Demurrage and Detention Charges: Are They Equitable?

Q: Given recent port congestion, stoppages, and increasing vessel sizes, what impact does that have on the equitable assessment of demurrage and detention charges?

A: It is the responsibility of the carriers and the ports to make cargo available to the shipper before there should be any consideration of beginning the free time clock and assessing demurrage and detention charges. It appears, however, that the carriers and ports have seemingly tended to automatically assess demurrage and detention without regard to whether congestion, labor slowdowns, shortage of chassis, shortage of truckers, or carrier operating practices have made it difficult or impossible to move containers into or out of the port area. Yet these problems are largely attributable to the actions or inefficiencies of the carriers and the ports rather than cargo interests, so that there is little that is equitable concerning this issue at many ports.

Q: What action can Washington take to address these issues?

A: The Federal Maritime Commission (FMC) has significant authority to address these issues. And, the National Customs Brokers and Forwarders Association of America recently called for the agency to initiate a Fact Finding Investigation, and that would be a good start to dealing with the problem.

Under the Shipping Act, carriers and the ports are required to establish and observe reasonable practices. It is hard to see how publishing tariffs that purport to abdicate carrier responsibility for delay is anything but unreasonable. Even assuming demurrage and detention is appropriate under circumstances of this nature, the levels of demurrage being assessed are often unconscionably high and appear to serve primarily as an additional revenue source for the carriers. In short, while demurrage and detention charges are intended to encourage the efficient use of carrier assets, today this seems primarily to be used as an additional source of carrier and port revenues. Worse, their inefficiencies are actually rewarded. The FMC has the authority to look into this, and issue orders that stop or at least ameliorate these problems. Indeed, the agency can order carriers to pay reparations back to those shippers that paid charges that are ultimately found to be unreasonable.

Q: What can the shipper community do to address this continuing and growing challenge?

A: Just as the shipper community got together to push Congress and the White House to intervene in the West Coast labor issues, they should make their views known to the FMC so that this is not treated as a "business as usual" type of issue. Otherwise, the carriers and ports will have no incentive to deal with their inefficiencies and vessels will continue to get larger without any rational plan on how to ensure that the cargo can efficiently move on and off the ships without unduly taxing cargo interests.

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