On September 13, 2019, the Federal Maritime Commission (Commission or FMC) proposed an interpretive rule that provides important guidance on when marine terminal and ocean carrier demurrage and detention rules and practices for containerized cargo may be found to be unlawful. The rule is anticipated to benefit the U.S. economy by promoting fluidity in the U.S. freight delivery system and enhancing competition and innovation among ocean transportation providers. The Commission seeks comments on the proposed rule by October 17, 2019.
The proposed rule is the result of a nationwide fact-finding investigation initiated by the FMC in response to an industry petition filed by the Coalition for Fair Port Practices, a group of trade associations representing importers and exporters, draymen, freight forwarders and customs brokers. In the petition, the Coalition identified concerns about a lack of clear demurrage and detention policies, the assessment of charges when delays are beyond the shipper’s or drayman’s control, poor communication regarding container availability, and inadequate processes for disputing demurrage and detention charges.
Under the proposed rule, the Commission will assess the reasonableness of demurrage and detention rules and practices based on how well they promote the movement of freight. Historically, the purpose of demurrage and detention charges has been to incentivize cargo movement and the productive use of freight containers and port or terminal property. Under this approach, demurrage and detention charges that apply when a container is not available for pickup or cannot be returned due to lack of return appointments would likely be unreasonable absent extenuating circumstances.
The proposed rule also contains a non-exhaustive list of factors the Commission will consider when evaluating whether demurrage and detention practices adequately incentivize cargo movement in the context of specific facts involved in a case filed with the agency:
- Cargo availability. The rule indicates that demurrage is likely unreasonable if it applies when cargo is not actually available for pickup during free time, such as when cargo is held in a closed area of the terminal or when pickup appointments are unavailable within a reasonable time.
- Empty container return. The rule indicates that detention is likely unreasonable if it applies when empty containers cannot be returned, such as when a marine terminal refuses to accept them or when there is a failure to communicate a change in the container return location.
- Notice of cargo availability. The rule indicates that demurrage is likely to be unreasonable to the extent cargo interests are not provided adequate notice that the cargo is available for pickup. When evaluating notice adequacy, the Commission will consider to whom the notice is provided, the notice’s format and method of distribution, the notice’s timing and the notice’s effect. For example, reasonableness would be favored where free time does not start until notice of availability is provided, terminals provide push notifications related to cargo availability and yard closures, and pickup appointments are guaranteed to be available within a certain period after providing notice of container availability.
- Government inspections. The Commission proposed three alternative rules identifying when demurrage and detention rules and practices applicable to government inspections of cargo are likely unreasonable: where they do not provide for mitigation of demurrage or detention, where they do not provide a cap on the amount of demurrage or detention that may accrue, or where they provide for escalation of demurrage or detention during inspections. The Commission seeks comments on these approaches and suggestions of alternative approaches.
- Demurrage and detention policies. The rule indicates that demurrage and detention rules and practices are likely unreasonable if policies implementing them do not exist or are not accessible. It also indicates that dispute resolution policies should clearly convey dispute resolution procedures, including points of contact, time limits for filing claims and types of evidence that will be considered. Further, it clarifies that carriers and marine terminal operators should provide enough billing information and evidentiary guidance to enable cargo interests or draymen to contest potentially improper demurrage and detention charges.
- Transparent terminology. The rule suggests that demurrage and detention rules and practices that use unclear terminology are more likely to be found unreasonable. For example, the use of “storage” and “per diem” to identify demurrage and detention would likely be unreasonable because these terms add unnecessary complexity and may be inconsistent with international practice.
Based on our direct involvement in the proceedings that resulted in the FMC’s proposed interpretive rule, we are well positioned to assist companies and organizations with preparing comments on the rule.