FMC Commissioner Issues Final Report on Demurrage and Detention Practices at U.S. ports.

cargo ship
File Photo: Federico Rostagno / Shutterstock

By J. Michael Cavanaugh (Holland & Knight) – Commissioner Rebecca F. Dye has issued her Final Report for the Federal Maritime Commission’s (FMC) fact finding investigation into demurrage and detention practices at U.S. ports (i.e., FMC Fact Finding 28). In the Final Report issued on Dec. 7, 2018, Commissioner Dye concluded that demurrage and detention practices at U.S. ports would benefit from greater transparency and consistency in notice, billing practices, dispute resolution and terminology. The Final Report proposes to address these issues through the creation of “FMC Innovation Teams” comprised of industry leaders that would suggest commercially viable refinements to demurrage and detention management. In an effort to avoid additional future issues, Commissioner Dye also recommended that the FMC create a Shipper Advisory Board to provide the FMC insight and information into emerging maritime issues. The FMC will now consider whether to adopt the Final Report’s recommendations.

Background

The FMC’s investigation into port demurrage and detention practices originated with the filing of a formal petition on Dec. 7, 2016, by the Coalition for Fair Port Practices. The petition requested that the FMC adopt an interpretative rule pertaining to demurrage and detention practices. The Coalition filed its petition in response to port disruption in 2015 resulting from labor disputes and other port congestion events on the U.S. West Coast. The FMC received more than 110 comments to the petition and held public hearings on Jan. 18 and Jan. 19, 2018. On March 5, 2018, the FMC voted to commence a fact finding regarding demurrage and detention practices, selecting Commissioner Dye to lead the study.

The FMC issued questions and requests for documents to 23 ocean carriers and 44 marine terminal operators (MTOs) concerning demurrage and detention practices. Commissioner Dye issued an interim report on Sept 5, 2018 (Interim Report), detailing preliminary findings. The Interim Report focused on billing practices, cargo retrieval notification and terminology.

During the second phase of the investigation, her team conducted field interviews with maritime stakeholders, including shipping companies, port officials, MTOs, ocean transport intermediaries (OTIs), drayage truckers, and importers and exporters at ports in Southern California, New York and New Jersey, and Florida. According to the Final Report, these interviews revealed important details that informed many of the recommendations contained in the Final Report.

Summary of Fact Finding 28 Final Report

The Final Report highlighted the primary issues Commissioner Dye and her team discovered during their investigation into demurrage and detention practices. It initially noted the complex web of contractual and non-contractual relationships contributing to the issues at the heart of the investigation. However, it also noted that these circumstances are unlikely to change due to longstanding commercial practices in the maritime industry. Therefore, the Final Report focused on important areas of change that the investigators believe would not cause major disruption to maritime commerce, including:

  • notice of cargo availability
  • billing practices
  • dispute resolution processes and procedures
  • terminology

The Final Report encourages MTOs to establish notification policies that tailor the demurrage and detention practices to the particular circumstances of each cargo interest or trucker, and provides crucial points for carriers and MTOs to consider, including a) whether carriers and MTOs gave reasonable opportunity to make an appointment to pick up cargo following notice of availability; b) whether carriers and MTOs extended free time when shipments are subjected to government inspections and holds; and c) whether carriers and MTOs took into account terminal closures after notice of availability is given.

The Final Report also discusses billing practices for demurrage and detention, noting that there are many unique billing circumstances due to the complex nature of maritime commercial relationships. However, the Final Report notes that the most meaningful practice, in terms of billing, would be for the institution of public billing portals on the MTOs’ websites that contain explanations of charges.

Dispute resolution processes and procedures are another issue Commissioner Dye highlighted. The Final Report recommends that all dispute resolution processes and procedures be clearly established, made available on public websites, and include contact information and the identity of the individual that can assist with resolution of any demurrage or detention dispute.

Further, the Final Report discusses the standardization of demurrage and detention terminology. The Report notes the existence of challenges with this issue, starting with the differing definitions of “demurrage” and “detention,” which cause much confusion among cargo interests and truckers. The Report recommends that, where possible, a definition of each term should be created and applied across the industry.

The Final Report concludes by recommending that the FMC create “Innovation Teams” to discuss and suggest ways to standardize solutions for the issues identified in the Final Report. The Final Report also recommends the creation of a Shipper Advisory Board to anticipate and avoid future investigations resulting from disruptions in the maritime industry. The anticipation is that the Shipper Advisory Board will be closer to industry trends and provide effective warning to the FMC of any future issues.

Considerations and Takeaways

The Final Report identifies key areas where the maritime industry’s demurrage and detention practices would benefit from additional clarity, including notice of cargo availability, billing practices, dispute resolution processes and procedures, and terminology. Importantly, the Final Report does not attempt to initiate rulemaking on these subjects. The FMC will now accept or reject the recommendations of the Fact Finding 28 Final Report.

Most likely, the FMC will eventually issue a manual or other publication suggesting the best practices for handling each demurrage and detention issue. Such guidance could be used as persuasive evidence in any demurrage or detention dispute. However, it is not clear what the final impact may be. In the history of the FMC, there is no instance of a shipper initiating a formal complaint case regarding demurrage or detention practices of a carrier or MTO.

Read more on the Holland & Knight website

This article was originally published by Holland & Knight and is republished with permission.