Background

A recent decision by the Federal Maritime Commission could serve to further incentivize the filing of complaints against carriers imposing unreasonable demurrage and detention fees on cargo containers.

Under a May 2020 FMC rule, the primary purpose of detention and demurrage charges is as a financial incentive to promote the expeditious movement of freight. The rule provides that, in the absence of extenuating circumstances, practices and regulations that provide for the imposition of detention when it does not serve that purpose (e.g., when empty containers cannot be returned) are likely to be found unreasonable.

In the first enforcement proceeding alleging a violation of the May 2020 rule, the FMC’s chief administrative law judge found that an ocean carrier imposed and refused to waive detention charges on 14 days when the drayage company was making a “concerted effort” to return empty containers but the carrier had insufficient appointments for doing so. The drayage company notified the carrier of this problem and asked for help in resolving it, the ruling said, but the carrier did not suggest other options for returning the containers or identify other locations that had sufficient available appointments. As a result, the judge said, no amount of detention could have incentivized the return of these containers and the carrier’s policy and practice of assessing detention against them anyway is unreasonable.

The ALJ ordered the carrier to pay a civil penalty of $822,220. The FMC’s Bureau of Enforcement had sought a penalty of at least $16.5 million, arguing that the violations were “grave” and that a high penalty is needed to “deter future violations and ensure compliance” with the rule. The ALJ did acknowledge that the violations were knowing and willful, pointing out that the carrier failed to change its policies or practices in response to the rule or seek related guidance from the FMC, and that the violative charges are likely not isolated to the shipments at issue. However, the judge also noted the carrier’s lack of prior violations and the fact that this is the first case under the May 2020 rule.

An increasing number of shippers are filing complaints alleging unreasonable detention and demurrage charges and the FMC has clarified its policies to encourage them, including by reassuring shippers that carriers can’t retaliate against them. For more information on the feasibility of filing a complaint, or any of ST&R’s other FMC-related services, please contact Jason Kenner (at (212) 549-0137 or via email), Andy Margolis (at (305) 894-1021 or via email), or Ned Steiner (at (202) 730-4970 or via email.)

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