On April 28, the Federal Maritime Commission (FMC) released the text of its Final Interpretive Rule on Demurrage and Detention under the Shipping Act (Final Interpretive Rule), which will govern how the FMC assesses whether detention or demurrage practices are unjust or unreasonable. The Final Interpretive Rule will take effect upon publication in the Federal Register, which is expected soon.
"Detention and demurrage" includes any charges, including "per diem," assessed by ocean common carriers, marine terminal operators, or ocean transportation intermediaries (when acting as carriers) related to the use of marine terminal space (e.g., land) or shipping containers, not including freight charges.
Based on the Final Interpretive Rule, Commission assessments of whether demurrage and detention practices are "just and reasonable" under the Shipping Act1 will be guided by an "incentive principle," under which the Commission will consider whether detention and demurrage practices "are serving their intended primary purposes as financial incentives to promote freight fluidity." In applying this principle, the Commission will consider a list of factors, including:
- Cargo availability;
- Empty container return;
- Notice of cargo availability; and
- Government inspections.
In addition, the Final Interpretive Rule states that the Commission may consider the characteristics and clarity of the detention and demurrage policy. Finally, the FMC has emphasized that the factors listed in the Final Interpretive Rule are non-exclusive and that it would consider extenuating circumstances as well.
The Final Interpretive Rule is a direct product of the FMC's Fact Finding Investigation No. 28, launched in March 2018 in response to complaints from U.S. importers, exporters, transportation intermediaries, and drayage truckers about the demurrage and detention practices of ocean common carriers and marine terminal operators. In comments published on April 29 on the Final Interpretive Rule, FMC Chairman Michael A. Khouri noted that future FMC actions on detention and demurrage "may include Notices of Inquiry (NOIs) into various focused fact scenarios. These NOIs will be designed to bring public awareness to problematic business practices and provide further clarity to potential applications of the Interpretive Rule."
Both the text of the Final Interpretive Rule and Chairman Khouri's comments signal that, after a long period of investigation and industry engagement, the FMC will more forcefully and actively regulate detention and demurrage practices and seek to set a clearer standard for what is and is not "reasonable." These developments will undoubtedly significantly impact parties on all sides of these detention and demurrage policies.
If you have questions about how these new standards regulating detention and demurrage may impact your company, please contact Venable's International Trade and Logistics Group.