The Federal Maritime Commission (FMC) Wednesday released a draft report validating concerns of a US shipper coalition over detention and demurrage practices of ocean carriers and marine terminal operators.
The interim report marks another step in a two-year review of a petition by the Coalition for Fair Port Practices, a group comprising 26 organizations representing thousands of US shippers. The group asked the FMC to adopt an interpretative rule to clarify what constitutes “just and reasonable rules and practices” of assessing detention and demurrage upon beneficial cargo owners. The petition was filed in December 2016.
It’s not clear when a final decision will be made or whether the FMC will issue a rule, but shippers seem to have struck a chord with the federal agency.
Demurrage refers to the practice of not retrieving a container from a marine terminal within an allotted time, which ties up equipment and storage space. Detention refers to not returning a container to the marine terminal or ocean carrier within an assigned window, resulting in lost business opportunities. The FMC received more than 110 comments on the petition to intervene and held two days of hearings in January. Commissioner Rebecca Dye was charged in March with investigating the matter and this report is the first insight into her findings. A final report will be released in December.
There are various signs in the report that the coalition may have a chance to succeed in its effort. Dye found that “there are a number of different, often conflicting, and not always clear ways that demurrage and detention are used in the industry.”
Shippers are confused about whether they’re being charged for terminal space or the container, or both, Dye wrote, concluding, “the record demonstrates the need for unambiguous, standard terminology ... that accurately reflects the nature and source of the charges at issue.”
Shippers: detention, demurrage are revenue generators by another name
Shippers claimed at the hearings that detention and demurrage were simply revenue generators for ocean carriers. Dye noted a rise in income tied to demurrage and detention since 2013 that could not be explained by weather or isolated events. In 2017, for example, total demurrage and detention income rose 30 percent versus the prior year.
How the penalties get assessed to shippers is also inconsistent, according to the report. In some cases, ocean carriers collected from the cargo owner, took their portion, and then paid the terminal operator directly. In other cases, marine terminal operators collected the fine, pocketed their cut, then paid the carrier. And in other situations, the ocean carrier and terminal operator penalized the shipper separately. Dye concluded the final model is the clearest to understand.
When disputes do arise on penalties, shippers told the FMC in January that the process to resolve the situation was cumbersome and confusing. Dye found the claim to be accurate calling the process “varied” and “informal.”
“This informality and variety extended not only to the method of reviewing disputes, but also who parties wishing to challenge a charge should contact. Authority to resolve disputes is vested in different departments in different companies, and in some instances, dispute resolution authority depends on the dollar amount disputed. It was also not immediately clear whom cargo interests are supposed to contact in the event that they wish to challenge demurrage or detention,” the report found.
Dye outlined a need to have all of a carrier’s or marine terminal operator’s demurrage and detention policies in one, easily accessible website, and also “more accessible, user-friendly information about who a cargo interest or drayage provider should contact in the event of a dispute.”
Finally, the report found there should be “development of external guidance regarding the type of evidence relevant to resolving demurrage and detention disputes,” suggesting the coalition might have successfully convinced the FMC to intervene in the matter.
Contact Ari Ashe at email@example.com and follow him on Twitter: @ariashe_joc.