Remarks by FMC Commissioner Rebecca Dye American Trucking Association Conference Scottsdale, AZ
Thank you. It’s a pleasure to be here today.
I appreciate the invitation to speak and the great venue!
The Federal Maritime Commission has a solid and productive relationship with the American Trucking Association – and, in particular, the Intermodal Motor Carrier Conference.
Drayage trucking companies played an important role in our Federal Maritime Commission Supply Chain Innovation Teams project in 2016 and 2017.
And your participation in the Commission’s Fact Finding Investigation into demurrage and detention practices has been equally valuable.
Reliable drayage is critical to the smooth operation of our ocean freight delivery system, to the economic health of our nation’s seaports, and to America’s international trade and overall economic well-being.
America depends on the work you do day in and day out.
This morning I’ll discuss the status of the Commission’s investigation into ocean carrier and terminal demurrage and detention charges, established in response to a petition by a coalition of 26 trade associations.
I’ll also explain how I believe new approaches to these charges can resolve many of the customer headaches resulting from current demurrage and detention practices.
Finally, I’ll bring you up-to-date on the work of the Memphis FMC Supply Chain Innovation Team concerning congestion in the Memphis railyards and how chassis provisioning is at the heart of the problem.
Fact Finding 28
Recently, I was at a meeting at the Port of Baltimore with a group of port, terminal, trucking, and logistics company officials to talk about port operations and detention and demurrage charges.
When the discussion started, one of the group leaned over the conference table and said to me, “Commissioner, you need to understand, it’s an ecosystem.”
I was delighted to hear him say that, because I emphasized in the FMC Supply Chain Innovation Teams project that our international ocean transportation supply chain is actually a COMPLEX SYSTEM, like an ecosystem, with continual interactions that are GLOBAL in nature.
The systemic nature of our international supply chain led our FMC Supply Chain Innovation Teams to agree that end-to-end supply chain visibility would be the most effective way to improve supply chain reliability and resilience.
The Port of Los Angeles GE information system was conceptualized in our Innovation Teams project.
In the case of supply chain performance, “What you DON’T know, WILL DEFINITELY hurt you.”
Much of what we learned in the Supply Chain Innovation Teams project is relevant to the FMC Demurrage and Detention investigation.
For example, we learned in our Innovation Teams initiative that THE most important thing that American shippers and truckers want to know is when their container is ready—actually accessible—for pickup from a seaport.
Getting notice of availability or “accessibility” to shippers in a timely and accurate way is one of the crucial keys to improving throughput velocity and freight fluidity in our international freight delivery system.
Phase One of the Investigation
To build the investigatory record, we began by demanding information and data from a selection of 23 liner companies and 44 U.S. ports and terminals.
We systematically developed the information we needed to understand what had been happening with respect to demurrage and detention over the last five years.
That allowed us to move beyond just anecdotes and opinions.
It allowed us to create a solid record based on facts and figures.
Along with interviews from shippers, intermediaries, and truckers, it allowed us to identify and quantify the challenges involved.
What we learned was summarized in the Demurrage and Detention Interim Report published last September. It remains available on the FMC’s website.
The Interim Report described several potential benefits to the U.S. international freight delivery system. Those included:
- Transparent, standardized language for demurrage and detention practices;
- Clarity, simplification and accessibility regarding billing practices and dispute resolution processes;
- Guidance on types of evidence relevant to resolving disputes;
- Consistent notice to shippers of actual container availability; and
- A Federal Maritime Commission Shipper Advisory Board.
Phase Two of the Investigation
So, from early September through mid-November 2018, I conducted a series of field interviews to “test-market” the five potential benefits at ports in Southern California, New York and New Jersey and Miami, Florida.
Participants included liner shipping companies, port officials, terminal operators, transportation intermediaries, American exporters and importers – both large and small – and, of course, drayage trucking companies.
Based on the information we obtained in the field interviews, additional discussions with interested parties who were unable to participate in the port interviews, and the information already in the Record, I issued a second report in early December 2018.
That, too, is available on the Commission’s website.
Detention and Demurrage Findings
The three main findings of the December report are:
- Demurrage and detention are valuable charges when applied in ways that incentivize cargo interests to move cargo promptly from ports and marine terminals;
- All international supply chain actors could benefit from transparent, consistent and reasonable demurrage and detention practices, which would improve throughput velocity at U.S. ports, allow for more efficient use of business assets, and result in administrative savings; and
- Focusing port and marine terminal operations on notice of actual cargo availability would achieve the goals of demurrage and detention practices and improve the performance of the international commercial supply chain.
From the drayage trucking industry’s perspective, notice of actual availability is most important.
The December report also recommended that that the Commission organize and host teams of industry leaders to discuss whether today’s demurrage and detention practices are working as intended, as incentives for shippers to pick up cargo and return equipment.
We hosted two teams last month– each that included beneficial cargo owners, drayage trucking companies, shipping lines and terminal operators.
Before the participants arrived, I sent each one a letter that quoted a paragraph from the December report explaining the broader context for the discussions. It said:
The respondents in both phases of the investigation generally indicated that the primary purpose of demurrage and detention is to establish a financial incentive to encourage the productive use of assets (containers and terminal space) and promote optimal velocity of cargo flow across the terminal and out of the port. For demurrage and detention to be effective, and for demurrage and detention practices to be reasonable, they must be tailored (and limited) to those situations in which the container is actually available.
I’m happy to say that the comments, insights and information exchanged at our team sessions were helpful in further clarifying when charges were creating the desired incentives – and when not.
For example, for demurrage and detention to be effective, the application of charges should be tailored to situations in which a container is both physically available – has been discharged from the vessel and located in an open area at the terminal — and actually accessible for pickup.
Or, with respect to detention charges when a shipper is returning an empty container, and has alerted the liner company of that fact, a decision by the line not to accept the empty container should, absent extenuating circumstances, pause the application of charges with respect to that container.
As particular situations arise, specific facts and the behavior of involved parties will still be relevant to any determination of the reasonableness of charges imposed. Emphasizing the incentive purpose of demurrage and detention is not a magic wand that would eliminate all legitimate points of disagreement. But it will provide important guidance that all parties agree is legitimate.
And, to the extent that liner operators and their shipper customers are able to incorporate such a standard into their service contract terms, it could help prevent many disputes from ever arising.
The team discussions and clarifications, in addition to all the other information and discussions we’ve had involving free time, demurrage and detention in phases one and two, will contribute to my final recommendations to the Commission.
Memphis Supply Chain Innovation Team and Chassis Availability
Before I conclude, I’d like to offer some comments about one of the best outcomes of the Fact Finding 28 investigation involving marine terminal and ocean carrier demurrage and detention charges.
It concerns an issue that affects demurrage and detention and the orderly and efficient operation of our freight delivery system itself: Chassis availability.
How chassis are made available at America’s container ports and railyards is a pivotal aspect of port and terminal productivity, drayage trucking profitability), and ocean carriers’ customer service quality (or its lack).
We heard complaints about railyard congestion and related charges during the first Demurrage and Detention interviews I conducted last year.
So I was not surprised when I received a call from a trucking executive in Memphis about railyard congestion problems there.
A group of impressive industry leaders, including truckers, shippers, intermediaries, ocean carriers, and railroads, had organized themselves in Memphis, and they wanted me to come to Memphis and lead a Memphis Supply Chain Innovation Team.
I said, “I’ll talk to my lawyers, thinking, that’ll kill it for sure!”
But, as we talked among ourselves, I realized that on ocean carrier moves, we do have certain jurisdiction at the rail ramp on Memphis.
At the first last May meeting in Memphis, everyone on the Team agreed that chassis provisioning is the major problem leading to congestion in the railyards there.
The Team agreed on a recommendation for chassis “gray” pools for the rail ramps in Memphis and the Mid-south, with the following critical elements to improve fluidity and velocity in moving international containers in Memphis and the Mid-south:
- Adequate supply;
- Quality and safe chassis;
- Reasonable access to chassis: Choice;
- A single manager, with accountability for chassis supply
On this point, the railroads and the ocean carriers (OCEMA) agree.
I plan to testify on behalf of the Memphis Supply Chain Innovation Team before the Surface Transportation Board on May 22nd at their Oversight Hearing on Railroad Demurrage and Accessorial Charges.
On the subject of chassis provisioning, I offer these two comments:
First: Open choice.
I favor freedom for motor carriers or their customers to select the chassis provider of their choice for merchant haulage.
Second: Real Gray Pools.
I support the creation of chassis pools run by managers who have the authority to treat and the accountability for chassis supply. Chassis must be interchangeable assets that can be provided in ways that make the most sense for meeting customer needs and optimizing overall asset utilization.
With the recent decision by the Ocean Carrier Equipment Management Association (OCEMA) to establish a best practices regime for dispute resolution processes, we are already seeing the first practical steps being taken to produce improvements we had identified.
Demurrage and detention guidance based on economic incentives will encourage all supply chain actors to coordinate their activities and communicate more effectively with their customers and vendors.
I expect that ocean carriers and marine terminals will also recognize the value of developing customer-friendly best practices with respect to standard demurrage and detention language, transparent billing processes and notice of availability.
I am confident that we can develop practical guidance that will address customer frustration and improve the operation of our freight delivery system to MOVE MORE CARGO!
That’s in everybody’s interest!