Demurrage and Detention Charges (D&D): Adapting to the Changing Landscape with New FMC Regulations

Punctuality in transportation is crucial for optimizing the supply chain. Delays and detention times can negatively impact operational efficiency by limiting the availability of vehicles and drivers for other shipments, affecting fleet capacity and logistical planning. Effective management of these container delays and detentions becomes essential, especially in the face of factors like pandemics, geopolitical crises, and issues in trade routes. These conditions have led importers to question the responsibility for delays and criticize the demurrage and detention practices of terminal operators and shipping lines. 

DEFINITION OF D&D AND THEIR ORIGINAL FUNCTION. 

Demurrage is the charge shipping lines apply for the use of a full container within the port, generally after a cost-free period of 5-7 days, although this period may vary. The demurrage charge begins the day after the free days expire. 

Detention charges, on the other hand, are the cost for using a container outside the port, whether full or empty. This charge also applies starting the day after the free days provided by the shipping line expire, counted from when the container leaves the port. 

The notion of "laytime and dispatch" originated in the Merchant Shipping Act of 1876, establishing compensation for delays in maritime transport. With the evolution of container shipping, the terms "demurrage" and "detention" emerged to define delays and their consequences in transport contracts.

Over the years, carrier practices regarding demurrage and detention have sparked controversy. For example, in 2015, the U.S. Federal Maritime Commission raised concerns about D&D charges imposed by Marine Terminal Operators and Common Carriers at major U.S. entry ports. Issues included the difficulty for carriers to pick up containers due to gate delays and dock congestion, as well as challenges in releasing containers even after terminals accepted them.

Since the COVID-19 pandemic, increased demand and port activity drops have been observed. Despite delays beyond their control, several shipping companies have refused to extend deadlines for carriers and their agents to pick up or return empty containers, resulting in high demurrage and detention costs. This situation has led to lawsuits by various importers against these shipping companies, based on the interpretation of the Bipartisan Ocean Shipping Reform Act (OSRA), passed in mid-2022. 

NEW FMC REGULATIONS 

For this reason, the Federal Maritime Commission announced its Final Rule on Demurrage and Detention Billing, effective from May 28, 2024. This regulation establishes guidelines for transparent and fair billing, requiring detailed information on invoices and defining acceptable practices. It limits the imposition of charges on maritime transport contractors or consignees, with defined deadlines for issuing and disputing invoices. The Final Rule represents progress toward transparency and fairness in maritime transport, endorsed by FIATA as a significant milestone and standard for the industry. 

Specific Measures
Regarding time, the following must be specified:	The date of the invoice.  The invoice due date.  The free time allowed in days.  The start date of free time.  The end date of free time.  For imports, the container availability date.  For exports, the earliest return date.  The specific date(s) for which demurrage and/or detention was charged.
Regarding tariff information, the FMC requires:	Bill of lading numbers.  The applicable demurrage or detention rule (e.g., tariff name and rule number, terminal schedule, applicable service contract number and section, or applicable negotiated agreement) on which the daily rate is based.  The specific rate(s) according to the applicable tariff rule or service contract.
Minimum shipment ID information to include:	Bill of lading numbers.  Container number(s).  For imports, the port(s) of discharge.  The basis for why the billed party is the proper party of interest and, therefore, responsible for the charge.

Effective management of delays and detention is essential for logistical efficiency and the supply chain, as delays can limit critical resources like vehicles and drivers. External factors like pandemics and geopolitical crises have increased importers' concerns about the fairness of demurrage and detention practices applied by terminal operators and shipping lines.

The introduction of the Final Rule on Demurrage and Detention Billing by the FMC, effective from May 28, 2024, marks a milestone in transparency and fairness in maritime transport. These regulations set clear guidelines for issuing and disputing invoices, limiting the imposition of charges on contractors and consignees. Despite the positive reception of these regulations, challenges such as billing disputes and the ongoing need for oversight to ensure effective implementation persist. 

 For more information on these processes and their regulation, please contact our team of specialists at SPARX.