Forwarders: Unreasonable demurrage-detention on the rise

Forwarders: Unreasonable demurrage-detention on the rise

Port of Long Beach.

Free time periods have been reduced and tariffs for demurrage and detention have increased considerably. Marine terminals and ocean carriers counter that detention and demurrage encourages shippers to pick up and return containers in order to boost cargo fluidity that’s challenged by the stronger discharges of mega-ships. (Above: Containers stacked at the Port of Long Beach.) Photo credit: Shutterstock.com.

Forwarders are raising the alarm about what they see as an uptick in unreasonable detention and demurrage charges and “strong indications” that shipping lines are abusing the charges to maximize profits.

In a report, the International Federation of Freight Forwarders Associations (FIATA) said that during the last few years free time periods have been reduced and tariffs for demurrage and detention have increased considerably. Marine terminals and ocean carriers counter that they continue to use detention and demurrage as way to encourage shippers to pick up and return containers in order to boost cargo fluidity that’s challenged by the larger discharges of mega-ships.

“It is understood that shipping lines have been suffering in a very tough business environment and do everything they can to develop revenue streams that are not necessarily derived from freight, but FIATA does not believe that merchants should be subjected to predatory pricing of this nature, especially as delays often occur through no fault of the merchant,” FIATA said.

Those delays, which are out of the hands of shippers, were a result of larger container shipping call sizes choking terminals, increasing port congestion, schedules thrown out by bad weather, environmentally driven modal shifts, delays in sailing, increasing scrutiny of cross-border documentation, and tighter security measures.

“Labour issues, choice of terminal, and terminal congestion related to the impact of increasing size of vessels on ports and terminals that are already geographically constrained are examples of issues that are within the control of supply chain partners, but beyond the control of the merchant,” FIATA said.

“These issues lead to detention and demurrage charges for merchants who are unable to obtain release of laden containers or return empty containers through no fault of their own. There is no logic insisting on a charge that is supposed to motivate the merchant to pick up or return a container quickly if the terminal is not able to comply with this request.”

While the association agreed that demurrage and detention charges were an important tool for shipping lines to ensure the efficient use of their container stock that represented a large investment, carriers have been accused of abusing their position with “unjust and unreasonable” charges to the merchant. “The opinion prevails that shipping lines abuse such charges in order to increase income and profits,” FIATA said.

Demurrage and detention

Demurrage refers to a charge that the merchant pays for a container excessively idling at a terminal without being picked up by a trucker. Detention is the charge for not returning the container to the terminal or depot within the free time period. In the case of demurrage, the terminal incurs the extra costs of acting as a storage yard, while in detention, ocean carriers miss out on a business opportunity to turn their box for other shippers needing to move freight.

But the excessive charging is on the radar of regulators. The US Federal Maritime Commission (FMC) is busy with an investigation into detention and demurrage practices that it launched in early 2017 following a petition from the Coalition for Fair Port Practices, a group comprising 26 organizations representing thousands of US shippers, in December 2016.

FMC commissioner Rebecca Dye and Acting Chairman Michael Khouri expressed an inclination to broker a business solution to resolve the detention and demurrage issue, rather than formal rulemaking.

“Rulemaking is not our first choice, but at the end of the day if there are persistent practices that are found to be unjust and unreasonable, and stakeholders do not want to listen and proactively adjust business practices, then [rulemaking] will remain on the list,” Khouri said.

After the meeting, Dye told JOC.com no such behavior has been exhibited by shippers, ocean carriers, or terminals.

“We will decide [in December] how to best implement change ... but I am not feeling any lack of cooperation. We can’t drive meaningful change in the industry without leaders stepping up, and they are doing that right now,” Dye told JOC.

Less expensive to store container in Midtown Manhattan

However, the FIATA report said demurrage and detention charges have been known to accrue to 20 times and more than the value of the container itself. The forwarder association referred to one extreme example where an FMC witness noted that it would have been less expensive to park his container in Midtown Manhattan than at the Port of New York-New Jersey. (Midtown Manhattan in New York City is the world’s largest central business district and has some of the highest parking rates in the world.)

A National Retail Federation and Coalition for Fair Port Practices release in December 2016 gave three examples of excessive charging:

  • A retailer was charged $80,000 because it took up to nine days to retrieve containers when only four free days were allowed.
  • A trucking company was charged $1.2 million after long lines at New York and New Jersey ports kept it from returning containers on time.
  • A transportation company was charged $1.25 million after containers it tried to return were turned away at West Coast ports; the amount was eventually reduced to $250,000 but only a year after the company was forced to pay the fees upfront.

FIATA has released a best practices guide aimed at protecting shippers from charges that were levied despite shippers having no way to have their containers released by the terminals. In the paper, FIATA suggested that commercial partners negotiate terms to extend free time for a period that was equal to the duration of the inability of the terminals to release a container for import or receive a container for export, and the inability of the depots to receive an empty container.

The introduction of mega-ships has led directly to increasing delays and dwell times within terminals, FIATA said. Many terminals and landside operations were dealing with bigger vessels, bigger peaks, congestion, and unreliable vessel schedules.

Higher peaks led to a greater concentration of landside delivery and pickups, with the result that many ports also have to deal with road congestion. The association said while additional landside infrastructure investment might be required, the easing of peaks through extended free time periods must be considered as well.

“Instead of decreasing free time periods, FIATA suggests that commercial partners negotiate an increase in free time periods to allow merchants more flexibility in their planning.”

Contact Greg Knowler at greg.knowler@ihsmarkit.com and follow him on Twitter: @greg_knowler.