Motor carriers are once again responsible for demurrage and detention fees. This change ends a brief break that lasted just over a year.
A federal appeals court has partially overturned a Federal Maritime Commission rule regulating demurrage and detention charges. Issued last February, the rule aimed to help truckers who were billed despite having no control over the fees.
Maersk, the world’s second largest container shipping company with more than 700 ships deployed, defines demurrage and detention as:
- Demurrage: The time the filled containers spend inside the terminal. This is measured from when they are offloaded from the vessel or train until they are picked up at the port (gated out).
- Detention: The time the containers spend outside the terminal. Measured between picking them up at the port when they’re full and returning them to the port or a depot when they’re empty. For an importer, this is usually the time to unpack.
The new rule defined to whom ocean carriers can issue demurrage and detention invoices: whoever contracted with the billing party for “ocean transportation or storage of cargo” and the consignee. In other words, shippers and receivers.
Demurrage and detention fees could be billed only to those with a contractual relationship with the ocean carriers. That’s because only they understand and can dispute those charges. Trucking companies with no knowledge or involvement in those contracts complained about being held accountable.
However, some motor carriers could be held liable for demurrage and detention fees in the original final rule. In some cases, ocean carriers contract directly with trucking companies. This situation fits the rule’s focus on contracts.
Yet the final rule clearly stated that a billed party is anyone with a contract for “ocean transportation.” Since trucking companies provide land transportation, it was possible they could be exempt.
Clearing up that confusion, the Federal Maritime Commission issued a final rule correction last May. Simply put, motor carriers could not be billed for demurrage and detention fees.
The World Shipping Council, which represents the world’s largest ocean carriers, challenged the rule.
The association argued that the entire purpose of the rule was to exempt those with no contractual relationship from liability. Despite that, the rule exempted trucking companies with a contract while keeping receivers with no contractual relationship to the ocean carrier on the hook. Therefore, the rule was arbitrary and capricious.
The U.S. Court of Appeals for the D.C. Circuit agreed.
In the opinion, the court points to the Federal Maritime Commission’s own words in the original final rule:
“As discussed in the NPRM, a primary purpose of this rule is to stop demurrage and detention invoices from being sent to parties who did not negotiate contract terms with the billing party. That concern is not present where a motor carrier has directly contracted with (an ocean carrier). Nothing in this rule, either in the proposed or final version, prohibits (an ocean carrier) from issuing a demurrage or detention invoice to a motor carrier when a contractual relationship exists …”
In its correction, the Federal Maritime Commission explained that the rule applied only to contracts based on through bills of lading. Any contracts not based on through bills of lading would be exempt. The court ruled that the commission’s explanation still contradicted the purpose of the rule.
Through bill of lading or not, “the trucker has precisely the kind of firsthand information from negotiating the contract that the Commission views to be vital to allowing imposition of demurrage and detention fees.”
“In short, when faced with a seeming discrepancy in the reach of the rule given its underlying rationale, the Commission acknowledged – even embraced – the existence of the evident inconsistency but gave no reasonable justification for it,” the court ruled. “None of this is to say definitively that the Commission could never give a satisfactory explanation for categorically excluding motor carriers from the field of parties that may be assessed demurrage and detention fees, should the Commission opt to maintain that policy. Rather, it is to say that the Commission has yet to give such an explanation.”
Essentially, the court told the Federal Maritime Commission it cannot say billing depends on contracts, then ban billing for one class of contracting partners while allowing it for some non-contracting ones, without explaining why.
The court struck down only the section of the rule dealing with who can be billed for demurrage and detention fees. Other parts of the rule, including invoice timelines and dispute resolution, remain intact. LL
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