Statement of Commissioner Bentzel to Accompany Vote on Notation No. 20-20, Interpretive Rule on Detention and Demurrage
I would like to commend Commissioner Dye, the Office of the General Counsel, and the Commission staff that labored arduously to help produce this interpretive rule. It was truly a massive effort, and all should be congratulated for their efforts in the production of this rule. I believe that the rule will go a long way in helping curb abuses in the application of detention and demurrage fees. While I believe the guidance clarifies existing practice and is consistent with FMC precedent in the application of detention and demurrage, it will help define the mutual carrier/terminal-shipper obligations that exist with its application.
However, there are areas that I believe needed further emphasis than that provided in the rule. Detention and demurrage when properly applied are primarily intended to incentivize the movement of cargo and promote trade fluidity, the “incentive principal.” I believe that our guidance properly identifies unreasonable practices where cargo containers cannot be returned because of the operational constraints of carriers or marine terminal operators, and also properly interprets what constitutes reasonable notice of the availability of cargo for retrieval.
In my view, the application of the “incentive principle” also needs to consider the obligation of the shipper, after the provision of a reasonable amount of free time and adequate notice of availability, to retrieve cargo from the terminal. Demurrage charges, when properly applied, incentivize the movement and fluidity of cargo and help avoid congestion and cargo back up. The principles supporting the proper application of the assessment of demurrage are today more evident than ever before. The Commission has of recent, received numerous shipper communications asking the Commission to waive demurrage, ostensibly so that they could store non-essential goods at terminals free of charge. While I have empathy for the plight of the retail industry given the impacts of COVID-19, imagine the impact that this could cause to cargo flows of essential cargo and medical supplies. I believe that this guidance, in view of its stated application of the “incentive principal,” should have outlined the obligation of shippers to retrieve cargo in parallel to the obligations of carriers and marine terminal operators.
I am also concerned about the guidance in the section on government inspections and cannot see value in its inclusion. Government inspections are a subcategory of the application of detention and demurrage principles to force majeure events. Force majeure events are events that are beyond the control of either carriers/terminals or shippers, and as such, are not particularly appropriate to be considered under the “incentive principal” – as neither party can incentivize the fluidity of cargo movement. Commission precedent under § 41102(c) and its predecessors did not require carrier free time practices to account for delays involving government inspections, and in the case of other delays, prohibited carriers from charging penalty demurrage while allowing carriers to recoup compensatory costs. Compensatory costs include general business overhead costs, and the costs of complying with government inspections. I am unsure what effect, if any, our guidance will provide to detention and demurrage disputes during force majeure events, such as government inspections.
Finally, I would like to provide clarity that tariffs and marine terminal schedules are in fact within the scope of “practices and regulations” covered by the guidance. The Shipping Act requires carriers and MTOs to abide by their published tariffs and schedules, which courts can enforce as implied contracts against shippers, so the industry should review their tariffs and schedules and consider updating them as necessary to reflect the principles described in the interpretive rule.
Despite a few reservations, I firmly supported the passage of this regulatory guidance. The benefit of clarification in this area will allow the industry in the future to structure contracts to better achieve transportation efficiency and avoid utilization of detention and demurrage for purely revenue generation purposes. Once again, kudos to Commissioner Dye, and all the FMC staff that contributed their time and effort into this landmark regulation.
Carl W. Bentzel is a Commissioner with the U.S. Federal Maritime Commission. The thoughts and comments expressed here are his own and do not necessarily represent the position of the Commission.