Demurrage and Detention Charges — What Are They?
Demurrage and detention charges are usually stated in terms of dollars for a container used the day after the expiration of any free days, levied by ocean carriers against the “Merchant.” Specifically, demurrage is charged for failure to collect cargo at a port after delivery. Detention is charged typically on a per diem basis for the failure to return empty containers.
Demurrage and Detention Have a Long and Complex History
Demurrage and detention have two separate purposes which are compensatory and incentivization (penalization). But they should be the exception, not the rule. They were designed to incentivize fluid and efficient movement at ports by having importers timely retrieve their cargo from ports and return emptied containers to the ocean carriers. The problem was greatly complicated by modern shipping volumes exceeding port capacities. And then came the pandemic. At the Port of Los Angeles in March 2022, 41% incurred demurrage, i.e., 25,258 out of the 61,944 shipments were five days past due after discharge. But again, detention and demurrage were not designed to create an ocean carrier profit center.
Regulatory Scheme That Is Applicable to Demurrage and Detention
Detention and demurrage are a regulated contractual undertaking. The Federal Maritime Commission (FMC) regulates these charges. The Shipping Act, 46 U.S.C. §41102, entitled “General Prohibitions” states:
c) A common carrier, marine terminal operator, or ocean transportation intermediary may not fail to establish, observe, and enforce just and reasonable regulations and practices relating to or connected with receiving, handling, storing, or delivering property.
46 CFR § 545.5, entitled “Interpretation of Shipping Act of 1984” - Unjust and unreasonable practices with respect to demurrage and detention provides:
d) The Commission may consider in the reasonableness analysis the existence, accessibility, content, and clarity of policies implementing demurrage and detention practices and regulations, including dispute resolution policies and practices and regulations regarding demurrage and detention billing. In assessing dispute resolution policies, the Commission may further consider the extent to which they contain information about points of contact, timeframes, and corroboration.
Who Is Responsible for Payment of Detention and Demurrage?
The ocean carrier contract which is typically the bill of lading, sea waybill, and the service contract generally provides that the “Merchant” is responsible for detention and demurrage. The typical definition of Merchant in ocean carrier contracts is as follows:
"‘Merchant’ includes the Shipper, Consignee, holder of this Bill of Lading, the receiver of the Goods, and any Person owning, entitled to, or claiming the possession of the Goods or of this Bill of Lading or anyone acting on behalf of this Person.” Truckers or drayage operators typically are not included in this definition.
Truckers, on occasion, get exposed to liability through contracts with importers; contracts with ocean carriers; or their wrongdoing causing delayed retrieval or return and being the “Receiver of Goods” if named on bill of lading.
Challenging detention and demurrage charges can be as much a business concern as it is a legal one for anyone in the process. At risk is:
- Getting business;
- Keeping business;
- Alienating important players; and
- Exposure to costs of defending rights.
What Causes Delays in Retrieval and Return of Containers?
Most recently, delays in the retrieval and return of containers were caused by port issues, including congestion and supply disruption. Congestion of ports has also created a situation in which there are no appointments available for pickup and return; dual transaction complications; unmanageable delays; unavailability of chassis; incorrect, late, or lost documentation; and U.S. Customs delays. Moreover, motor carriers have challenges with labor and customer inefficiencies.
Issues Predate Pandemic
The FMC stated in May 2020:
Importers, exporters, intermediaries, and truckers should not be penalized by demurrage and detention practices when circumstances are such that they cannot retrieve containers from, or return containers to, marine terminals because, under those circumstances, the charges cannot serve their incentive function.
FMC Chairman Daniel Maffei also acknowledged the issue, stating:
We may have been too optimistic about the ocean carriers’ ability to self-regulate, particularly as it relates to late fees associated with container demurrage and detention.
The COVID environment greatly exacerbated issues with detention and demurrage, in part, based upon port congestion.
The Ocean Shipping Reform Act 2022
The Klobuchar-Thune Ocean Shipping Reform Act (passed June 16, 2022) (OSRA 2022) directs the FMC to self-initiate investigations of ocean carriers’ business practices and apply enforcement measures. Further, OSRA 2022 shifts the burden of proof regarding demurrage and detention charges from complainant to the international ocean carriers to help level the playing field and improve the FMC’s enforcement capacity. OSRA improves transparency by requiring international ocean carriers to report to the FMC regarding how many empty containers are being transported. Further, OSRA (1) establishes the FMC Office of Consumer Affairs and Dispute Resolution Services; and (2) improves chassis management by authorizing Bureau of Transportation Statistics to collect data on dwell times for chassis; authorizing a study. Finally the FMC was delegated temporary emergency authority to collect data during times of emergency congestion, among other improvements.
Finally, FMC now has power to assess a refund in addition to civil liability. Also, now marine terminal operators cannot charge detention at times when ports are closed.