On April 28, 2020, the Federal Maritime Commission (FMC or Commission) issued its interpretive rules on the reasonableness of carrier and marine terminal operator (MTO) policies and practices when assessing demurrage and detention.
The final rules adopt, as the primary principle, the point that when assessing the reasonableness of demurrage and detention practices, the Commission will look to whether they are meeting their intended purpose as financial incentives to facilitate the prompt and efficient movement of freight (the “Incentive Principle”). Although the Commission recognized that these charges might be justified to reimburse regulated entities for the costs associated with the use of equipment and terminal space, tariff items of this nature should not be regarded as a blank check to run up charges without regard to the actual cost to the carriers and MTOs.
In essence, the rules list a number of factors the FMC would consider when determining the reasonableness of these types of charges in complaint cases. The Commission also indicated that factors listed were not meant to be exclusive and that it would consider additional factors if presented in any given case. Essentially, the rules list seven factors the FMC might consider when determining the reasonableness of demurrage and detention in any complaint case. These are:
1. Cargo Availability
The overriding principle is based on whether a carrier or MTO practice provides a shipper a reasonable opportunity to retrieve its cargo or return containers before assessing demurrage and detention. As for how the actual availability of cargo may vary from terminal to terminal, the Commission determined that it could not issue a general rule as to when free time would start. The Commission nonetheless made it clear that “availability” at a minimum means that the container would need to be physically available. And, depending on the facts of the case, the Commission might consider whether there is an appointment system, appointment availability, a trucker’s access to the terminal and chassis availability (when appropriate) in its analysis for determining whether the cargo is available. And, practices that apply demurrage when a container is not actually available will likely be found unreasonable.
2. Empty Container Return
Under the rules, absent extenuating circumstances, instances where empty containers cannot be returned for no fault of the NVOCC or shipper and detention is nonetheless assessed will likely be found to be unreasonable. Similarly, in addition to simple refusals to accept empty containers, the following types of situations might also justify challenging detention bills: a requirement that the trucker engage in dual moves; uncommunicated or untimely communicated changes in container return requirements; or uncommunicated or untimely communicated notice of terminal closures for empty containers.
3. Notice of Cargo Availability
An essential prerequisite to any assessment of demurrage is that the carrier and/or MTO provide some notice that the cargo is physically available. When assessing the reasonableness of that notice, the rules state that the Commission may consider to whom notice is provided, the format of the notice, method of its distribution and the timing. In other words, the Commission is prepared to look into whether the type of notice was reasonably calculated to apprise shippers and their agents that a container is available for retrieval. If not, the free time clock should not have commenced until the NVOCC or shipper had reason to know the cargo was available.
4. Government Inspections
In the NPRM, the Commission had proposed three options with respect to assessing demurrage and detention when cargo was being held for government inspections. Rather than establish a single principle, the Commission revised its approach and will look to whether assessing demurrage and detention under the specific circumstances in any given case was warranted. As government inspections are complicated and the type of inspection can vary, the Commission will instead inquire whether the assessment of demurrage and detention serves the Incentive Principle; if not, assessing demurrage and detention in these circumstances would be considered suspect.
5. Demurrage and Detention Policies
In reviewing whether the carrier and MTO practices on assessing these charges are reasonable, the FMC would also consider the existence, accessibility, content and clarity of their demurrage and detention policies and whether they reflect the entities’ actual practices. So, if their policies on assessing these charges or resolving disputes are not clear or accessible, if you can’t get anyone to take the issue seriously or even return your calls, that might be a factor in determining whether the assessment of disputed charges was reasonable. The Commission accordingly indicated that it would look favorably on a carrier or MTO making its demurrage and detention policies easily accessible on a website, in addition to their inclusion in ocean carrier tariffs and MTO schedules. This would be expected to include points of contact, timeframes for resolving disputes and any evidentiary requirements that are allegedly needed. The rule also provides any policies that contained burdensome evidentiary requirements or failed to provide appropriate evidentiary guidelines may themselves be found to be unreasonable.
6. Transparent Terminology
Another provision of the new rules indicates that the Commission may consider the extent to which carriers and MTOs have appropriately defined the terms used in their demurrage and detention tariffs and practices, the accessibility of those definitions, and the extent to which the definitions differ from how the terms are generally used.
Finally, the Commission added the “Non-Preclusion” provision. This makes it clear that the FMC is not bound to follow any prescribed formula in determining whether a challenged practice is reasonable, but may instead consider additional factors, arguments and evidence as appropriate.
FMC’s new rules, they were issued in the decision in FMC Docket No. 19-05, Interpretative Rule on Demurrage and Detention under the Shipping Act. A copy of the decision is available on the FMC’s website at www.fmc.gov.
The final rules will not mean the end of unreasonable demurrage and detention billing practices, as they only provide guidance on how the Commission is likely to rule if a complaint is actually filed with the agency. In other words, it is now up to NVOCCs and cargo interests to not accept the unreasonable application of these types of charges just because invoices and claims are made. Nonetheless, there is hope that this will encourage the carriers and MTOs to review their practices and commence acting more responsibly.
FMC Provides Temporary Relief from Certain Service Contract Filing Requirements
On April 27th, 2020, Federal Maritime Commission (FMC) published an order that would, as a measure to relieve COVID-19 impacts to the supply chain, temporarily allow parties to file service contracts up to 30 days after they take effect.
“The Commission believes that a temporary blanket exemption extending the current filing flexibilities for service contract amendments to original service contracts will allow parties time to adapt to the increased pressures that have been placed upon them by COVID-19 and minimize disruptions to the contracting process,” writes the Commission in the Order.
In the Commission’s news release, the FMC stated the benefits of service contract filing relief were identified by the Fact-Finding 29 Supply Chain Innovation Teams working under the direction of Commissioner Rebecca Dye.