Date: Wednesday, February 9, 2022
Source: Sourcing Journal
Ocean lines face increasing regulatory scrutiny as the Federal Maritime Commission (FMC) eyes new rules around the late fees charged to shippers as it seeks to address the contentious issue around increasing charges amid record carrier profits.
The federal agency said Friday it is soliciting feedback on a proposed rule that would add more accountability to carriers levying detention and demurrage bills against shippers.
The two terms are both a reference to late fees. Detention, also sometimes called per diem, is in relation to a carrier’s driver or equipment being used or held up by a shipper beyond a set timeframe. Demurrage is the fee assessed on a shipper that takes longer than the time allowed to load or unload a cargo container at the port.
“As rising cargo volumes have increasingly put pressure on common carrier, port and terminal performance, demurrage and detention charges have, for a variety of reasons, substantially increased. Demurrage and detention charges and policies should serve the primary purpose of incentivizing the movement of cargo and promoting freight fluidity,” the FMC’s notice on the proposed rule said.
The agency said it’s looking into requiring more information on bills sent to shippers to include information such as the reason for the charge and associated dates, how a fee is calculated, how to dispute the bill and information that would ensure the charge is being sent to the right company.
The idea behind the suggestion would be to tamp down on billing disputes.
Imposing a 60-day limit from the time of the infraction for carriers to send a bill is also on the table, along with the same time limit for issuing refunds.
“The longer it takes to receive a demurrage or detention bill, the more difficult it may be for a shipper to validate the accuracy of the charges,” the FMC’s proposal pointed out.
The rulemaking process comes amid severe port congestion and rising fees, with research firm Drewry Shipping Consultants Ltd. forecasting carriers to make at least $150 billion in earnings, and potentially more, this year. The firm cited the continued pileup at the ports and the rest of the supply chain and labor shortage partially due to Omicron as reasons behind its outlook.
Industry groups in the apparel industry have backed stronger regulations that would tamp down on what the American Apparel & Footwear Association (AAFA) called a need for “protection from predatory carrier practices.”
The FMC triggered an investigation into an ocean line in late December, underscoring the issue around fees.
The FMC alleged Taiwan-based Wan Hai Lines Ltd. charged detention fees in cases where equipment could not be returned because there were either no return locations or terminal appointments to accept a container on account of the port congestion at Los Angeles and Long Beach, according to the FMC’s investigation order.
The agency alleges there were at least 21 of those instances where Wan Hai charged a detention fee at a rate of $125 to $1,550 per container.
Wan Hai filed a response in late January denying the allegations. The two parties are now in the process of discovery, with a hearing proposed for April.
The FMC is not the only government body looking to tackle fees and apply greater scrutiny around carrier practices.
The Ocean Shipping Reform Act of 2021 (OSRA21) was introduced in the Senate last week by Senators John Thune (R-S.D.) and Amy Klobuchar (D-Minn.).
What’s proposed in OSRA21 would hand the FMC more power to oversee and enforce penalties on carriers sending empty containers back to Asia and greater scrutiny over detention and demurrage. The legislation is the first time in more than 20 years such an overhaul would be made to maritime law.