The World Shipping Council has warned of unintended consequences that would be detrimental to shippers if a rule was adopted that would limit situations in which detention and demurrage may be collected.
The World Shipping Council (WSC), the trade association that represents 22 container carriers operating about 90 percent of the industry’s capacity, told the Federal Maritime Commission (FMC) in a filing Tuesday that it opposes a request for the agency to establish a new policy that prevents terminal operators and ocean carriers from charging what some shippers and intermediaries claim are unfair detention and demurrage fees.
On Dec. 7, the 25-member Coalition for Fair Port Practices – which includes retailers, manufacturers, truckers, transportation intermediaries and others – petitioned the FMC to create rules to prevent shippers being charged fees when uncontrollable incidents, such as storms and strikes, keep cargo from being picked up at ports or equipment returned on time.
“There is no disagreement that protracted longshore labor negotiations on the West Coast in 2014 and 2015 resulted in port congestion that slowed cargo movement through the ports and caused increased costs for all parties involved in the transportation of maritime cargo containers, including costs associated with storage and use of containers and other equipment,” the WSC said.
“It is also true, however, that the unusual West Coast labor situation has been resolved, and that cargo is now moving relatively smoothly through the nation’s ports,” the WSC added.
However, dozens of letters, viewable here, in support of the petition have been filed by shippers and intermediaries or their associations.
For example, California Automotive Wholesalers’ Association President and CEO Rodney K. Pierini wrote, “All too frequently, shippers and truckers are being charged demurrage and detention for late pick-up or return of containers when it is not their fault.”
While the detention and demurrage issue exploded into the headlines because of the port disruptions during the 2014-2015 contract negotiations between employers and the International Longshore and Warehouse Union, American Coffee Corp. President Don Pisano noted in a letter to the FMC that it continues to be an issue for shippers.
Pisano said, “As an example, we received a notice from the Port Authority of New York and New Jersey on Feb. 8, 2017 concerning Winter Storm Niko, which read, ‘Due to the impending snow storm, all container terminals, empty and chassis depots will be CLOSED on Thursday, Feb. 9. Free time will be extended for containers not already in demurrage, per diems on containers and chassis will be handled in accordance with the Winter Weather Plan.’ We contend that in such instances, free time, demurrage and container detention should all be extended during the period of such terminal closure.”
However, the WSC contended, “There is no current basis for entertaining the requested relief.” The WSC told the FMC that proceeding with a rulemaking on the basis of the petition would lead to a regulation that is not supported factually or legally, and that would run a high risk of causing more disputes and port congestion.
The WSC said the petition from the Coalition for Fair Port Practices fails for three primary reasons:
• It exclusively relies on rules and associated cases that predate the Shipping Act of 1984 and fails to appreciate that the purpose and nature of detention charges in a containerized world are different than demurrage charges in a breakbulk world;
• It does not provide an adequate factual basis to conclude that there is a current, widespread market failure with respect to detention and demurrage charges that would justify the adoption of a prescriptive, nationwide rule of the sort proposed;
• And it does not acknowledge the possibility of unintended consequences that could accompany adoption of the requested relief.
The WSC said that under the law today, if a company claims it was prevented from removing cargo from a terminal and was charged demurrage, it “would have the burden of proof to establish that it had in fact been prevented from performing by the other party, that the other party was culpable in some way, and that the claiming party had fulfilled its obligation to try to make timely performance.”
In addition, the WSC said, “The petition, in contrast, would replace the well-established fact-specific inquiry and burdens of proof with a sweeping rule that would place financial responsibility on carriers and MTOs when a cargo interest is unable to pick up cargo or return equipment in the case of: any event or circumstance that is beyond the control of the shipper, receiver, or motor carrier, including but not limited to: port congestion; (2) port disruption; (3) weather-related events; (4) delays as a result of governmental action or requirements, unless such delays could have been prevented by the shipper or receiver.
“If the petition were granted, and MTOs and carriers were legally required to extend free time even when the MTO or carrier had in no way caused whatever issue had delayed the shipper’s performance, that could result in carriers and MTOs setting shorter free time periods in order to reduce their financial exposure,” the WSC said.
“Is this a result that shippers want?,” the WSC asked. “From a port congestion perspective, is it wise policy to provide shippers with a ‘get-out-of-jail-free card’ that reduces their incentive to promptly remove their cargo from the terminal and promptly return equipment and chassis? If the answer is that shippers already have an incentive to move cargo and equipment as quickly as possible, then why do some shippers negotiate for free time periods up to twenty days, as is reflected both in the petition and in the Commission’s 2015 reports on port congestion? One can reasonably argue that carriers in many circumstances are too generous with the free time they agree to provide too many shippers, but this is currently a commercial matter.”
The Port of Houston Authority (PHA) also questioned the need for demurrage rules, at least at some ports. The port said it believes the rules proposed by the Coalition for Fair Port Practices are unnecessary for the Port of Houston and other Gulf ports.
“The Shipping Act requires marine terminal operators to establish, observe, and enforce just and reasonable regulations and practices. The rule proposed by the Coalition is unfair and thus unjust and unreasonable under the Shipping Act,” the PHA said. “The overwhelming number of situations complained of by the Coalition arise on the East and West Coasts, and in particular, at the Port of New York/New Jersey and Port of Los Angeles, and not on the Gulf Coast.
“If rules are needed in other ports, we believe that the rules proposed by the Coalition clearly are not the appropriate rules – there is no justification whatsoever for making such rules applicable throughout the United States,” the PHA said.
In addition, the port authority argued, “The purpose of the Coalition’s proposed rule is to deprive terminal operators of compensation, almost always in circumstances over which they have no control, for the very asset from which they earn their compensation. Furthermore, in PHA’s experience, and in spite of the Coalition’s protests to the contrary, the carriers, shippers and/or truckers, in the vast majority of cases, are responsible for failures to observe free time allotments. In essence, the rule seeks to put the costs of various aspects of the shipping transaction wholly upon the one party who is not a party to the shipping contract.
“With respect to container cargo, demurrage is most often caused either by failures on the part of the carrier (e.g., overbooking the vessel or failure to pay the terminal operator), the shipper (e.g., failure to pay the ocean carrier) and/or the trucker (e.g. shortage of trucks or truck drivers, or the trucking company is behind schedule). None of these parties wants to admit fault, and consequently, may blame the port or marine terminal operator, or seek a dispensation from paying demurrage,” the PHA said.
The PHA also argues that a proposed rule would be “clearly anti-competitive: the one-rule for all deprives ports of the opportunity of competing for maritime transportation by offering their unique facilities with flexibility to provide different accommodations for different contingencies. In seeking to impose uniform terms and conditions in maritime commerce throughout every port in the United States under the guise of ‘fairness,’ the petition would have the effect of stifling competition among ports.”
