The purpose of the rule is to establish, observe, and enforce just and reasonable regulations and practices relating to or connected with receiving, handling, storing, or delivering property with respect to demurrage and detention, pursuant to the Shipping Act. Most importantly, the new Rule reflects the principle that
importers, exporters, intermediaries, and truckers should not be penalized by demurrage and detention practices when circumstances are such that they cannot retrieve containers from, or return containers to, marine terminals because… the charges cannot serve their incentive function. <emphasis added>
Rather than producing a single specific rule, the FMC produced a list of factors that may be considered by a decision-maker in reaching a determination as to whether carrier billing practices are “just and reasonable” as required by under 46 U.S.C. 41102(c); each case will still need to be assessed on its particular facts, and the factors identified by the FMC are non-exhaustive. It should be noted that the Rule does not create an independent cause of action, but rather provides guidelines to the Commission in responding to complaints under 46 USC 41102.
Central to the Rule is the principle that detention charges should serve as an incentive for prompt pickup and return of containers in order to facilitate availability of hardware and fluidity of freight. By implication, detention charges imposed in circumstances where they cannot act as an incentive (e.g., where goods are unavailable for pickup because of customs inspection) are likely to be found to be unreasonable.
The Incentive Principle includes particular elements that the Commission will consider in determining the extent to which demurrage and detention are serving their intended primary purposes as financial incentives to promote freight fluidity. This includes consideration of reasonableness in:
- providing notice of cargo availability for pickup;
- amount of free time provided compared to actual availability of cargo for pickup
- detention charges imposed on unreturned empty containers in circumstances in which the charges do not incentivize return, including when circumstances prevent return of containers.
- imposing detention charges when cargo is unavailable due to government inspection
- in transparency of detention policies and consistency in terminology
While the Commission did not choose, for example, to impose a ceiling on detention charges (as some stakeholders had sought), application of these factors to claimed detention charges – either during negotiation or litigation – should address some of the worst and least efficient examples of these bad practices.
What will the future hold?
It will remain to be seen whether or not carriers adopt practices that reflect these demands; historically, the Commission does not receive many complaints about carrier demurrage and detention practices, and accordingly practice may only change if and when cargo interests and/or freight forwarders file complaints with the Commission in respect of unreasonable practices.
Similarly, while the USA is a global economic powerhouse it accounts for a little less than 10% of international container shipping volumes; it may well be the case that we see some relaxation in strict enforcement of these terms vis-à-vis American shippers or consignees while encouraging a corresponding uptick in demands by the international carriers forum-shopping for suitable venues to recover those charges the FMC deems to be unreasonable from the foreign shipper, consignee, or forwarding agents.