Hapag Lloyd, the 5th largest container shipping line in the world operating over 1.7 million TEUs and 249 ships became the 2nd carrier to reach a settlement agreement to address alleged violations related to their demurrage and detention practices.
The settlement agreement includes a $2 million civil penalty which will be paid to the U.S. Department of the Treasury and will be deposited into the General Fund.
What is this demurrage and detention case about
Orange Avenue Express, Inc. (OAE) a licensed motor carrier company based in Exeter, California engaged to dray full and empty containers to and from various terminals located in the Ports of Los Angeles and Long Beach.
OAE filed a complaint with the Federal Maritime Commission (FMC) alleging that Hapag-Lloyd violated the Shipping Act regarding the return of empty reefer (refrigerated) containers.
The main complaint file by OAE read “OAE became potentially responsible for detention on any containers in the stack at its yard (caused by Hapag’s prior refusal to accept empties) that could not be returned if operationally it was impossible to return the containers. Thus Hapag would still charge daily detention at $400 per day, per container even if the empty, in reality, could not be returned through the actions of Hapag or its designated terminals.”
The matter was investigated by the FMC’s Bureau of Enforcement (BOE) following which there was a finding by the Commission’s Administrative Law Judge (ALJ) that Hapag-Lloyd violated the law by knowingly and willfully failing to establish, observe, and enforce just and reasonable regulations and practices relating to or connected with receiving, handling, storing or delivery property, by unreasonably refusing to waive detention charges, in violation of 46 USC 41102(c).
The outcome of the investigation against Hapag Lloyd
The ALJ ordered an $822,220 civil penalty (much lesser than the $16 million penalty recommended by the FMC’s Bureau of Enforcement (BoE)) and for Hapag-Lloyd to cease and desist their violative actions.
On the 8th of June, the FMC announced that they approved a settlement agreement reached between the BoE and Hapag-Lloyd AG (Hapag-Lloyd) where the ocean carrier will pay a $2 million civil penalty to address alleged violations related to their detention and demurrage practices.
Commenting on the settlement, Chairman of the Federal Maritime Commission, Daniel Maffei said “To restore full confidence in our ocean freight system, vigorous enforcement of FMC rules is necessary. Specifically, we must ensure powerful ocean carriers obey the Shipping Act when dealing with American importers and exporters.
The case that was concluded today is just part of an ongoing effort to investigate any conduct alleged to violate FMC rules – and in particular, the interpretive rule on detention and demurrage charges,”.
It is interesting to note that Hapag-Lloyd concluded its first quarter of 2022 with an EBITDA of USD 5.3 billion (EUR 4.7 billion) while the Group profit climbed to USD 4.7 billion (EUR 4.2 billion).
Role of the Federal Maritime Commission in demurrage and detention complaints
FMC has been vocal about demurrage and detention practices followed by shipping lines. The FMC initiated a Fact-Finding Investigation in March 2018 led by Commissioner Rebecca Dye (Fact-Finding 28) on the back of a petition (Petition P4-16) submitted to the Commission in December 2016 by a coalition of shipper groups.
The culmination this process was the issuance of new guidance about how the FMC will assess the reasonableness of detention and demurrage regulations and practices of ocean carriers and marine terminal operators (MTOs) under 46 U.S.C. 41102(c).
The final rule, “Docket No. 19-05, Interpretive Rule on Demurrage and Detention under the Shipping Act”, became effective from the 18th of May 2020.
Watch our exclusive discussion with FMC Commissioner Carl Bentzel about “Demurrage & Detention and Managing Port Operations”.
I notice that the shipping lines are making huge profits on a reduced service and yet sea freight costs continue to rise. This has all the hallmarks of a cartel and I wonder, is anyone investigating?