Demurrage and detention fees have been a source of frustration and dispute for many shippers, intermediaries, and truckers, who often face unreasonable or excessive charges due to factors beyond their control, such as port congestion, labor shortages, equipment breakdowns, weather disruptions, and of course, global pandemics. These fees can amount to thousands of dollars per container, creating financial burdens and operational inefficiencies for the supply chain.
What is demurrage and detention?
Demurrage is a charge imposed by marine terminal operators (MTOs) when containers are not picked up within a specific time frame. Detention is a charge imposed for using a container beyond a free time period. These charges are meant to incentivize the prompt movement of cargo and compensate for the use of equipment and space.
How are demurrage and detention regulated?
The Federal Maritime Commission (FMC) is the independent federal agency responsible for regulating the U.S. international ocean transportation system. Among its duties, the FMC oversees the practices of vessel-operating common carriers (VOCCs), non-vessel-operating common carriers (NVOCCs), and MTOs regarding demurrage and detention charges. The FMC has recently adopted a final interpretive rule to provide guidance on the reasonableness of carrier and terminal charges.
What is the OSRA?
The Ocean Shipping Reform Act of 2022 (OSRA) is a landmark legislation that aims to address the challenges and inefficiencies of the maritime transportation system in the United States, especially in the aftermath of the COVID-19 pandemic. One of the key aspects of the OSRA is the reform of demurrage and detention practices. The rule states that charges may be found unreasonable unless they serve their primary purpose of incentivizing freight fluidity. The rule also lists factors that the FMC may consider when evaluating complaints or disputes over demurrage and detention charges.
The OSRA aims to improve the fairness and transparency of demurrage and detention practices by establishing several provisions, such as:
- Requiring ocean carriers and terminal operators to provide clear and accessible information on their demurrage and detention policies, rates, and dispute resolution processes.
- Prohibiting ocean carriers and terminal operators from charging demurrage and detention fees when the container is not available for pickup or delivery, or when the shipper, intermediary, or trucker is not at fault for the delay.
- Mandating ocean carriers and terminal operators to provide notice of container availability at least 48 hours before the free time expires, and to extend the free time by the same amount of time that the container was unavailable.
- Empowering the Federal Maritime Commission to investigate and enforce violations of demurrage and detention rules, and to impose civil penalties up to $25,000 per violation per day.
- Creating an expedited process for shippers, intermediaries, and truckers to file complaints and seek relief from unreasonable or unlawful demurrage and detention charges.
The OSRA is expected to have significant impacts on the maritime transportation system and the supply chain in the United States. By reforming demurrage and detention practices, the OSRA aims to reduce costs, improve efficiency, enhance competition, and promote fairness for all stakeholders involved in ocean shipping.