Detention and Demurrage: How the Federal Maritime Commission is Taking Action
Businesses of all sizes have faced an array of challenges ever since COVID-19 reared its ugly head almost two years ago. Between pandemic-related shutdowns, labor shortages, historic shipping rates, and a supply chain that seems to barely function at times—many companies have struggled to keep their doors open and their customers happy.
Within such an exceptional environment, when there seems to be little control over how fast goods flow throughout the supply chain, there are various sources of frustration for stakeholders—and demurrage and detention fees certainly make the list. Fortunately, the Federal Maritime Commission (FMC) has been stepping in to help.
Defining Demurrage and Detention
Marine Insight defines demurrage as “the recovery of costs incurred for delay of the container within the port, charged by the shipping company or the party that has leased the container.”
The outlet describes detention charges in this context: “Once a container that is discharged from the vessel is taken from the port to the customer’s premises and offloaded, the empty container…has to be returned to the port from where it has been picked up or to the empty container depot. If the consignee (customer) delays in returning the empty container as agreed, after a certain number of days, the carrier will start charging the consignee.”
In the following video, Lauren M. Beagen, Esq. of Squall Strategies provides a quick overview of demurrage, detention, and the dynamics involved.
Citing a Container xChange report that revealed a doubling of the average detention and demurrage charge in 2021 compared to the year before, SupplyChainDive summed up growing frustrations like this: “Detention and demurrage have been getting a lot of attention in the current ocean shipping market, as supply chain stakeholders say congestion has slowed container movement, which leads to trucking companies and cargo owners racking up fees with ocean carriers. …Ocean carriers say the charges are a necessary way to incentivize cargo and equipment movement. But other observers say the supply chain is simply too congested for fees to aid in the goal of increasing container velocity.”
Container xChange says its report, Demurrage & Detention Benchmark 2021, was created to increase transparency about demurrage and detention charges. To do so, the company used publicly-available sources to collect over 20,000 data points to determine demurrage and detention fees for the “10 biggest shipping lines…across the world’s top-20 ports.”
According to the results, “Across the world’s 20 biggest ports, the average demurrage and detention charge doubled, going up +104% after two weeks. That’s equivalent to $666 for each container across ports, shipping lines and demurrage & detention combined.”
Referencing the current “heating discussions” related to demurrage and detention, the report notes that “In this extraordinary period, demurrage and detention can make or break the profit for shippers.”
Citing the historic volumes clogging the ports, the report notes that “the reasoning behind the charges has become the core of the debate. And the question that stands to be answered is: Are the costly demurrage and detention fees reasonable? The answer you get depends on who you ask.”
The Federal Maritime Commission Steps In
One entity expressing concerns about trends in demurrage and detention fees is the Federal Maritime Commission (FMC). Last year, the FMC issued its final guidance for demurrage and detention as part of Fact Finding 29, which has been led by Commissioner Rebecca Dye since it was initiated in March 2020: “Under the new interpretive rule, the Commission will consider the extent to which detention and demurrage charges and policies serve their primary purpose of incentivizing the movement of cargo and promoting freight fluidity. The rule also provides guidance on how the Commission may apply that principle in the context of cargo availability (and notice thereof) and empty container return.”
However, some question whether the guidance is being adhered to—including Commissioner Dye. According to February 2021 reporting by SupplyChainDive, she expressed growing concern “about compliance with our rules on demurrage, and detention,” noting at the time that an “enforcement process” was going to be initiated. She stated similar concerns in her Executive Summary of Fact Finding 29 in June. Since then, the FMC has taken a number of steps to address those concerns.
On July 20th, the FMC established the Vessel-Operating Common Carrier (VOCC) Audit Program, to be led by Lucille Marvin, the Commission’s Managing Director. According to a press release, the new program was established to “assess carrier compliance with the Agency’s rule on detention and demurrage as well as to provide additional information beneficial to the regular monitoring of the marketplace for ocean cargo services.”
The release noted that the audit program would analyze “the top nine carriers by market share for compliance with the Commission rule interpreting 46 USC 41102(c) as it applies to detention and demurrage practices in the United States. The Commission will work with companies to address their application of the rule and clarify any questions or ambiguities. Information supplied by carriers may be used to establish industry best practices.”
On September 15, the FMC announced it had voted to move forward with “two demurrage-and-detention related initiatives” that Commissioner Dye had proposed as part of Fact Finding 29. According to the press release:
“The first initiative is to issue a policy statement on issues that affect the ability of shippers, truckers, and others to obtain reparations for conduct that violates the Shipping Act, including conduct related to demurrage and detention. The policy statement will provide guidance on the scope of the prohibition against carrier retaliation, when attorney fees may be imposed on a non-prevailing party, and who may file a complaint with the Commission alleging unreasonable conduct.”
“Additionally, the Commission in due course will issue an Advance Notice of Proposed Rulemaking (ANPRM) that will solicit public comments on two questions: first, whether the Commission should require ocean common carriers and marine terminal operators (MTOs) to include certain minimum information on or with demurrage and detention billings; and second, whether the Commission should require carriers and marine terminal operators to adhere to certain practices regarding the timing of demurrage and detention billings.”
In the following video, Squall Strategies’ Beagen provides a basic overview of the ANPRM process and “what you can expect as detention and demurrage are brought to the rulemaking drafting table.”
On October 15th, the VOCC audit team issued a call for carriers to adopt “three common best practices related to detention and demurrage that promote clarity and certainty about how and when fees will be assessed as well as how to challenge disputed charges.”
The three common best practices outlined urged ocean carriers to:
“Display detention and demurrage charges clearly and prominently on their webpage or customer portal;
Develop and document clear internal processes on all matters related to detention and demurrage where they have not already done so; and
Clearly delineate dispute resolution procedures, contacts, and required documentation on their website and invoices.”
The release notes that “In addition to the work of the VOCC Audit Team, the Commission is pursuing other actions to achieve compliance with its rule on detention and demurrage. In September, the Commission voted to begin work on an Advance Notice of Proposed Rulemaking on detention and demurrage billing practices that will be published in the coming months. The Commission is also moving forward implementing five of eight Interim Recommendations Commissioner Rebecca Dye made to address detention and demurrage from her work on Fact Finding 29. The remaining three Interim Recommendations require action by Congress to change existing law. The work of the VOCC Audit Team and Fact Finding 29 continues.”
On October 27th, the FMC held the inaugural meeting of the National Shipper Advisory Committee (NSAC) which “was created by Congress as part of legislation enacted into law earlier this year.” The committee will play an advisory role to the FMC “on policies relating to the competitiveness, reliability, integrity, and fairness of the international ocean freight delivery system.”
According to the NSAC webpage, the committee is made up of 12 exporters and 12 importers. The webpage provides further details about NSAC purpose, meeting materials, and a list of members. The virtual inaugural meeting is available for viewing here:
At its meeting on November 16th, the FMC announced that six Supply Chain Innovation Teams were being convened by Commissioner Dye “to identify and implement improvements to the process and timing of return and delivery of containers to marine terminals,” according to a press release.
The goals of the teams’ work were described as two-fold:
“…for truckers to be able to return an empty container to a terminal and pick-up a loaded container, commonly referred to as a ‘double move.’”
“…to bring certainty and predictability to the earliest return date process to address exporter complaints about the unreliability of the deadline for getting cargo to a terminal.”
Team members will include executives “from each ocean carrier operating in an alliance and from the marine terminal operators that serve them” and efforts will focus on improving conditions at the Ports of Los Angeles and Long Beach and New York and New Jersey.
“Achieving double moves for truckers would improve trucker productivity and remove a constant source of conflict over container return as well as resolve problems with appointment systems and chassis shortages. Earliest return date confusion is a terrible problem for U.S. exporters. This reform would also remove the constant problem to U.S. agricultural exporters of demurrage and detention charges that are not in compliance with our interpretative rule,” Commissioner Dye said in the release.
The open session of the meeting is available for viewing here: