FMC plans to keep tracking demurrage and detention issues as report lays out shippers’ problems with fees.
Answers to shippers and cargo owners
A long-awaited report from U.S. regulators on fees charged by ocean carriers lays out what many shippers and cargo owners have long complained about:
Rising fees related to container use and storage and little clarity as to why.
The preliminary report from the Federal Maritime Commission (FMC) is the culmination of a seven-month investigation into the fees charged for storing ocean containers at ports and their off-port use, otherwise known as demurrage and detention.
Petition filed triggered investigation
The investigation stemmed from a petition filed in December 2016 by freight forwarders, drayage providers and other cargo interests seeking better regulation of detention and demurrage fees charged by Maersk, Mediterranean Shipping, CMA CGM, Hapag-Lloyd and liner operators.
Terminal operators, such as Maersk’s APM Terminals and Maher Terminals, are also named in the petition.
The fees came to a head between 2014 and 2016, when bottlenecks port strikes and the bankruptcy of a major carrier hit container shipping logistics.
Ocean carriers also a cause
But the petitioners also say the ocean carriers themselves have made it more difficult to retrieve and return containers. The push for larger ships have meant more bottlenecks at ports, thereby increasing the number of instances of when such fees are paid.
It is not clear how much boxship and terminal owners make from these fees. But the December 2016 petition alleges that ocean carriers and marine terminals have “assessed… millions of dollars of demurrage and detention charges related to recent port congestion or other events restricting the accessibility of the ports”.
Demurrage and Detention income contributed to revenue growth
The fees amount to a small piece of a carrier’s revenue. But Maersk noted on its last earnings report that “other revenue” grew one-third to $1.6 billion in the second quarter, “supported by increases in demurrage and detention as well as slot sales.”
The FMC found that demurrage and detention income for the 22 ocean carriers it surveyed increased 90% in 2014, and 86% in 2015. The fee income fell in 2016 as the West Coast port strikes ended. But 2017 saw the fees rise another 30% to return to near 2015 peak levels.
Main ports to collect detention and demurrage fee
The largest U.S. ports in Los Angeles-Long Beach and New Jersey-New York were the main sites for detention and demurrage fee collection due to their high container volumes. But the FMC found that the burden was increasingly falling on shippers at smaller ports.
“The results indicate that cargo interests’ concerns about demurrage and detention cannot be explained solely by unique events in 2014-2015 or the conditions at a small subset of ports,” the report said.
Weather and labor issues might have contributed
“The limited decline in 2016 and the substantial increase in 2017 suggests that weather and labor issues, important as they may have been, might not fully account for the ongoing demurrage and detention concerns expressed by shippers in the petition. Nor is the collective 30% increase in demurrage and detention in 2017 fully accounted for by increased container volumes.”
Part of the problem stems from communications between the various parties. Only one-third of the carriers surveyed provided notice of vessel arrival and container availability, usually via email. The remainder just provide notice of vessel arrival. Terminals may make container status available on website notices.
The FMC also singled out the inconsistencies in “free time” allowances, which are the grace periods offered taking or returning containers.
The FMC noted that ocean carriers “generally extended free time for labor or weather events when ports were closed. But (marine terminals) generally did not automatically extend free time for events outside of a terminal’s control.”
Review of fee disputes
But few ocean carriers and terminals “indicated that they affirmatively notify cargo interests that an event triggering such policies has occurred.”
The report also details what it calls a “varied, and . . . informal” process for resolving fee disputes. Slightly more than half of ocean carriers and one terminal have written policies for reviewing fee disputes. But the FMC found that “few provided guidance for how a disputed charge should be evaluated and what evidence should be considered.”
While the FMC report does not list any specific remedies as yet, it does plan to keep researching the issue with another report to be issued in December.
Record shows the need for transparency
“The record demonstrates a need for more transparency into demurrage and detention dispute resolution procedures: more accessible, user-friendly information about, who a cargo interest or drayage provider should contact in the event of a dispute about a particular charge, how a dispute is resolved, and how long the process can be expected to take,” the FMC said.
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Source: Freight Waves
