FMC's new final rule: “A whole new world” for demurrage and detention billing

Questionable demurrage and detention (D&D) billing practices have been creating excessive pain and expense for some supply chain stakeholders for a long time. 

As we noted in previous posts on the topic, the U.S. has had some of the highest D&D charges in the world — which is one of the many reasons the Federal Maritime Commission (FMC) has been focused on D&D billing practices over the past several years.

In that light, stakeholders in certain sectors are heaving a sigh of relief over the FMC’s new Final Rule on D&D billing that was recently announced. 

Demurrage and detention: A quick background

For those who are new to the D&D landscape, here’s a quick overview of some of the issues involved. 

Marine Insight defines demurrage as “the recovery of costs incurred for delay of the container within the port, charged by the shipping company or the party that has leased the container.”

The outlet describes detention charges in this context: “Once a container that is discharged from the vessel is taken from the port to the customer’s premises and offloaded, the empty container…has to be returned to the port from where it has been picked up or to the empty container depot. If the consignee (customer) delays in returning the empty container as agreed, after a certain number of days, the carrier will start charging the consignee.”

A Container xChange press release announcing its Demurrage & Detention Benchmark 2022 Report highlighted one of the issues at that time that has fueled the need for the changes that are about to take place: “U.S. ports occupy the top five spots in the list of ‘60 ports ranked by highest to lowest D&D charges across shipping lines.’”

The release also described the “political spotlight on D&D” in the U.S.: “Under heavy pressure from shipper lobbyists, President Biden signed the Ocean Shipping Reform Act [OSRA] into law on June 16, 2022. OSRA gives the Federal Maritime Commission the power to act more assertively on D&D charges and shifts the burden of proof for the reasonableness of fees to ocean carriers instead of shippers.”

“Throughout this pandemic, as shipping costs have soared and inflation has become a threat to the U.S. economy, the focus on container line behavior by politicians and regulators has magnified,” said Christian Roeloffs, co-founder of Container xChange in the statement.

Describing how difficult it was then for U.S. agricultural shippers to find “affordable” empty containers for exports, Roeloffs said importers “have been equally outraged by what many believe has been profiteering on D&D charges by container lines. Some have started legal actions against carriers. This really came into the cross hairs of President Joe Biden this year when he has been highly critical of container lines. His administration addressed D&D in the Ocean Shipping Reform Act and we’re now waiting to see how this will be implemented and whether it will change shipper or carrier behavior significantly.”

The FMC’s new Final Rule on D&D billing practices

In addition to previous steps it had taken to tackle D&D billing concerns, on February 23, the FMC issued a press release announcing its Final Rule establishing “new requirements for how common carriers and marine terminal operators (MTOs) must bill for demurrage and detention charges, providing clarity on who can be billed, within what timeframe, and the process for disputing bills.”

The FMC says a key provision within the rule determines that D&D invoices can be issued by only one of two parties: 

• “The person for whose account the billing party provide ocean transportation or storage of cargo and who contracted with the billing party for the ocean transportation or storage of cargo; or 

• the ‘consignee,’ defined as ‘the ultimate recipient of the cargo; the person to whom final delivery of the cargo is to be made.’”

As such, simultaneous submission of D&D invoices to multiple parties is not permitted. 

The new rule also sets timelines for D&D invoicing:

• Vessel-operating-common carriers (VOCCs) and MTOs are required to issue invoices “within 30 calendar days from when charges were last incurred” 

• Non-vessel-operating common carriers are required to issue invoices “within 30 calendar days from the issuance date of the invoice they received”

• Parties that have been billed have at least 30 calendar days to make “fee mitigation, refund, or waiver requests” 

• As long as such requests are filed in a timely manner, the billing party must “attempt to resolve the matter within 30 calendar days, unless both parties agree to a longer timeframe”

“The new rule will advance the Commission’s goal of promoting supply chain fluidity by ensuring a clear connection between the failure to pick-up cargo or return equipment in a timely manner and the appropriate fee,” the FMC says. “The rule ensures that billed parties understand the demurrage or detention invoices they receive by requiring certain identifiable information be included by the billing party on the invoice. Failing to include any of the required information in a detention or demurrage invoice eliminates any obligation of the billed party to pay the applicable charge.”

“Of course, if an invoice does comply, a charged party does have an obligation to pay charges billed,” the FMC adds. “The new rule will provide relief to parties who should never have received a bill for detention or demurrage.”

Implementation and rationale

While most of the rule will take effect on May 28, 2024, the FMC notes that the “Contents of Invoice” section 541.6 involves “information collection and must be approved by the Office of Management and Budget.” Once approved, the FMC says it will announce the effective date of section 541.6.

In a statement issued the same day, Commissioner Carl W. Bentzel explained the need for the new rule and why he supports it.  

“This rule has been a long time coming,” Commissioner Bentzel said. “D&D penalties provide an important tool to protect the shipping public from market abuses caused by excessive delays in the pick-up of cargoes from marine terminals, and to ensure the prompt return of containers to ocean carriers which facilitates the optimal use of terminal space and containers. The final rule takes necessary steps to protect shippers from being unfairly assessed D&D penalties while protecting truckers that are not consignees or in privity of contract from being assessed D&D penalties.”

After describing the extensive industry feedback and work by the FMC that helped create the Final Rule, he noted that one of the “more contentious issues” related to “whether to include both ocean carriers and marine terminal operators (MTOs).”

“The decision to make the rule applicable to both common carriers and MTOs was correct,” Bentzel explained. “To waive MTO participation would create such a large-scale exemption, it would eviscerate the protective intent of the rule. That would not be good precedent. Further to the point, shippers and now the FMC expect common carriers and MTOs to cooperatively work together on D&D invoicing issues in practice, so to do so under the auspices of this rule is no different. …”

For additional perspectives from Commissioner Bentzel, please view the full statement. 

And for insights from legal experts on the implications of the new Final Rule, check out: 

• Holland & Knight: “Federal Maritime Commission Announces Demurrage and Detention Final Rule” 

• Benesch: “A Whole New World: FMC Issues Final Rule on Demurrage and Detention Billing Requirements”