FMC Grants Public Hearing on Detention-Demurrage Fees

Nelson CabreraGeneralLeave a Comment

The controversy surrounding detention-demurrage fees has led to the granting of a public hearing. This was in response to a shippers’ petition that necessitated formal proceedings designed to deal with the key underlying issues. The contention of the industry is that these fees are unreasonable and should, therefore, be considered void by the relevant commission.

Nine months ago, a coalition of shippers submitted a petition that sought guidance on these issues. They argued that the fees were costing them millions of dollars on an annual basis. These fees arose via the container lines as well as the terminator operator companies. Furthermore, their petition argued that matters beyond their immediate control forced them to delay picking up and returning the containers and chassis they were using according to the agreed schedules.

High Fees for Shippers

The problem was not so much the existence of the fees as their level. The shippers argued that the fees they were paying were excessive and harmed their bottom line. For their part, the terminal operators and container lines insist on charging the fees as fines that are designed to ensure the efficient use of their assets as well as the space that is available to them. Although the petitioners have presented their case, a date for the hearing has not yet been confirmed.

The Federal Maritime Commission, or FMC, is responsible for handling such cases. It is anticipated that members of the commission will publish a schedule for the hearings as well as an invitation list of panel members who are experts in maritime affairs. The press reports that such information will be readily available as soon as all the various aspects of the hearing have been confirmed.

A Long Day in the Hearing

Some have expressed concern that it is nine months since a petition was presented, and the petitioners are yet to have an opportunity to voice their queries and concerns. Moreover, those that are currently benefitting from the status quo have expressed a view that the commission should not be involved in the matter at all.

The ocean carriers and terminal operators argue that this is a private business arrangement and that interference in their levies is tantamount to placing obstacles in the face of the enterprise. Furthermore, they argue that these costs are unavoidable and that any reduction to them would mean a shift of additional costs to said carriers and operators. The effect of this would be to turn them into insurers.

Differing Opinions and Perspectives

There are many key witnesses that are likely to be called to testify if and when the hearing is scheduled. Amongst them would be the acting chairperson of the commission, Michael Khouri. John Thune, the chairman of the US Senate Commerce Committee as well as the third-ranking member of the majority Republican Senate caucus. It is highly likely that he will attend the hearing and have important perspectives to bring to the table.  

Commission Chairman Khouri is of the view that the commission already has other pressing matters. It cannot afford the time, space, or other resources that are required in order to clarify its stance on the issues of detention and demurrage, which are already settled by precedence and industry practice. This is a position that he has maintained right from the time that the petition was originally presented.

That view is contradicted by Senator Thune, who wrote a letter on September 5, 2017, in which he urged the commission to deliver guidance on the matter. He did not express support for any of the major parties but argued that the commission was duty-bound to clarify its guidance on a matter of such industry importance. Following that letter, the FMC arranged for a closed-door session. The outcome of this session was that a hearing should be allowed in public.

The Tentative Terms of Reference

Following their closed-door meeting, the FMC released a statement that gave an indication of what the modalities and remits would be for the public hearing. The statement below that was released is likely to form the basis of the terms of reference for the hearing:

The stated purpose of the public hearings is to provide the commissioners an opportunity to question and discuss with the representative stakeholders the multiple causes of port congestion, the divergent array of demurrage, detention, and per diem assessment practices…”

The hearing will hear from legal minds, the petitioners, members of the industry, shipping associations, importers, exporters, forwarders, brokers, carriers, authorities, and the operators. All these make up the wider industry and will be affected by any changes to the fee structure. It is anticipated that the operators and carriers will have vocal representatives to make their case in order to mitigate the risk of having the fees declared null and void.

The Role of the World Shipping Council

The World Shipping Council, or WSC, will be concerned about the impact on the market size and share as well as the potential conflict between key members of the industry. They even want to highlight some of the logistical issues that are involved in changing the fee structure.

This is because the WSC has a membership that controls about 90% of all global container capacity. Understandably, the WSC is against amendments. According to John Butler (WSC CEO), they cannot afford to become insurers for unexpected events such as weather changes, industrial action, or government-caused bureaucratic delays.

This view is broadly shared by the National Association of Waterfront Employers, or NAWE, which argues that the existence of unique circumstances at a given moment in time does not provide sufficient justification to overhaul the entire system. They argue that a change in policy would be an excessive overreaction with far-reaching consequences in the longer run. This is what they referred to as a broad-brush policy change.

Shippers Feeling Under Siege

For their part, the shipper’s coalition argues that a public hearing is nothing more than that. It is not a case of changing a policy but rather clarifying that policy in light of circumstances that they find presently onerous. Karyn Booth of the Thompson Hine’s group stated on the 11th of September that they are simply asking for a commencement of proceedings rather than a policy statement.

The issue was discussed at the recently held National Customs Brokers and Forwarders Association of America’s annual Government Affairs conference. The consensus was that the operators and lines had some key points to make, but the effect of the policy at the moment was to place an unsustainable burden on shippers.

The reality is that the hearing is likely to represent a policy change either at the root or in the implementation stage. It is likely that a hearing will take place, and there will be some review of the fees. Whether that actually translates into a policy reversal remains to be seen.  

Nelson Cabrera
Nelson leads global business development efforts within ShipLilly and has been featured as a logistics expert in numerous publications, including SupplyChainBrain, The Bulletin Panama, Logistics Management, and the Miami Herald.

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