Wrestling With Demurrage Fees From Government Cargo Inspections

When it comes to determining the fairness of assessing demurrage and detention fees, one of the most challenging aspects for both the U.S. Federal Maritime Commission and ocean shipping industry involves container retrieval delays resulting from government inspections.

"Imposition of demurrage and detention during government inspections of cargo, and the delays associated with such inspections, is a significant problem for cargo interests and truckers," the FMC said in its Sept. 17 Federal Register notice of proposed interpretive rule.

"Such inspections not only involve cargo interests and regulated entities but also government agencies, third parties and, in some cases, off-terminal facilities," the FMC added.

Demurrage pertains to the time an import container sits in a container terminal, with carriers responsible for collecting penalties on behalf of the marine terminals. Detention relates to shippers holding containers for too long outside the marine terminals.

The FMC's proposed rule provides guidance under the Shipping Act on what the commission considers to be fair and reasonable practices for ocean carriers and marine terminals to assess demurrage and detention fees on shippers.

The FMC's proposed interpretive rule incorporates the general guidance contained in Commissioner Rebecca Dye's Fact Finding 28 Final Report, which was published in December. Those recommendations include:

• Promoting standardized language for demurrage and detention.
• Simplifying the dispute resolution process and billing practices associated with the assessment of these fees.
• Providing guidance on what evidence is relevant to promptly resolving demurrage and detention disputes between shippers, ocean carriers and marine terminals.
• Ensuring consistent industry notice for container availability and equipment returns.  

"Customs holds was one of three areas where there were concerns expressed by industry," Dye told American Shipper. "We hope the comment period will yield constructive suggestions on how to improve detention and demurrage procedures across all three categories identified. 

"The ideas and assistance we have received from industry leaders to date have been significant and I have every confidence that the comment period associated with the proposed rule will continue to provide insights that are thoughtful and actionable," she said.

The FMC's proposed interpretive rule said demurrage and detention fees "are likely to be found unreasonable" if they are unfairly applied to importers and exporters while their cargo undergoes government inspection.

When a container is pulled for government inspection, myriad fees may be assessed against the shipper, including dray to and from the exam station, inspection charges, demurrage charges from the terminal and detention fees from the carrier for extended use of the container.

Rich Roche, vice president of international transportation at Syracuse, New York-based Mohawk Global Logistics, who also serves as the NVOCC subcommittee chair for the National Customs Brokers and Forwarders Association of America, said the problem of excessive demurrage and detention fees resulting from government inspections became increasingly apparent after Customs and Border Protection in the spring ordered additional officers to the U.S. southern border to assist with the immigration crisis.

During this shift in CBP personnel from the seaports to the southern border, Roche said the dwell times for cargo exams at Port Elizabeth, New Jersey, for example, increased to three or more weeks. "We had one client with two containers in exam during this time that accrued $5,000 each in detention charges, in addition to the dray and exam fees," he added. 

"Certainly no one can be incentivized to move the container once it is under government control, but neither is that caused by the carrier or terminal, both of whom are sacrificing their resources," Roche said. "When under government control, however, perhaps the best solution is to assess limited demurrage or detention based more on actual cost of the assets, but not the punitive amount. There has also been suggestion of a cap on these fees in the case of government hold." 

Peter Friedmann, executive director of the Agriculture Transportation Coalition, said the cost of demurrage and detention fees applied against an importer or exporter during a government cargo exam outweighs the inconvenience to the ocean carrier or marine terminal. Shippers face downstream financial losses, including missed cargo deliveries, rejected orders and damaged reputations, he added. 

"An ocean carrier which knows its shipper customers will understand the real impacts of government holds and not pile on per diem fees," Friedmann said. 

Public comments related to the FMC's notice of proposed interpretive rule are due to the agency by Oct. 31.

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