule becomes effective and maritime stakeholders begin operating in accordance with its requirements, Murray of NAWE observes.
Couto concludes, “Although the ruling provides guidance on billing practices, the root causes of demurrage and detention issues, such as port congestion, and chassis or inefficient cargo handling, still remain to be addressed by all parties in the supply chain.”
