Sixty-seven trade organizations cosigned a letter Tuesday to the Federal Maritime Commission (FMC), urging it to provide guidance on what constitutes fair detention and demurrage charges because of "global supply chain disruption and massive losses of business resulting from the coronavirus," according to the letter.
Specifically, the groups asked the FMC to adopt the Interpretive Rule, proposed last September, which gives clearer guidance on how the FMC judges a fee’s "reasonableness," in FMC terms, when it is evaluating claims and complaints shippers submit, pertaining to the fees. Evaluation would be based on the "incentive principle," which states fees should incentivize freight fluidity. This concept would be significant in situations involving cargo availability, empty container return, notice of cargo availability and government inspections, the rule proposal states.
"With ongoing challenges posed by the coronavirus, there is real concern about these fees being assessed when there are equipment issues beyond the control of the shipper or motor carrier. Thus, these fees appear to be punitive measures by the ocean carriers, not an incentive to expedite container flow," the letter reads.
"As an unprecedented crisis now burdens global supply chains, it’s even more critical for the FMC to adopt the proposed interpretive rule on reasonable application of detention and demurrage. Retailers want to keep goods moving, and transparency, consistency and fairness are key to an effective supply chain," said Retail Industry Leaders Association (RILA) VP for Supply Chain Jess Dankert, in a statement emailed to Supply Chain Dive. RILA is a cosignatory on the letter.
One of the main issues the letter notes is ocean carriers are levying demurrage fees when containers are not physically available for pickup, and are levying detention fees when the terminal is not accessible and containers, therefore, can't be returned.
For rail, demurrage charges have become more common in the age of precision scheduled railroading (PSR). International Paper saw its demurrage more than double to more than $7 million, Mike Amick, senior vice president, said at a hearing before the U.S. House of Representatives last July.
PSR mandates more precise movements by railroads and shippers and, to keep trip plan compliance (TPC) high, trains must depart on schedule, with or without a shipper's goods in some cases. While railroads have argued accessorial charges are necessary to keep the system moving on time, shippers contend the penalties only flow in one direction.
Adding to this is the novel coronavirus outbreak, which has shifted the freight landscape with factory shutdowns, blank sailings and other disruptions. Intermodal carriers, also facing challenges driven by low spot rates in the trucking market, are particularly vulnerable to the impact of COVID-19 disruptions.
"Like the freight railroads, lower container volumes would weigh on intermodal truck carriers at a time when volumes are already under pressure from heightened competition from traditional truck carriers, as well as last year's lane closures by some freight railroads as part of their efforts to discontinue services that did not meet internal return hurdles," Moody's analysts wrote in a note shared with Supply Chain Dive.
As economic conditions change and force shippers across industries to adapt, those who signed the letter are asking the FMC to "expeditiously" adopt the proposed rule.
"The imposition of detention and demurrage charges when equipment cannot be returned or containers cannot be picked up during the free period, for reasons beyond the control of the shipper, receiver or motor carrier, render U.S. exports less competitive in the global markets, and imports more costly for US consumers and manufacturers," the letter reads.