Demurrage invoicing complications cloud FMC’s free time rulemaking process

The manner in which ocean carriers and marine terminals assess fees to importers for containers that dwell at port yards beyond contractual free time is a window into a muddled situation that the U.S. Federal Maritime Commission (FMC) has two months to sort out.

The complexities are coming to bear on a rulemaking process the FMC must complete by mid-June due to a provision within the Ocean Shipping Reform Act of 2022 that was signed into law last June by President Joe Biden and stipulates the agency must address the billing of detention and demurrage fees within one year.

Demurrage is a fee assessed by terminal operators on loaded import containers that stay in port beyond allowable free time specified by a carrier-shipper contract or port free time tariff.

In advance of the FMC concluding its rulemaking process, a handful of container lines have announced in recent weeks they have stopped charging importers, or consignees, demurrage fees on days when terminals are closed. But that only clouds the invoicing picture because, from the perspective of marine terminal operators (MTOs), storage fees will accumulate whether or not a terminal's gates are open to truckers.

Contract complexity

An example of the complexity the rulemaking must address: The Port of Long Beach's tariff gives consignees seven days of free time, a clock that generally starts at 3 am the day after a container is discharged from a vessel. That seven-day period includes days when a terminal is closed for weekends and holidays.

Meanwhile, a container line that calls at a terminal in Long Beach can separately agree to a contract with a consignee that gives the cargo owner's container additional free time in the terminal beyond what's specified in the port tariff.

That, in turn, creates a set of competitive pressures on various parties attached to the shipment in a so-called merchant haulage move, where the consignee is responsible for arranging the pickup and return of the container. The container line is the customer of the MTO, while the consignee is both the customer of the container line and the drayage provider it has nominated to pick up and return the container.

The MTO is the party that collects fees, generally from its container line customer, when a container exceeds free time according to the port's tariff. But the MTO has no contractual relationship with either the consignee or the drayage carrier, and it won't allow a container to be discharged from a terminal until demurrage has been paid.

In Southern California, terminals do not bill the shippers directly for demurrage due, but rather post what's due on their website, said Ian Weiland, COO of drayage provider Junction Collaborative Transports.

"The terminal doesn't care who pays, but someone needs to pay it to retrieve the container," Weiland said.

That exact sentiment was echoed by Michael Kroul, managing director at drayage broker KTI.

"Most of the time, the [dray] carrier pays and gets the amount paid back by the [beneficial cargo owner]," Kroul said.

Terminals still 'get paid'

The way terminals ensure they get paid for extra days of container storage is important, because the FMC said it is weighing whether to specify that the consignee on the bill of lading is the party to which demurrage should be billed.

The complexity is that the consignee on the bill of lading has a contract with the container line, not the MTO, and if the container line is voiding demurrage charges on behalf of its customers for days a terminal isn't open, someone still needs to pay.

"We do not eat those extra days in storage fees," said one Southern California terminal executive who did not want to be identified. "I'm not sure what the carrier is doing directly with the BCO, but we get paid per our tariff."

That is but one permutation of a process that is slightly different at each U.S. port, including ones run as landlord ports — where private MTOs lease and run individual terminals — and operating ports, where the port authority also acts as the operator. Free time varies among ports, and there is no uniformity on free time clauses in contracts between container lines and importers.

Fees as a way to incentivize cargo movement

To underscore the potentially fraught nature of demurrage billing, the National Association of Waterfront Employers (NAWE) shared with the Journal of Commerce a list of data points that impact importer delays in retrieving cargo where MTOs lack insight.

The list includes: the importer's inland warehouse capacity and hours of operation; availability of chassis; availability of drayage capacity; the amount of free time agreed between the container line and importer; whether the ocean carrier's performance caused or contributed to the importer's delay in retrieving cargo; the underlying cause of any customs holds; and the existence of any disputes between the ocean carrier and importer.

The NAWE's implication is that, without insight to those data points, charging terminal storage fees is the best way to incentivize cargo retrieval.

"Not only do we not even have a contractual relationship with the shipper, our agreements are with the carrier," NAWE President Robert Murray told the Journal of Commerce in an interview. "But then on top of that, having to provide [invoice] data points that either don't exist or that we don't have, that's extremely burdensome. You've got some carriers that are already taking action, you have others that are not. That's uncertainty and it really isn't good for the marketplace."

Teri Errico Griffis contributed to this report.

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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.