Demurrage and Detention has been a bone of contention between shipping lines and customers for several years..
Shipping lines have been charging demurrage and detention costs on containers that the customers do not pick up or turn in on time, a situation that prevents shipping lines from utilising their equipment effectively..
Customers (importers mainly) on the other hand have been complaining about shipping lines using unfair practices when charging demurrage and detention even if the fault is not on their side..
Maybe there is truth on both sides and in terms of this issue, the Federal Maritime Commission (FMC) is not leaving anything to chance..
The FMC has called for public comment on its “Interpretive Rule on Demurrage and Detention under the Shipping Act” and in assessing just and reasonable regulations and practices relating to these charges..
This has come on the back of the Commission’s Fact Finding Investigation No. 28, into the conditions and practices relating to detention, demurrage, and free time..
In the investigation’s Final Report, the Fact-Finding Officer found that :
- Demurrage and detention are valuable charges when applied in ways that incentivize cargo interests to move cargo promptly from ports and marine terminals;
- All international supply chain actors could benefit from transparent, consistent, and reasonable demurrage and detention practices, which would improve throughput velocity at U.S. ports, allow for more efficient use of business assets, and result in administrative savings; and
- Focusing port and marine terminal operations on notice of actual cargo availability would achieve the goals of demurrage and detention practices and improve the performance of the international commercial supply chain..
The Fact-Finding Officer found that the primary purpose of demurrage and detention was financial incentives to encourage the productive use of containers and port storage facilities while also promoting optimal cargo movement from the port terminals..
As part of this, the FMC will be providing guidance as to what it will consider in assessing whether a demurrage or detention practice is unjust or unreasonable.. This guidance proposed by the Commission will be in the form of an interpretive rule on how the FMC will interpret 46 U.S.C. 41102(c) and 46 CFR 545.4(d) in the context of demurrage and detention..
The proposed interpretive rule will apply to practices and regulations relating to “per diem” (for each day) demurrage and detention for containerized cargo only (excluding chassis) and will not include other charges like freight charges or surcharges..
The FMC will apply the “interpretive principle” of whether the charging of demurrage and detention is reasonable under the given circumstances on the basis that the intended purpose of demurrage and detention charges is to incentivize cargo movement and the productive use of assets (containers and port or terminal land)..
As per the FMC, this is a point which ocean carriers and marine terminal operators have repeatedly emphasized to the FMC..
For example, in cases when customers are unable to take delivery of containers from the port or terminal due to circumstances such as weather, port or terminal closures, the container is in a closed area, or government inspections of the cargo, demurrage/detention would not serve as an effective incentive and there is cause to question the reasonableness of their application..
But the FMC is stating that while the proposed rule states the incentive principle in general terms, its application will vary depending on the facts of a given case..
The interpretive principle is expected to cover the reasonableness of below applications relating to demurrage and detention
- Cargo Availability – To what extent does demurrage practice (including free time and charges) relate to availability of cargo for pick up by the customer..??
- Empty Container Return – Whether extenuating circumstances such as lack of space at empty depot etc are being considered when charging detention..??
- Notice of Cargo Availability – To what extent does demurrage practice (including free time and charges) relate to how the shipping lines are communicating to the customers about the readiness of the container to be picked up – including arrival notifications, who it is sent to, how, when and the format of the notification..
- Government Inspections – To what extent does demurrage/detention practice (including free time and charges) apply to when cargo is awaiting or undergoing government inspection, waiver or extension of free time, cap on the amount of demurrage or detention that may be imposed while cargo is undergoing government inspection
- Demurrage and Detention policies – including informing customers of who is being charged, for what, by whom, and how disputes if any, can be addressed in a timely fashion
- Transparent Terminology – whether the entities charging demurrage and detention have defined the terms used in demurrage and detention practices and regulations, the accessibility of definitions, whether it has been communicated to all entities in the chain like customers and hauliers and the extent to which these definitions differ from how the terms are used in other trades, context and elsewhere
Interested parties have been asked to submit comments before October 17, 2019 as a Microsoft Word or text-searchable PDF document by
- email to firstname.lastname@example.org with the subject heading “Docket 19-05, Demurrage & Detention Comments” or
- by normal mail to Rachel E. Dickon, Secretary, Federal Maritime Commission, 800 North Capitol Street NW, Washington, DC 20573–0001..
Although this issue is being raised in USA, if a decision is reached on this ruling, it would set a precedent to many countries and trade around the world..
The issue is not restricted to detention and demurrage. There is no visibility on several charges like peak season surcharge etc. Also some lines have a policy of recovering container damage charges which is another bone of contention and is being used to improve bottom line by some. Time has come to bring in a change.