Demurrage, detention concerns resonate in FMC report draft

Demurrage, detention concerns resonate in FMC report draft

A truck and containers at a port.

The shippers' group asked the Federal Maritime Commission to adopt an interpretative rule to clarify what constitutes “just and reasonable rules and practices” of assessing detention and demurrage upon beneficial cargo owners. Photo credit: Shutterstock.com.

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 ari.ashe@ihsmarkit.com and follow him on Twitter: @ariashe_joc.

Comments

the MTO's clearly state their guidelines for free time, in times of congestion or poor weather, this should be guided by fairness as opposed to a calendar, the real culprits here are the lines themselves, some much more sinister then the others. very clear that this is a major profit center. the lines have "weaponized" documentation and the guise of AES being some great security tool when in reality it is for trade statistics. the docs have to be submitted days before the container cut at the terminal, this forces exporters to file "fake docs" so they don't get rolled and hit with more charges ( shifting, roll fees, demurrage , per diem these can all add up to $500-$1000 per occurrence. let this be very clear, shippers are have to submit "fake docs" as often times you are sending in the first docs before the container is physically loaded. once the container is loaded, you have to get a BL revision, charges vary from $50.00 to $200.00 and of course the revisions are often ignored or done improperly and then at the least you waste a bunch of time but often it causes extra charges on the other end. not sure how per diem rates have allowed to climb this high. a chassis is worth $5,000 - $10,000 ( used ) and a brand new container $4,000. average chassis rates are $25.00 per day, the average per diem charge is $175.00. most disturbing is that when a container is employed / laden on a vessel, it generates revenue for the line at $100.00 per day ( shanghai to NYC based on 30 days and $3000.00 ocean freight ) . when it becomes empty in NY and not returned after 3 days, this container is now worth $175.00 per day. how can this be allowed? as a global trader we base sales on cost of product and ocean freight. these astronomical charges and rates levied as part of the per diem trap can turn a sale into a direct loss on the entire deal. nobody wakes up in the morning to lose money and i wish the lines would have the discipline to properly price their headhaul import lanes. there is no volume destruction at $3500.00 ocean freight from asia to usec if EVERYBODY pays that as a minimum. the trading community and the lines will be much more succesfull and profitable if we all had a stable rate and practices where you have pretty good confidence that if you d ot he job right you are not faced with unforeseen added costs

The issue is primarily carrier caused because, as per everything else they do, they make exceptions and have done so for decades. So the differing versions of what is done isn't surprising, nothing the carriers do or have done is consistent, absent loosing money. But to call what they do a "profit center" is simply ignoring facts. First, they make a multitude of exceptions of varying types, termed "commercial decision"; then - when was the last time they made a profit? after 6 consecutive years of losses, they made a small profit in 2017 and quickly made decisions that reversed that. The right answer is clearly written and enforced rules, for 100% of the cargo and no exceptions. Issues such as weather delays etc can be accounted for. But asking carriers to write a rule and follow it 100% of the time is the biggest challenge, they are virtually incapable of it. Back to the profit center issue, look at the carriers all-in rates (not the spot market rates of the last two weeks), nominally they might be getting $1500. to the West Coast and $2500. to the East Coast. Of that, over $300. in cost is for the terminal activity - lift off the container, take it to the first place of rest, pick up the container and place it on a chassis, then out the gate. The carriers don't bill and collect that, it is part of their all-in rates, be it a $2000. Import or a $300. Export. So the demurrage and detention is charged to SOME customers, not to others - the world of de-regualtion and contracts that shippers begged for and got. Those who have to pay don't like it.

my point being is that they should have rate discipline and should be allowed to profit. paying $3500.00 for transportation upfront is much different then paying $2500.00 upfront and then $1000.00 on the back end. only thing worse then rates going up is when they cascade down. think it is time we form partnerships with the lines and agree to not sign contracts at non compensatory levels, this only works if a bottom is put in place. only way we can get to any type of promised land together is by understanding each others issues and allowing everybody to profit. most of our issues are solved when everybody makes money and can properly invest and staff to proper levels.

You are a majority of one; I've been at this for 46+ years, carriers are own worst enemies on rates, capacity mismanagement and other select issues. That's why less than a 3% rate of return in my years in the industry. 75% of all carriers I have know and dealt with no longer exist. We went though the "win-win" era 30 years ago. Partnerships another theme. Realities; carriers play favorites, shippers make phantom bookings averaging 25% no-shows in TP and 40-50% in other trades. That's how much cooperation there is. You have the right ideas, but you are one.