Clamor over detention and demurrage fees is growing among shippers.
There is a growing clamor by shippers and intermediaries for the U.S. Federal Maritime Commission to take action to prevent ocean carriers and marine terminals operators from imposing what they see as unfair demurrage and detention charges during periods when ports are congested.
“Obviously there are American shippers who are very angry,” said Mario Cordero, FMC chairman, adding there are many shippers who feel that instead of being used to promote efficiency, demurrage has been “punitive and/or [used] as an enhancement of the resources of the marine terminal operators.”
On April 13, the FMC released a report, Rules, Rates, and Practices Relating to Detention, Demurrage and Free Time for Containerized Imports and Exports Moving through Select United States Ports.
The commission said the report is the first part of a larger study being prepared by its Bureau of Trade Analysis which grew out of four forums held last fall in various ports around the country to explore the issue of port congestion. Those forums were held even before the worst of the port congestion experienced by shippers at West Coast ports.
The FMC’s interest in congestion has been a major undertaking. Each of the five FMC commissioners either chaired or co-chaired one of the forums and heard from a wide cross-section of shippers and logistics services providers.
While welcomed by shippers and intermediaries, the report released in April seems to have done little to ameliorate their concerns about charges imposed during the congestion that West Coast ports experienced both last year and this year.
Congestion has been an issue at other ports, such as New York/New Jersey and Norfolk, but became national news late 2014 and early 2015 when the major West Coast container ports—Los Angeles, Long Beach, Oakland, Seattle and Tacoma—were snarled during the protracted and sometimes acrimonious negotiations between the International Longshore and Warehouse Union and its employers. It took a month and a half for a queue of 28 containerships on March 14 outside the ports of Los Angeles and Long Beach to be cleared so that ships could once again sail immediately to berth upon arrival.
Shippers said when terminals were congested they were unable to get into terminals to pick up import or deliver export containers, and now have collectively been hit with millions of dollars in detention and demurrage charges.
“These charges are being imposed for delay on returning containers to terminals when it is absolutely…not the importers’ and exporters’ fault,” said Peter Friedmann, a Washington-based attorney who serves as executive director of the Agriculture Transportation Coalition and represents several other groups, including the Pacific Coast Council of Customs Brokers and Freight Forwarders and Coalition of New England Companies for Trade.
Rebecca Dye, one of the FMC commissioners, noted during an April 13 meeting where the report was discussed that the challenges facing ports and “supply chain are not new. Neither are they limited to U.S. ports. Several of the best academic articles I’ve read concerning maritime logistics and port congestion are over 10 years old.”
But the FMC’s April report paints a picture of a worsening situation, stating terminal congestion “noted in 2014 at certain ports has recently become even more acute. Operationally, it appears that congestion begets further congestion, which in turn may result in higher costs for everyone in the supply chain.
“When MTOs (marine terminal operators) are forced to stack equipment higher and tighter to address terminal space issues, containers may be buried in hard-to-access stacks when a truck driver is attempting to pick up a specific container. Landside productivity consequently declines when a crane operator has to move multiple containers in order to remove the desired one. Further, truckers complain that certain areas at terminals have been restricted or placed off limits; this makes some containers unavailable for pick up. VOCCs (vessel operating common carriers) and MTOs have limited the days and shifts during which they will accept the returns of empty containers.
“Last-minute notice from VOCCs and MTOs to truckers, importers and exporters about vessel-loading delays, cancelled vessel calls, terminal opening hours, shifts and closed areas, have left cargo interests scrambling to pick up their cargo, load their exports and return their empties,” the FMC’s report said.
“Rail service providers, for example, report delays and have reduced the number of trains running from the West Coast to the mid-West by half,” the report added, citing testimony in February by Katie Farmer, vice president for consumer products at BNSF, before the Senate Commerce Committee’s Subcommittee on Surface Transportation and Merchant Marine Infrastructure, Safety and Security.
A group of 94 trade organizations, including the National Association of Manufacturers, National Retail Federation, Agriculture Transportation Coalition, and National Customs Brokers and Forwarders Association of America, expressed their concerns in a letter to the FMC chairman and the other four commissioners on April 27: “BCOs (beneficial cargo owners) and their motor carriers are frustrated by the fact that they are being charged detention and demurrage fees when factors beyond their control make it impossible for them to return chassis or empty containers, or pick up or drop off loaded containers within free-time limits.”
They added, “the practice of charging detention and demurrage under such circumstances represents an unfair and unreasonable practice that may potentially violate the Shipping Act.”
While thanking the FMC’s Office of Consumer Affairs and Dispute Resolution (CADRS) for work undertaken to help importers, exporters, and motor carriers recoup detention and demurrage charges that were assessed during the West Coast congestion, they urged the agency to “quickly consider all of the options identified in the report and to take action, beyond the conflict resolution activities that CADRS has currently undertaken.”
Speaking two days later, on April 29, at a forum sponsored by the Port of Long Beach on the upcoming peak shipping season, Cordero echoed those concerns, saying “there should be no reason why any American shipper should be the victim of the kind of charges that have been imposed for reasons out of their control, and I’m talking charges related to demurrage and detention as we have seen. And it didn’t just begin here on the West Coast in the last seven months.”
Many shippers worry they are becoming victims of the decision by carriers to deploy large ships into U.S. trades when it appears terminals in this country may not be able to efficiently handle them. And they also are questioning whether the new, larger alliances that the carriers are forming benefit shippers.
That concern has resonated with some members of the FMC—Commissioner Richard Lidinsky in a speech this spring said carriers should not “use larger vessels, self-imposed terminal chaos, equipment shortages, ‘blame the trucker’ games, etc. to justify unwarranted charges to anyone in the American supply chain.”
“We urge Congress to encourage Chairman Cordero and the commission to compel the ocean carriers to waive all per diem charges being imposed by ocean carriers, for delays which were most certainly not caused by the exporters,” said Friedmann, who has been outspoken on the issue. He wants Congress to press Cordero and the FMC to “waive all per diem charges being imposed during the period of West Coast port congestion, roughly Nov. 1, 2014 through April 15, 2015.”
The NCBFAA followed the joint industry letter with a letter to Cordero from NCBFAA President Geoffrey Powell asking for a fact-finding investigation that would “look into the continued propriety of the current system where demurrage and detention costs are unfairly passed along to cargo interests in an environment where the carriers and ports are unable to efficiently handle cargo.”
The liner industry responded to these calls with their own letter to the FMC chairman, sent by Chris Koch, president and chief executive officer of their primary trade organization, the World Shipping Council.
Koch said carriers share the frustration of shippers over port congestion, but contended there “are no simple, generic answers or appropriate scapegoats. There are no good guys and bad guys. There is no regulatory action that will address the combination of causes of port congestion or that can equitably resolve or simplify the various complex market force trying to deal with the unavoidable issue of cost recovery.”
Cordero said he’s sympathetic to calls by shippers who would like demurrage charges reduced or eliminated, and notes the FMC was able to get carriers last December to back away from plans to impose hefty container surcharges—in many cases they proposed charges of $1,000 per 40-foot container—because of the West Coast port congestion.
Asked whether the FMC might take similar action over demurrage and detention costs, Cordero said “as serious as an issue can be like the demurrage cost incurred by the American shipper community, at the end of the day we need more than just anecdotal evidence.”
A month after the FMC report’s release, Cordero told American Shipper “we’re having a discussion now in terms of what are those next steps. I do believe there should be next steps.
“There are some who expect an immediate result in terms of reimbursement for those charges,” he added. “Frankly, again, I understand and I’m very sympathetic to that, but as far as I know as of today I have not seen or heard of a lawsuit being filed by any of the stakeholders with regard to getting their reimbursement for the charges… Much of this is contractual in nature.”
In his letter to Cordero, Koch noted that some shipper groups “make a sweeping claim that the practice of adhering to established free-time limits and assessing detention and demurrage during times of serious port congestion is ‘unfair and unproductive,’ and that the commission should consider taking some unspecified generalized action using some unspecified authority under the Shipping Act against detention and demurrage charges.” But he said “the question of whether a charge for detention or demurrage may be in violation of the Shipping Act is by its very nature a fact-specific inquiry to be addressed on a case-by-case basis.”
Koch cautioned that “trying to assign responsibility for who caused what level of port congestion would be a difficult, complex, and unsatisfying undertaking.”
Free Time, Demurrage, Detention. When shippers receive import containers, they are given a certain amount of “free time,” during which they can leave a container at a terminal before incurring a demurrage charge, and a time limit on how long they can have for unloading the container and returning it.
Likewise with exports, shippers are given a time window during which they can pick up an empty container, load it, and present it back to the terminal.
If a container spends too much time at the terminal after an import arrives, the shipper may incur a demurrage charge. Similarly, if a container is brought to a terminal too early, the exporter may incur storage costs.
The logic behind the charge is to make best use of the limited space at most marine terminals, and not have valuable port real estate used as long-term container storage.
Demurrage was created to improve efficiency, Cordero noted, so “marine terminals would not be used as a warehouse.”
Detention plays a similar role by encouraging the rapid turnaround of containers and chassis. Shippers have a certain amount of free time during which they can load or unload a container—after that time they will incur detention charges.
The free-time clock starts running when the carrier issues a notice of arrival to the consignee. If demurrage is due on a container, terminals will not release it unless the demurrage is guaranteed, explained Richard Roche, vice president of international transportation at Mohawk Global Logistics in Syracuse, N.Y.
“And you always do guarantee it, because you don’t want the clock to keep ticking. If you sit and fight it, and days go by and the answer is still no, you end up with more demurrage,” he said.
Mark Hirzel, president of the Los Angeles Customs Brokers and Freight Forwarders Association, said when shippers contest charges some carriers have been “somewhat flexible when a container isn’t available and hasn’t been available throughout its lifetime on the pier.”
But he also heard of cases which a container could not be found for more than a week and shippers were told “pick it up tomorrow and there won’t be any demurrage.”
Sara Mayes, president of Gemini Shippers Association, said she has a member trying to negotiate with carriers to reduce hundreds of thousands of dollars in detention and demurrage charges.
“What’s sad about this is in many cases, these are members who are very efficient, very organized. Their truckers know when to pick up the cargo, know about returning empties, all of that. But when you can’t move, you can’t get into a terminal because the line is six hours long or the terminal can’t find a container because it is in the UTL, or unable to locate area, or you can’t return empties because they are not accepting empties, or you can’t get a chassis—you just don’t know what you will be hit with next,” she said.
Most cargo shipped in containers moves under service contracts, but Gary Kardian, the FMC’s director of service contracts and tariffs, told commissioners during their April 13 meeting that “I’d say in 99 percent of the contracts that we view, demurrage is not addressed. It’s simply per the carrier’s tariff or per the MTO schedule.”
More common, sources told American Shipper, is for shippers to receive extended free time in a service contract.
The FMC noted in its report that historically MTO schedules and VOCC tariffs “allowed for five working days of free time for both import and export containers, and, for most ports in the U.S., this remains the standard allowance—the notable exceptions being the ports of New York/New Jersey, Los Angeles and Long Beach, where four days is standard demurrage free time.”
The cost of these charges can differ significantly depending on the carrier or port, the FMC study found.
Rebecca Fenneman, the FMC’s director of the CADRS office, briefed the chairman and commissioners about the report during a closed-door meeting on April 13. (The FMC, in an unusual step, released a heavily redacted transcript of the meeting.)
She noted “the report has many notable limitations. First, it uses tariff data. I started with tariff data because it was my belief that even though most cargo is carried under service contract freight rates, demurrage and detention rates and free time are specifically not addressed in service contracts. Second, it examines only standard dry 20-foot containers. (Most cargo moves in 40-foot containers and charges can be higher for refrigerated boxes.)
“Third, it does not fully examine per-diem charges. Fourth, it examines only carrier haulage terms. It does not examine line demurrage under merchant haulage terms. And finally, with the exceptions of generalized complaints from cargo interests, it does not contain explanations or perspective of the industry,” she said.
Still, the study is eye-opening by showing how substantial demurrage and detention charges can add up, and it shines a light on this concern for many shippers.
FMC Commissioner William Doyle said he first heard about the problems with demurrage and detention at a forum Lidinsky and he co-chaired in Baltimore last year where they met shippers who were upset about the demurrage and detention charges that they had incurred because of severe winter weather causing congestion and delays in getting equipment during the 2013-2014 winter.
“Some of these amounts that they paid ate up their entire profit margin for the year,” he said.
For its study, the FMC examined the tariff publications of six shipping lines—Maersk, Mediterranean Shipping Co, CMA CGM, Evergreen, COSCO, and OOCL—and the public rules of the port authorities of Los Angeles, Long Beach, Oakland, New York/New Jersey, Tacoma, Seattle, Houston, and Virginia.
Demurrage and detention charges after the free-time period vary from port to port and line to line
The FMC said after six days in the Port of New York and New Jersey that import demurrage charges on 20-foot dry containers ranged from $207 (OOCL) to as much as $525 (Maersk), and in Los Angeles and Long Beach from $50 (MSC) to $450 (Maersk).
For exports, demurrage charges on 20-foot dry containers ranged from zero dollars (Maersk) to as much as $214 per day (Evergreen) in the Port of New York and New Jersey, and in Los Angeles and Long Beach from zero dollars (Evergreen, Maersk, and MSC) to $160 (CMA CGM).
“Demurrage on merchant haulage is invariably assessed ‘for the account of the cargo,’ although it may be paid by the importer’s trucker or customs broker,” the FMC’s report said, adding “in most ports, accrual of demurrage charges must be settled with the MTO prior to the release of the container(s). In ports where the MTO invoices the VOCC directly and not the trucker, the VOCC invoices demurrage separately.” Some MTOs allow truckers to set up either credit card payment or may extend credit to them to be paid weekly or monthly.
Detention charges by the five carriers at each of the seven ports after 12 days for a 20-foot dry container ranged as low $315 (OOCL) to a high of $1,080 (Maersk).
To put those amounts into perspective consider this: the spot-freight rate on May 15 for a 40-foot container from Shanghai to a U.S. West Coast port was $1,519, as estimated by panelists of the Shanghai Shipping Exchange; in January, the Transpacific Stabilization Agreement recommended a minimum contract rate level for cargo moving from North Asia to the U.S. West Coast of $2,000 per 40-foot container.
Cordero said the FMC’s mission is to “foster fair, efficient, reliable ocean transportation,” and noted in his Long Beach appearance “this cannot be done when you have these costs that are punitive in nature.”
Releasing the detention and demurrage report was the subject of debate among the commissioners and the decision to release it only happened after a three-to-two vote that pitted Cordero, Doyle and Lidinsky against Dye and Michael Khouri.
Doyle said he wanted the report to be public, because “maybe it does force a swifter discussion between the private industry stakeholders. Carriers and the marine terminal operators are going to need to talk to the truckers and the shippers and the chassis providers. It would be much better if they can figure this thing out. And hopefully when this report comes out, they take a serious look at this, because we are not forcing anything right now.”
Ports such as Los Angeles, Long Beach, and New York/New Jersey have all organized stakeholder groups aimed at improving cargo flow through their container terminals.
Dye noted the limitations of the report and “the fact that it doesn’t actually include a perspective from the carriers and what the charges are intended to represent.”
She also said while the report did not make recommendations, “by releasing it without further commission consideration, we’ll lead the public to believe that we have made a determination to support at least some of these actions discussed in the document.”
And by naming carriers and terminals surveyed she was concerned the FMC was giving the impression it had “determined that their business practices are somehow suspect under the Shipping Act,” a concern Khouri shared, asking Fenneman if there was “a suggestion just by putting the data out there that rates are too high or that they’re unfair?”
Fenneman replied that she did not think so, but she was “surprised that there would be such differences in daily rates.”
“Sounds like competition,” Khouri remarked.
Dye said she was “especially concerned that the discussion on this document concerning CADRS negotiations with carriers on demurrage relief could seriously undermine the trust and the credibility that is necessary.”
CADRS provides ombudsman assistance, mediation and arbitration to assist shippers, carriers, and other industry participants in resolving disagreements.
In its discussion about the demurrage report at the FMC’s April 13 meeting, Fenneman told Khouri that her office had “over 80 requests pending. We have closed more than 40 from the beginning of the fiscal year, but that does not include just simply phone calls or responses to questions or conversations with stakeholders.”
The FMC’s report laid out eight different actions the commission might take to address free-time, detention, and demurrage practices. These include ordering further investigation or reports from VOCCs or MTOs, convening an advisory committee, ordering CADRS to develop findings and recommendations, or issue a notice of proposed rulemaking to “address widespread practices that it has determined violate the Shipping Act.”
The report did state the FMC could initiate an adjudicatory proceeding in which a presiding officer would adjudicate the alleged Shipping Act violations related to free-time, demurrage, and detention practices of one or more VOCCs or MTOs.”
For example, it said the commission could examine an MTP terminal rule that says containers remain subject to demurrage charges even when they are prevented from removing cargo from a terminal by factors beyond the terminal’s control, such as longshoremen’s strikes, trucking strikes or weather.
Friedmann said he believes the FMC needs to “look at itself as the Consumer Product Safety Commission and the Federal Trade Commission… the FMC needs to see itself as protecting the consumers of ocean transportation services.”
Bruce Carlton, president of the National Industrial Transportation League, the nation’s largest shipper group, said his members believe “when the shipper/receiver is not at fault and cannot perform their obligation to pick up/drop off containers and other equipment due to terminal congestion or other inefficiencies, then these charges should be suspended.”
While both Carlton and Friedmann praised the CADRS office, Friedmann said it has “been requiring significant documentation” from shippers when they seek to challenge demurrage and detention charges.
“Frankly, we think it’s grossly unfair to make the shippers do the research as to when the terminals were delayed, closed, open, or congested. That’s something the terminals need to provide,” Friedmann said.
Hirzel also said he has heard some shippers are reluctant to use the CADRS process, because they are afraid of being seen as difficult and fear retaliation from the carriers.
Ed Greenberg, NCBFAA’s general and transportation counsel, said the FMC’s demurrage and detention report is “a nice first step,” but added the agency “may have more authority than they may be willing to exercise at this point and I think there are additional steps that need to be taken. I think what happened in L.A./Long Beach was a travesty and I think the fact that the carriers and the ports are able to assess and collect demurrage and take the position that cargo has to share in the pain is an inappropriate way of looking at this.”
Industry attorney Carlos Rodriquez said some practices by carriers and terminal operators should be declared unlawful, pointing to a section in the 1984 Shipping Act that reads: “A common carrier, marine terminal operator, or ocean transportation intermediary may not fail to establish, observe, and enforce just and reasonable regulations and practices relating to or connected with receiving, handling, storing, or delivering property.”
As examples of obvious practices that Rodriguez believes are illegal he pointed to “on-door delivery moves, the carriers, notwithstanding what the service contracts state to the contrary, inevitably have tariff regulations stating that any demurrage that results is for the account of the shipper (importer) even on a door move. This is clearly not a reasonable tariff rule—i.e., the carrier has undertaken the responsibility with its own truckers to deliver the goods to the shipper’s door but if they don’t do it timely, then the shipper pays demurrage or any resulting detention charges.”
And he further contended “activities at terminals such as chassis shortages (caused by carriers that have given up the means of delivery, the chassis), alliance practices, inadequate terminal operations (inability to find containers causing incredible delays), labor slowdowns, etc.—could all be the basis for a finding that charging detention due to inability to return equipment in a timely manner is an unjust and unreasonable practice.”
Koch said use of the CADRS office to address specific complaints about detention and demurrage is “appropriate and constructive.”
In a court case, however, shippers may need to jump a high bar.
Koch said the complaining party seeking relief from charges would be “responsible for presenting evidence to support its allegation of Shipping Act violations,” though he recognized “there may be situations that would justify such actions.”
This article was published in the June 2015 issue of American Shipper.
