The September 5 release of a long-awaited report by the Federal Maritime Commission (FMC) on fees charged by ocean carriers verifies what many shippers and cargo owners have complain about for years: container use and storage fees are on the rise with little transparency as to why.
The interim report released by the FMC is the product of a six-month investigation into the fees being charged for storing ocean containers at ports. The investigation was launched after a petition was filed in December 2016 by the National Retail Federation (NRF) and the Coalition for Fair Port Practices, a coalition representing more than 110 manufacturers, freight forwarders, drayage providers, and other interested business groups. The petition seeks better regulation of detention and demurrage fees charged by Maersk, Hapag-Lloyd, Cosco, and other shipping companies as well as terminal operators, such as Maher Terminals and Maersk’s APM. Click here to review the 210-page petition, including verified statements submitted by the coalition.
The group asked the FMC to adopt a definitive ruling which would clarify what constitutes “just and reasonable rules and practices” for assessing detention and demurrage penalties. Demurrage is a penalty charged for not retrieving a container at the port within the allotted time. Detentions are imposed when a container is not returned to the port or carrier within the assigned timeframe.
The controversy over the fees came to a head between 2014 and 2016 when bottlenecks at the ports began, increasing the number of instances of the fees being charged. The petition alleges that ocean carriers and port terminals have “assessed… millions of dollars of demurrage and detention charges related to recent port congestion or other events restricting the accessibility of the ports” including:
- A retailer was charged $80,000 because it took up to nine days to retrieve containers when only four free days were allowed.
- A trucking company was charged $1.2 million after long lines at New York and New Jersey ports kept it from returning containers on time.
- A transportation company was charged $1.25 million after containers it tried to return were turned away at West Coast ports; the amount was eventually reduced to $250,000 but only a year after the company was forced to pay the fees upfront.
The FMC found that income from demurrage and detention fees for 22 ocean carriers increased 90% in 2014, 86% in 2015, decreased in 2016 after the West Coast port strikes ended, and rose another 30% in 2017. The largest U.S. ports, such as Los Angeles and New York, collected the majority of the fees due to their high container volumes, but smaller ports were also affected.
“The results indicate that cargo interests’ concerns about demurrage and detention cannot be explained solely by unique events in 2014-2015 or the conditions at a small subset of ports” the report said. “The limited decline in 2016 and the substantial increase in 2017 suggests that weather and labor issues, important as they may have been, might not fully account for the ongoing demurrage and detention concerns expressed by shippers in the petition. Nor is the collective 30% increase in demurrage and detention in 2017 fully accounted for by increased container volumes.”
The report found inconsistencies in how penalties are assessed. The report states 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. The lead investigator, Commissioner Rebecca Dye, concluded that “the record demonstrates the need for unambiguous, standard terminology … that accurately reflects the nature and source of the charges at issue.”
The report also depicts what it called a “varied, and . . . informal” process for resolving fee disputes. While slightly more than half of the ocean carriers and one terminal have written policies for reviewing disputes, “few provided guidance for how a disputed charge should be evaluated and what evidence should be considered.” The report states that “the record demonstrates a need for more transparency into demurrage and detention dispute resolution procedures: more accessible, user-friendly information about who a cargo interest or drayage provider should contact in the event of a dispute about a particular charge, how a dispute is resolved, and how long the process can be expected to take.” While the FMC report does not outline specific remedies for disputing fees, it does plan to investigate the issue further.
“Throughout this process [the investigation], my priority has been how ocean carrier and marine terminal demurrage and detention approaches can optimize, not diminish, the performance of the overall American international freight delivery system,” said Commissioner Dye. “Bringing clarity, access, and efficiency to the delivery of cargo from carrier to shipper is the key to improving the process for how and when marine terminal demurrage and ocean carrier detention charges are levied” Commissioner Dye advised the Commission that she has identified six areas to be developed to improve the process:
- Transparent, standardized language for demurrage, detention, and free time practices;
- Clarity, simplification, and accessibility regarding demurrage and detention billing practices and dispute resolution processes;
- Explicit guidance regarding types of evidence relevant to resolving demurrage and detention disputes;
- Consistent notice to shippers of container availability;
- An optional billing model wherein
- MTOs bill shippers directly for demurrage; and
- VOCCs bill shippers for detention; and
- An FMC Shipper Advisory or Innovation Team.
If you are a shipper who has experienced issues related to demurrage and detention fees, correspondence, documentation, and other details can be sent to the Commission via email or by mail to the addresses below.
Commissioner Rebecca Dye
Federal Maritime Commission
800 North Capitol Street, Northwest
Washington, District of Columbia 20573
A final report will be issued to the Commission for consideration, discussion, and vote no later than December 2, 2018.
The investigation is formally called Fact Finding 28 – Conditions and Practices Relating to Detention, Demurrage, and Free Time in International Oceanborne Commerce. For updates and the latest developments, visit the Federal Maritime Commissions website by clicking this link: FF No. 28 Updates.
About the National Retail Federation
The National Retail Federation (https://NRF.com) is the world’s largest retail trade association, representing discount and department stores, home goods and specialty stores, Main Street merchants, grocers, wholesalers, chain restaurants. and Internet retailers from the United States and more than 45 countries. Retail is the nation’s largest private sector employer, supporting one in four U.S. jobs – 42 million working Americans. Contributing $2.6 trillion to annual GDP, retail is a daily barometer for the nation’s economy.