FMC investigates contentious detention, demurrage fees

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September 20, 2018 - The Federal Maritime Commission (FMC) began "Phase II" of an investigation into detention and demurrage practices within the supply chain, which will conclude with a final report on Dec. 2, 2018.

The "Fact Finding 28" investigation, spurred by a petition from industry stakeholders, seeks to understand whether current fees charged to shippers for storing containers and using equipment beyond carriers' or terminals' allotted "free time" constitute just and reasonable charges.

In an interim report, FMC Commissioner Rebecca Dye, who leads the investigation, outlined six ways the systems could be improved. The strategies will be investigated in this next phase through conversations and interviews with stakeholders.

Detention and demurrage fees — or charges made as a result of a shipper exceeding the allotted "free time" to move a container out of a port terminal — may seem like small fish to fry, but the frequency of such fees have been rising over the past five years to become a problem, according to the interim fact-finding report.

One of the problems, the report notes, is that shippers, carriers and marine terminal operators often work at cross-purposes when it comes to transporting containers.

Terminals and carriers charge fees for excessive storage or equipment use in order to maintain "terminal velocity" and "discourage use of that property as cargo storage." Holding too many containers in a terminal, or using equipment too long, could cause inefficiencies elsewhere in the system.

As a result, there is an economic incentive for terminals and carriers to minimize the "free time" allotted for the activities.

Shippers complain, however, that the allowance does not always account for delays or come with sufficient notice for the cargo to move out efficiently. Free time, for example, could begin when a container is discharged from a vessel, but not yet ready for pickup by a carrier (due to timing or equipment).

A second problem, then, is the lack of consistency in defining the two fees — and who bills for them. The fees constitute a structural problem for the supply chain, the report finds.

The report outlines various ways of defining both "detention" and "demurrage," as well as the various models carriers and marine terminals use to collect those fees.

The report suggests:

  • Standardizing language;
  • Clarifying billing and dispute resolution processes;
  • Providing guidelines for the evidence required to dispute a charge;
  • Improving notice for container availability;
  • Potentially changing a billing model and creating an FMC Advisory Board or innovation team to continually discuss the issues may be six solutions to the problem first identified by the petition. 

Phase II of the investigation seeks input as to the efficiency and feasibility of those solutions, to be considered in a final report scheduled to be published in December. 

"While Fact Finding 28 is an investigation, it also represents a unique opportunity for industry leaders to have their voices heard and their experiences recognized on an important policy and operational issue," Commissioner Dye said upon the release of the interim report.

"To all parties with the interest, understanding, and commitment to help move the process forward, my door is always open," Dye said in a statement published Sept. 19. 

Supply Chain Dive