Recently the Federal Maritime Commission (FMC) clarified the billing procedures for detention and demurrage charges by common carriers and marine terminal operators (MTOs). This rule, which impacts all U.S. import and export containers transported after May 28, 2024, aims to streamline practices and ensure fairness in the billing of these accessorial charges. The rule outlines who can be invoiced, a timeline for invoicing, and the process for which disputes and waiver requests for these charges can be handled. But what does it mean for shippers worldwide?
Understanding the need for updated detention and demurrage regulations
Demurrage and detention charges have been long-standing issues in the shipping industry. They apply to all trade lanes and both imports and exports, but how they accrue can vary by location, carrier, alliance, and equipment type.
Essentially, demurrage refers to the fees charged for the usage of the container equipment when cargo stays at a terminal (port or rail). These fees are billed per container per day and vary by location, carrier, alliance, and equipment type.
Meanwhile, detention pertains to charges for keeping containers outside the terminal beyond the agreed-upon timeframe. The per day rate (per container) continues to accrue until the empty container is returned to the container yard—either on an import marine drayage move or in the reverse direction on an export container. The clock starts when the container is out-gated and continues until it is returned to the container yard.
These often unexpected charges caused frustration and disputes between shippers, carriers, and terminals.
Detention and demurrage outside the United States
The confusion with these terms is only amplified in other parts of the world. For instance, in Canada, ocean contracts lump together detention and demurrage free time, so you can use your free days as either applied to on terminal demurrage or outside terminal detention days.
And in Latin America and Oceania, the terms are often reversed (i.e., on terminal is detention and out-gated containers accrue demurrage). In these markets, the clock also starts when the containers are offloaded at the terminal, where in the United States, the clock only starts when the container is made available. In the United Stats, the FMC is responsible for the oversight of these charges, so all practices must comply with their regulations.
Ocean Shipping Reform Act of 2022
The shipping disruptions that occurred during the COVID-19 pandemic highlighted the need for increased government regulation—including visibility to detention and demurrage.
Updated regulations stemmed from those disruptions to provide greater transparency when ocean containers incur detention and/or demurrage. In June 2022, the Biden Administration signed Ocean Shipping Reform Act of 2022 (OSRA 22).
At that time, several changes were implemented. Perhaps the biggest update required all carriers, including vessel-owning common carriers (VOCC) and non-vessel-owning common carriers (NVOCC), to gather and provide 13 data elements on any invoice containing detention or demurrage charges for any FMC-regulated trade lane. The May 2024 rule is an additional update to these regulations.
What changes with the May 2024 rule update?
Effective May 28, 2024, the FMC's rule establishes clear guidelines and standards for assessing demurrage and detention charges. It emphasizes transparency, accountability, and fairness in billing practices, aiming to create a level playing field for all parties. The rule spans three primary areas:
How billing is issued
The rule clarifies how common carriers and marine terminal operators (MTOs) must bill for demurrage and detention charges.
It still requires a minimum amount of information that needs to be captured for OSRA compliance. However, the way invoices for demurrage and detention are issued has changed. Now invoices can only be issued to the party that contracted the ocean transportation or the consignee. Multiple parties cannot be invoiced simultaneously.
Failure to follow either of these may eliminate the billed party’s obligation to pay the applicable charges until the invoice is corrected.
When billing can be issued
The other part of the rule specifies that common carriers and MTOs demurrage or detention invoices can only be issued to the party within 30 calendar days from when charges were last incurred. NVOCCs have an additional 30 days after the invoice is received to invoice their customer, providing timeline clarity for each billing party.
How billing is disputed
When NVOCCs are both the billing party and the billed party for the same charge, due to their intermediary role, they can communicate disputed charges to its billing party on behalf of its billed party. The rule also states the billing party must give the billed party at least 30 calendar days from the invoice issuance date to request mitigation, refund, or waiver of fees.
How will this detention and demurrage rule impact global shippers?
The rule brings much-needed clarity to the often murky waters of demurrage and detention charges. Shippers in the United States can now expect more transparency in billing practices, reducing the likelihood of unexpected fees and disputes. This clarity fosters better communication and trust between shippers, carriers, and terminals, ultimately improving efficiency throughout the supply chain.
Moreover, the rule encourages accountability among carriers and terminals. With defined standards and procedures, shippers have recourse in cases of unjust charges, promoting fair treatment and reducing the risk of exploitation.
Modal Carriers (drayman) will no longer be a billable party for merchant haulage (containerized door moves) where demurrage and detention apply. Invoices with these charges will now send to the contractual parties. All invoices should contain OSRA compliant data, and the information should be valid per the carrier and terminal tariff.
C.H. Robinson will issue invoices within 30 calendar days from the invoice issuance date they received, and billed parties have 30 calendar days to make fee mitigation, refund, or waiver requests.
Embrace transparency in detention and demurrage
The FMC's rule on demurrage and detention charges marks a significant milestone in the ongoing quest for transparency and fairness in the shipping industry. While it brings positive changes, shippers must remain vigilant and proactive in managing accessorial charges.
