Demurrage and detention (D&D) charges imposed on importers and exporters have soared, globally, at unprecedented rates over the last year, negatively impacting companies of all sizes. The Federal Maritime Commission (FMC) has provided a new opportunity for companies to push back.
On February 15, 2022, the FMC issued an Advance Notice of Proposed Rulemaking (ANPRM) seeking public comments on a set of proposed billing rules affecting D&D charges. The public comment period — which extends until March 17, 2022 — also coincides with Congress’ broader effort to address issues in the international ocean freight delivery system that have arisen from (or been exacerbated by) the COVID-19 pandemic.
We encourage all companies impacted by D&D charges to submit letters to the FMC expressing their views and suggestions to improve the current situation. Faegre Drinker is happy to assist, for example, in drafting an individualized letter or facilitating participation in a form letter to be sent to the FMC.
As early as 2014, U.S. importers, exporters and transportation intermediaries have publicly advocated for enhanced restrictions on the ability of ocean carriers and marine terminal operators (MTOs) to impose D&D charges resulting from circumstances that are unforeseeable and/or beyond their control (e.g., port/terminal congestion and labor shortages).
These complaints led to the establishment of multiple FMC fact-finding investigations and resulted in the FMC’s issuance in May 2020 of an Interpretive Rule on Demurrage and Detention that provided guidance on what constitutes “unjust and unreasonable” D&D practices under the Shipping Act of 1984 (Public Law 98-237). More specifically, the guidance stated that D&D charges should be “accessible” and “clear” and should not be assessed “when circumstances are such that [importers, exporters, or intermediaries] cannot retrieve containers from, or return containers to, marine terminals.”
Since the issuance of the May 2020 guidelines, however, numerous countries (including the U.S.) have experienced a surge in demand for durable goods and other unique challenges that have contributed to shipping delays, port congestion and increases in D&D charges. On November 16, 2020, more than 40 trade groups sent a letter to the FMC requesting the suspension of certain D&D charges imposed by common carriers and marine terminals, arguing that their members paid more than $150 million in fees at the Ports of Los Angeles, Long Beach, New York,and New Jersey due to “massive congestion created by record setting volumes,” a shortage of labor and unavailable chassis necessary to relieve the congestion.
On September 15, 2021, following another internal fact-finding investigation, the FMC voted to move forward with several D&D-related initiatives, including a proposal (originally declined by the FMC in 2020) to seek industry input on rules prescribing new billing requirements.
Per the Notice, the FMC defines “demurrage and detention” to include “any charges assessed by common carriers and marine terminal operators related to the use of marine terminal space or shipping containers.” As noted by the FMC, this definition should include “any charges having the purpose or effect of [D&D] regardless of the labels given to those charges,” including, for example, “charges assessed by common carriers for the use of containers outside a marine terminal … regardless of whether the charges are called ‘detention’ or ‘per diem’”; and “charges assessed because a container is taking up terminal space … even if the charges are called something other than ‘demurrage.’”
Based on this definition of “demurrage and detention,” the FMC is soliciting public comments on three specific topics:
- Minimum Billing Requirements: The FMC is requesting comments on what information should be required on D&D bills aside from shipment identification information (e.g., bill of lading number, container number). According to the FMC, such information could include an explanation of how charges are calculated; identification of any events to justify “stopping the clock” on charges (e.g., container unavailability, lack of return locations, appointments, or other force-majeure reasons); explanation as to why the party receiving the bill is the proper party-in-interest; and identification of the source of the charge (i.e., by tariff, service contract or MTO schedule), among other information.
- Billing Practices: The FMC is also seeking comments related to the timing of D&D billings, including a proposed requirement that D&D bills be issued within 60 days of the occurrence of the charge. In its Notice, the FMC acknowledged that it has “received concerns from stakeholders regarding a lack of clearly defined timeframes for the issuance of bills,” while adding that “[t]he longer it takes to receive [D&D] bill the more difficult it may be for a shipper to validate the accuracy of the charges.”
- Scope: Finally, the FMC is requesting comments on whether common carriers and MTOs should be subject to the new rules on minimum billing requirements and practices, including whether any distinctions should be made for vessel-operating common carriers (VOCCs) and non-vessel-operating common carriers (NVOCCs). Moreover, in its Notice, the FMC acknowledged that common carriers and MTOs are subject to laws other than the Shipping Act, as well as private contractual arrangements such as the Uniform Intermodal Interchange Agreement (UIIA), which may implicate D&D billing. Accordingly, the FMC is also seeking comments on “any other laws, regulations, or arrangements that may affect the regulation of [D&D] billing.”
In total, the Notice lists 16 individual questions for public comment and requires all comments to be submitted on or before March 17, 2022.
The recent spikes in D&D charges are also drawing attention on Capitol Hill. As part of the America Creating Opportunities for Manufacturing, Pre-Eminence in Technology, and Economic Strength (COMPETES) Act of 2022 — which the House passed on February 4, 2021 — the House included as an amendment the Ocean Shipping Reform Act. In part, the proposed bill requires common carriers to certify, subject to penalty, that D&D charges comply with federal regulations and for the FMC to establish new rules addressing the issues identified in the May 2020 guidance. The bill specifically provides that such rules should, among other items:
- Establish clear and uniform definitions for D&D, cargo availability for retrieval and associated free time, and other terminology used in the rule.
- Prohibit the consumption of free time or collection of D&D charges when (a) obstacles to the cargo retrieval or return of equipment are within the scope of responsibility of the carrier or their agent and beyond the control of the invoiced or contracting party; (b) marine terminal appointments are not available during the free time period; or (c) the marine terminal required for return is not open or available.
- Require common carriers to provide timely notice of (a) cargo availability after vessel discharge; (b) container return locations; and (c) advance notice for container early return dates.
- Establish minimum billing requirements, including timeliness and supporting information that shall be included in or with invoices for D&D charges that will allow the invoiced party to validate the charges.
In the Senate, Amy Klobuchar (D-MN) and John Thune (R-SD) have introduced companion legislation that includes the House bill’s common carrier certification requirements, but is less explicit in detailing the required D&D rulemaking, as it simply provides that the FMC must establish rules addressing “the issues identified in the [May 2020 guidance], including a determination of which parties may be appropriately billed for any demurrage, detention, or other similar per container charges.”
Although the timeline for reconciliation of the COMPETES Act and the Senate-passed United States Innovation and Competition Act of 2021 (USICA) (formerly the Endless Frontier Act) remains uncertain, the bipartisan support for the Ocean Shipping Reform Act — which the House most recently approved by a vote of 367-59 — signals that more D&D rulemaking is looming.
For More Information
If you wish to submit public comments in response to the February 15, 2022, Notice or if you have any questions about these matters, please contact any member of the Faegre Drinker Customs and International Trade Team for further details.