In testimony to the U.S. maritime regulator, liner carriers and terminal operators said they do not use detention and demurrage fees as a revenue driver, and that grievances are anomalies, not the norm.
Liner carriers and marine terminal operators on Wednesday laid out their cases for why there’s no need for the Federal Maritime Commission (FMC) to issue guidance or rules related to the assessment of detention and demurrage.
The testimony came during the second day of an FMC hearing on a petition from a group of shippers, intermediaries and drayage providers who are seeking rulemaking to prevent carriers from assessing penalties in situations where the cargo interests and truckers have no control over cargo or terminal availability.
On Tuesday, the commission heard from more than a dozen beneficial cargo owners, drayage companies and intermediaries who are urging the agency to implement rules governing the unfair assessment of such penalties. Demurrage is assessed by terminal operators when laden containers (generally imports) aren’t picked up from terminals before contracted free time runs out. Detention, or per diem, is assessed when a shipper exceeds the number of free days it has to return a container to the terminal.
Carriers, in comments to the commission, insisted they have no interest in assessing fees to shippers due to the competitive nature of the liner industry.
“We’re in intense competition with each other, even within the alliances,” said Howard Finkel, executive vice president, COSCO Shipping Lines (North America). “The last thing you want to be as a carrier is be strict on demurrage in the face of things like serious weather events. It’s hard to get a shipper to sign a contract (if that’s your stance).”
Both Finkel and Richard Craig, president and chief executive officer of Mitsui O.S.K. Lines (America), said the issue of grievances over excessive demurrage or detention fees was overstated by witnesses on Tuesday. Both said that such cases happen, but that they are far from the norm, and don’t merit the FMC taking action to handle something that is currently and best handled commercially.
Terminal operators testifying Wednesday had the same message, refuting the idea that the commercial gap between BCOs and terminal operators is the root cause of the issue.
“We heard yesterday that BCOs don’t have a choice in terminals,” said Ed DeNike, president of SSA Containers. “But there are more terminal operators now that are trying to convince carriers to use their terminals. We’re trying to do a better job so the carriers want to do business with us.”
That means that a terminal doesn’t want to be seen dinging shippers for demurrage if it might drive a shipper away from the carrier that uses that terminal.
DeNike also disputed the idea that shippers and drayage providers don’t have a relationship with terminals. He said the relationship might not be contractual but that BCOs and their drayage providers interact with the terminals on a daily basis.
Meanwhile, John Butler, president and CEO of the World Shipping Council, which represents the liner carrier industry, called on the commission to weigh carefully any action that would standardize the application of detention or demurrage fees.
“There’s a huge difference between the flexibility available in a commercial contract and any official action by the commission,” he said. “Any time you reduce flexibility, you reduce competition. Telling us ‘were not telling you have to do it a certain way, we’re just telling you what you can’t do’ is in effect is the same.”
The FMC, which will accept public comments on the petition through Jan. 26, is now left to weigh a tricky question: is the unfair application of detention and demurrage fees the norm in the industry (a revenue stream that often exceeds the cost of the freight rate, as suggested by the petitioning coalition), or are these grievances infrequent and not significant enough of a problem to regulate.
As Acting FMC Chairman Michael Khouri put it at the end of the hearing: “Is a problem systemic or episodic? Are there places in between that we need to look at? Where do we step in with a judicious hand to make things better, recognizing that we’re not going to be able to solve all problems?”
Karyn Booth, a partner at the law firm Thompson Hine, who spoke on behalf of those asking for FMC intervention, said the breadth of the cargo interests that formed the coalition behind the petition speaks volumes.
“Listening to carriers and terminals, you’d be led to believe that there’s no problem,” Booth said. “That’s simply not the case. You have a petition filed by 26 organizations. It’s not one company or one association. There are 100 comments in this record. American companies don’t hire D.C. lawyers and take time to come to hearings unless there’s a real problem.”
Carriers, terminals tell FMC free time issues are not a systemic problem
