More than a dozen shippers and intermediaries explained during a Federal Maritime Commission hearing Tuesday how carriers engage in punitive assessment of penalties for exceeding contracted detention and demurrage levels.
The Federal Maritime Commission (FMC) on Tuesday heard from more than a dozen importers, exporters and intermediaries about the need to develop guidelines to prevent what they called inappropriate application of detention and demurrage penalties.
The testimony came during the first of two days of hearings related to a petition filed by a coalition of parties that have argued that carriers use such penalties as a revenue stream rather than to incentivize the swift movement and return of containers.
Filed in 2017 by the Coalition for Fair Port Practices, the petition seeks guidelines that would normalize what constitutes fair practices for carriers assessing penalties to shippers and intermediaries in case those interests exceed free time stipulated in their ocean freight contracts.
The commission heard from shippers on both ends of the size spectrum, including Walmart and the American Coffee Corp., which brings in roughly 2,000 TEUs worth of imports per year. All those providing testimony were clear that they didn’t want to end the practice of assessing demurrage and detention – they merely wanted carriers to not use the mechanism to penalize shippers when circumstances out of a shipper’s, intermediary’s, or drayage provider’s control prevented the timely pickup of cargo.
The issue has been a long-term thorn in the side of cargo interests, and reached a head in 2014 when congestion related to prickly negotiations between longshore labor and marine terminals wreaked havoc with the flow of containers on the U.S. West Coast.
Carriers penalized shippers and their logistics providers for exceeding the days of demurrage and detention specified in their contracts when those containers often unavailable for pickup, or drayage appointments were not open.
The complaints laid out by cargo interests Tuesday centered around three areas:
• The lack of uniformity, transparency and consistency related to free time penalties.
• The lack of a viable path for shippers and intermediaries, particularly smaller ones, to fight what they consider unfair penalties;
• And the disconnect between the commercial relationship between cargo interests and the marine terminals.
The last area centered around the reality that terminal operators tend to deal solely with carriers, while carriers are the ones to assess detention and demurrage penalties, a system that prevents cargo interests from developing direct relationships with terminals. The situation is exacerbated, some said, in ports where a single authority controls an entire port complex versus larger, landlord-operated ports where there is at least some competition between terminals.
But even that competition has dissipated in recent years, as consolidation in the carrier industry means fewer carriers have grouped into bigger alliances. That means it’s harder for a shipper to dictate which terminal its containers move through.
“Quite honestly, we would love to have a business discussion and leverage our volume,” said Laura Crowe, senior director of global logistics at Walmart. “But our contracts are with the carriers, and the carriers have to negotiate with the terminals. We’ve had situations where carriers have asked us to help them negotiate with the terminals.”
Crowe said the problem is particularly acute for the retailer in Savannah, where the company has invested heavily in fixed distribution center assets, and where there isn’t competition among terminals.
“Once I’m locked in to a market, (the terminals) have no reason to negotiate,” she said.
The inability for shippers to effectively dispute what they consider unfair or incorrect charges was also a point several witnesses emphasized. The nature of the size of the penalties – per container or bill of lading – made it hard for cargo interests to justify pursuing time-consuming and costly disputes. In other words, the internal costs or costs to hire lawyers was too big a risk to take in most circumstances. Added together, the costs could be substantial for some shippers, but often still below the threshold of seeking a resolution.
The witnesses urged the FMC to set up policy guidelines that would, in effect, make it clearer when carriers and terminals have overstepped their bounds in assessing penalties. The guidelines, the panelists argued, would also reorient the concept of detention and demurrage back toward its original intent – to incent shippers to quickly evacuate laden boxes from a terminal and to quickly return empty equipment.
“This is something that’s at the discretion of carriers and terminals that has been abused,” said Peter Friedmann, executive director of the Agriculture Transportation Coalition, an association of U.S. exporters. “If they hadn’t abused it, we wouldn’t be there. Carriers and terminals can solve this. They know what’s reasonable and what’s not. They have to police themselves, or the sheriff has to come in.”
Multiple speakers said they were asking the FMC to establish strict rules as to the rates carriers could charge and the number of days of free time granted either by port tariffs or within commercial contracts. They instead wanted to the FMC to set boundaries for what constitutes unfair business practices.
“The FMC is uniquely positioned to set guidelines and a common understanding of what is fair and what is not fair,” said Alex Cherin, representing the California Trucking Association Intermodal Conference. “While a commercial solution may seem appropriate, I can tell you we have tried and tried again. Meetings after meetings, some facilitated by ports themselves, this commission. The core practices of charging fees when inappropriate remains. I remain convinced FMC is only entity positioned to referee this issue.”
Some of the discussion Tuesday centered around risk and the assessment of demurrage and detention fees. Cargo interests argued that they bear risk in other parts of the supply chain and shouldn’t be ask to bear the burden of events – whether man-made or natural – out of their control.
“We’re not asking an unfair burden on (carriers and terminals) because we have risk as well,” said Richard Roche, vice president of international transportation at Mohawk Global Logistics and NVOCC subcommittee chairman at the National Customs Brokers and Forwarders Association of America. “We’re asking them to take care of their side and we take care of ours.”
Roche said his supplier customers take the burden of strict chargebacks from retailers, while truckers take the risk of dry runs and long wait times in port.
“We don’t charge (the carriers and terminals) because they didn’t perform,” he said. “We don’t need to be penalized for their lack of performance.”
The hearing continues Wednesday, with drayage providers, ocean carriers and terminal operators set to provide comments.
Cargo interests press FMC to establish free time guidelines
