As the East Coast ports strike looms just eight days away, shippers are preparing for potential disruptions to cargo movement. One of the main concerns during such an event is the financial burden of demurrage and detention charges, especially when cargo retrieval becomes impossible due to external factors. In this post, we will explain the basic principles of demurrage and detention rules and explore how shippers can avoid or dispute unfair charges in the context of a strike.
Understanding Demurrage and Detention
Demurrage and detention are charges that serve as financial incentives to ensure the timely movement of containers and equipment. When shippers fail to retrieve cargo within the "free time" ocean carriers provide, they may face these charges. Free time refers to the period during which cargo can be picked up from/or returned to a terminal without incurring any penalties.
However, once free time expires, shippers can be charged demurrage - for failing to pick up the container -or detention - for holding onto the carrier's equipment longer than contracted.
The "Once-in-Demurrage, Always-in-Demurrage" Debate
The principle of "once in demurrage, always in demurrage" is a significant issue in demurrage and detention disputes. According to this principle, once the free time for container storage has ended, demurrage charges will continue accumulating even if the shipper cannot retrieve their container due to circumstances beyond their control, such as a port strike.
Ocean carriers argue that this principle gives shippers a solid incentive to collect their cargo promptly, helping maintain container flow. However, this rule can feel unfair, especially when shippers cannot control external events like terminal closures.
How Does the Interpretive Rule Protect Shippers?
The Federal Maritime Commission (FMC) issued an interpretive rule on demurrage and detention to address such concerns. According to the rule, charges must be reasonable and serve their intended purpose: to promote the fluid movement of cargo and equipment. If demurrage cannot incentivize retrieval—because, for instance, the terminal is closed during a strike—continuing to charge these fees may be considered unreasonable under section 41102(c).
This rule gives shippers a valid basis to mitigate demurrage charges when they cannot retrieve their container for reasons outside their control, such as a strike.
Mitigating Unfair Demurrage Charges During the Strike
If you're facing demurrage charges during the East Coast ports strike, here are steps to dispute or avoid them:
1 - Document Your Case: Ensure you have documentation proving that your inability to retrieve cargo was due to terminal closure or strike-related disruptions. Emails, port notifications, or official strike updates can serve as evidence.
2 - Communicate Early: Notify your ocean carrier in writing as soon as you anticipate a problem, such as a strike. Doing so can help demonstrate that you made efforts to mitigate delays.
3 - Leverage the FMC's Interpretive Rule: Cite the FMC's rule on demurrage and detention, particularly the section emphasizing that charges must incentivize fluidity. If the terminal is closed, the charges fail to meet this purpose, making them disputable.
“If demurrage cannot act as an incentive for cargo and equipment fluidity because, for instance, a marine terminal is closed for several days due to a storm, charging demurrage in such a situation, even if a container is already in demurrage, raises questions as to whether such demurrage practices are tailored to their intended purpose in accordance with section 41102(c).” (Federal Register, 2020)"
4 - Request Compensation or Waivers: Many carriers offer compensation for situations beyond your control, especially when you can't access the terminal. Based on the circumstances, you can request a waiver or reduction of fees.
“The Commission further held, however, that in such circumstances, the ocean carrier is entitled to fair compensation for sheltering and protecting the cargo.” (Federal Register, 2020)
There ARE some preventive measures to reduce the risk of demurrage and detention fees during port disruptions.
You can find the full article HERE.
Keep an eye out for more updates and strategies from BlueCargo as we help you tackle the challenges ahead! If you need assistance with your D&D invoices and bills, schedule a call with us.
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FULL LEGAL TEXT:
https://www.federalregister.gov/d/2020-09370/p-348
Ocean carriers and marine terminal operators further urge the Commission to reaffirm that notwithstanding the rule, the principle of “once-in-demurrage, always-in-demurrage” still governs.[225] According to these commenters, under this principle shippers “bear the risk of any disability that arises after free time has ended.” [226] In other words, once free time ends, it would not be unreasonable to impose demurrage on a shipper even if the shipper is unable to retrieve the container due to circumstances outside the shipper's, or anyone's, control. Conversely, other commenters request that the Commission expressly overrule the once-in-demurrage, always-in-demurrage principle.[227] As an initial matter, it is useful to describe the legal context before and after the expiration of free time.[228] Prior to the expiration of free time, there are two relevant legal principles in play relevant to demurrage. First, as part of its transportation obligation, an ocean carrier must allow a shipper a “reasonable opportunity to retrieve its cargo,” i.e., free time.[229] Free time is “free” because during this time period, an ocean carrier cannot assess any demurrage.[230] Nor can marine terminal costs be shifted to a shipper during free time, even in the event of a strike.[231] Second, during free time ocean carriers remain subject to section 41102(c)'s reasonableness standard: its practices must be tailored to meet their purposes.Once free time expires, however, the first of these legal principles drops away because the transportation obligation of the carrier has ended.[232] At that point, ocean carriers can, and should, charge demurrage. As the Commission recognized in the NPRM, demurrage is a valuable charge when it incentivizes prompt cargo movement.[233] Ocean carriers remain subject, however, to section 41102(c) and its requirement that demurrage practices be tailored to meet their purposes—acting as financial incentives for cargo and equipment fluidity. If demurrage cannot act as an incentive for cargo and equipment fluidity because, for instance, a marine terminal is closed for several days due to a storm, charging demurrage in such a situation, even if a container is already in demurrage, raises questions as to whether such demurrage practices are tailored to their intended purpose in accordance with section 41102(c).The ocean carrier and marine terminal operator commenters have two answers: precedent and incentives.[234] According to the commenters, Boston Shipping Association stands for the proposition that it is “reasonable for a carrier to continue assessing demurrage against cargo that had exceeded free time when a strike broke out, thus precluding pick up.” [235] Commenters rely on a single quotation: “Thus, in our view, it is only just and reasonable that the consignee, who has failed to avail himself of the opportunity to pick up his cargo during free time, should bear the risk of any additional charges resulting from a strike occurring after free time has expired.” [236]But this quotation must be read in context. The question in Boston Shipping Association was who should be responsible, the ocean carrier or the consignee, for paying the terminals' cost: “Thus, where the terminal is the intermediate link between the carrier and the shipper or consignee, one of these two persons must pay the terminal's cost of providing the services rendered.” [237] The Commission held that during free time, this burden was on the ocean carrier; once free time expired, it was on the shipper. The Commission in Boston Shipping Association said nothing about the penalty aspect of demurrage. At most, it stands for the proposition that once free time ends, a shipper may be responsible for any compensatory aspect of demurrage.This interpretation of Boston Shipping Association is consistent with the New York cases. In Free Time and Demurrage Charges at New York, the Commission held that even after free time expired, levying penal demurrage charges when a consignee, for reasons beyond its control, could not remove cargo from a pier was unjust and unreasonable:When property lies at rest on a pier after free time has expired, and consignees, through reasons beyond their control, are unable to remove it, the penal element of demurrage charges assessed against such property has no effect in accelerating clearance of the pier. To the extent that such charges are—penal, i.e., in excess of a compensatory level—they are a useless and consequently unjust burden upon consignees, and a source of unearned revenue to carriers.[238]The Commission further held, however, that in such circumstances, the ocean carrier is entitled to fair compensation for sheltering and protecting the cargo.[239] The Commission reached a similar conclusion almost 20 years later in In re Free Time and Demurrage Practices on Inbound Cargo at New York Harbor, explaining that “[d]uring longshoremen's strikes affecting even a single pier, the penalty element of demurrage affords no incentive to remove cargo from the pier because the consignee cannot do so for reasons entirely beyond his control.” [240]To the extent, then, that these pre-containerization cases are relevant, they stand for the proposition that insofar as demurrage is a penalty i.e., an incentive to retrieve cargo, it is unreasonable to assess it on cargo “in demurrage.” This is consistent with the guidance in the rule. And, while those cases allowed ocean carriers to recover certain costs, as noted above, the rule does not preclude the Commission from considering whether demurrage and detention have some compensatory aspect when determining the reasonableness of specific practices in individual cases.As for incentives, the commenters' second argument in favor of “once-in-demurrage, always-in-demurrage” is that it provides an incentive for shippers and truckers to retrieve cargo and return equipment during free time. According to PMSA, “[i]f a cargo interest knows that if it does not pick up cargo or return equipment during the original free time period, it will be subject to charges even if a no-fault event occurs during the demurrage/per diem, it will have a strong incentive to pick up the cargo during the original free time, promoting container velocity.” [241]This is a corollary to the argument that the rule disincentivizes shippers from retrieving containers during free time. As noted above, shippers and truckers have commercial reasons for wanting to get containers off-terminal or returned in a timely fashion.[242] Moreover, the prospect of having to pay demurrage or detention alone is an incentive. And, as noted above, once-in-demurrage, always-in-demurrage may also lessen the incentive for ocean carriers and marine terminal operators to perform efficiently.The Commission therefore does not agree with some commenters' arguments that it is always a reasonable practice to charge detention and demurrage after free time regardless of cargo availability or the ability to return equipment. The rule and the principles therein apply to demurrage and detention practices regardless of whether containers at issue are “in demurrage” or “in detention.” That is, in assessing the reasonableness of demurrage and detention practices, the Commission will consider the extent to which demurrage and detention are serving their intended primary purposes as financial incentives to promote freight fluidity, including how demurrage and detention are applied after free time has expired.
[230] Nor can marine terminal costs be shifted to a shipper during free time, even in the event of a strike.
