Excess Port Demurrage and Detention Rules — Is there finally a solution?
As you may or may not have heard (good thing we are circulating this article), there has been a lot of talk within the ranks of the Federal Maritime Commission (FMC) about how ocean common carriers can lawfully apply demurrage and detention charges to exporters, importers, ocean transport intermediaries and customs brokers in certain circumstances and still be compliant under the definition of “reasonableness” per the FMC’s regulations.
Demurrage & Detention
First and foremost, it is important to understand what these terms means and why such charges may accrue. Demurrage is the principle of levying a charge by the ocean common carrier when the container is held at the port of discharge beyond the free time period. Free time is afforded to allow the importer to have sufficient time to make customs clearance and to out-gate the container. Anytime one goes beyond the allotted free time, port demurrage is assessed.
Detention however has a different meaning. At its simplest form, it is the fee again, levied by the common carrier when their equipment (as in the container, etc.) is not returned within a set time. This is also know within the industry as “per-diem” charges. The longer you keep the container, the more detention you accrue.
If you have been unfortunate enough to have experienced such charges you will know they can mount quickly. It is not a question of whether the charges should be levied – in any business, there are penalties if one doesn’t comply with the terms of the contract (the contract in this instance being the Oceanic Bill of Lading). It is rather a case of whether the dollar amounts assessed fall within the “reasonableness” requirement of the FMC. This investigation by the FMC was designed to determine the fairness of the charges levied against Ocean Transport Intermediaries (OTI – like Trans-Border) who have been subjected to exorbitant charges by the ocean common carrier when booking cargo on behalf of the shipper.
Incentive Principle
The basis of the argument is known as the “incentive principle”. The term states that because detention and demurrage is used to incentivize the movement of cargo, the question becomes what is considered a reasonable levied charge and whether these charges are serving its purposes to promote freight fluidity. However, in what situations may the incentive principle be applied? Examples include:
- Cargo Availability. Is the cargo physically and administratively available for retrieval?
- Empty Container Return. Are there any third-party reasons why the empty containers cannot be physically returned? This is more so related to the common carrier who contracts the drayage
- Notice of Cargo Availability. Was proper notice given to the cargo interests that cargo was available for retrieval?
- Government Inspections. What role did government inspections play in the pickup of cargo which ended in demurrage?
What Next?
This article’s intention is to merely scratch the surface of this complex issue. It would take great levels of details to explain the finite details of carrier relationships, the flow of liabilities, risks and charges within a shipment as all of these factors contribute to determining how demurrage and detention are assessed. It is therefore safe to say that the relation between the port, the common carrier and the party who arranges the shipping services are all interconnected. Our aim was to create an awareness of an ongoing issue that we hope will provide some respite to the industry.
Trans-Border as always will continue to disseminate complex regulatory changes, news and laws so you, our valued client, can make informed decisions regarding your supply chains. Should you have any questions about this article, please contact Yateen Patel at ypatel@tgbfs.com or by calling (800) 493-9444.
About the Author:
Yateen “Yatz” Patel serves as Trans-Border’s Director of Export Compliance. Yateen has nearly 20 years of supply chain experience in both the U.S. and U.K. In his current role, Yateen is responsible for Trans-Border’s export law compliance, regulatory affairs, and insurance and risk management.
Contact Yateen at ypatel@tbgfs.com or (518) 785-6000.
Further reading by Yateen:
About the Author:
Yateen “Yatz” Patel serves as Trans-Border’s Director of Export Compliance. Yateen has nearly 20 years of supply chain experience in both the U.S. and U.K. In his current role, Yateen is responsible for Trans-Border’s export law compliance, regulatory affairs, and insurance and risk management.
Contact Yateen at ypatel@tbgfs.com or (518) 785-6000.
Further reading by Yateen:
