FMC VOCC Audit Team Urges Carriers to Adopt Detention & Demurrage Best Practices

Ocean carriers should rapidly adopt three common best practices related to detention and demurrage that promote clarity and certainty about how and when fees will be assessed as well as how to challenge disputed charges. The call for an industrywide adoption of best practices came in a letter Federal Maritime Commission Managing Director Lucille Marvin sent to 25 container lines and the World Shipping Council, the trade association that represents liner shipping companies. Ms. Marvin is leading the Vessel-Operating Common Carrier (VOCC) Audit Program and VOCC Audit Team, both of which were established in July at the direction of Commission Chairman Daniel B. Maffei. The VOCC Audit Team has engaged the top nine ocean carriers, by market share, calling on ports in the United States to assess their compliance with the FMC rule on detention and demurrage instituted last year. As part of their work, the Team sought examples of model behavior by individual carriers that should become industry standards. The correspondence sent to industry urges ocean carriers to:

1. Display detention and demurrage charges clearly and prominently on their webpage or customer portal;

2. Develop and document clear internal processes on all matters related to detention and demurrage where they have not already done so; and

3. Clearly delineate dispute resolution procedures, contacts, and required documentation on their website and invoices.

In May 2020, the Commission published a final interpretive rule on the reasonableness of ocean carrier and marine terminal operator detention and demurrage practices. The underlying principle of the rule is that demurrage and detention serve the purpose of incentivizing cargo movement and equipment return. The practices in the letter were identified by the Audit Team as initial measures that can align carrier documents and policies with the goals of the rule. In addition to the work of the VOCC Audit Team, the Commission is pursuing other actions to achieve compliance with its rule on detention and demurrage. In September, the Commission voted to begin work on an Advance Notice of Proposed Rulemaking on detention and demurrage billing practices that will be published in the coming months. The Commission is also moving forward implementing five of eight Interim Recommendations Commissioner Rebecca Dye made to address detention and demurrage from her work on Fact Finding 29. The remaining three Interim Recommendations require action by Congress to change existing law. The work of the VOCC Audit Team and Fact Finding 29 continues.

Chairman Maffei Emphasizes Importance of Communication With Brokers & Forwarders

Federal Maritime Commission Chairman Daniel B. Maffei addressed the annual Government Affairs Conference of the National Customs Brokers & Forwarders Association of America, Inc., discussing conditions in the trade, Commission actions and initiatives in response to events of the past year, and possible priorities for the agency moving forward.

The remarks were delivered in person on September 20, in Washington, DC.

Demand for containerized ocean transportation services globally, but particularly serving the United States, has led to more than one-year of historic volumes of freight entering the American supply chain. While freight is moving from origin to destination at record rates, the supply chain has been stressed to accommodate the sheer number of containers in transit. Congestion, inefficiencies in the system, and insufficient assets across the system have had an operational impact contributing to higher freight rates.

Chairman Maffei highlighted that the Commission has undertaken several initiatives to ensure that the marketplace is free of anticompetitive behavior including increasing reporting requirements on the three carrier alliances, consulting with other competition regimes, engaging senior carrier executives directly, and adding a formal investigatory function to Fact Finding 29. He also reported on the recently launched Vessel-Operating Common Carrier Audit Program, established at his direction, which is assessing the nine largest ocean carriers by market share in the U.S. for compliance with the agency’s rule on detention and demurrage.

“We are taking many steps to assure reasonable practices, including beefing up our enforcement and consumer affairs bureaus and looking at ways to address disincentives that have kept many shippers and NVOCCs from filing cases of their own against carriers or large terminal operators,” said Chairman Maffei.

One area of particular interest to Chairman Maffei is devoting more attention and resources to the practice of charging fees and surcharges beyond the work the FMC has done on detention and demurrage. The Chairman cited an enforcement investigation launched by the Commission in August examining certain announced or implemented congestion surcharges as an example of the sort increased scrutiny of fees that might need to be more frequently initiated.

“Many of the fees shippers are being charged seem unfair. Surcharges are justified by special circumstances that affect a particular port and they should be short in duration. Closer examination of carriers’ justifications for additional fees broadly is likely warranted. We should stop any instance where these add-on fees may not fully comply with the law or regulation,” said Chairman Maffei.

Throughout his remarks, Chairman Maffei underscored the importance of communication between industry and the Commission.

“The Federal Maritime Commission has a longstanding and strong working relationship with NCBFAA. Custom brokers, freight forwarders and other ocean transportation intermediaries play a vital role in keeping cargo moving. I am always appreciative of opportunities to engage with NCBFAA and its members. Robust communications between our two organizations serves both our interests and benefits the shared goal of the efficient movement of ocean freight.”

Furniture Company Settles With COSCO; Pursues Complaint Against MSC

MCS Industries, Inc. -- a furniture and home furnishing company based in Pennsylvania that earlier accused COSCO Shipping Lines Co., Ltd., and MSC Mediterranean Shipping Company S.A. of colluding with other carriers to drive up freight rates -- has entered into a settlement agreement with COSCO.

The details of the settlement, however, is confidential and filed under seal.

Chief Administrative Law Judge Erin M. Wirth approved the settlement agreement between MCS Industries and COSCO. Judge Wirth also dismissed with prejudice MCS's claims against COSCO.

Meanwhile, MCS is pursuing its complaint against MSC and Judge Wirth has issued a scheduling order wherein the parties will undergo discovery. January 27, 2022 is the target date to close the discovery. The parties will be required to file a joint status report in January to propose a schedule for briefing the merits of the proceeding.

In its complaint, MCS alleged that since the beginning of the COVID-19 pandemic, global ocean carriers including COSCO and MSC have unjustly and unreasonably exploited customers, vastly increasing their profitability at the expense of shippers and the U.S. public generally, which bears increased freight cost in the form of inflation.

COSCO and MSC both denied the allegations.

Documents related to the proceeding -- 21-05 - MCS Industries, Inc. v. COSCO Shipping Lines Co., Ltd. and MSC Mediterranean Shipping Company SA -- can be viewed here.