New FMC case may (or may not) provide a remedy.
One of the by-products of the COVID-19 supply-chain snafus has been that shippers were often hit with high demurrage and detention charges when there were delays in picking up containers. Cargo owners have long had remedies to redress excessive fees before the Federal Maritime Commission (FMC), whose regulations prohibit “unreasonable” storage charges—provided the offending party was an ocean carrier or marine terminal operator. But seeking relief for excessive rail storage charges has been another matter.
FMC policies interpret reasonable charges as those intended “as financial incentives to promote freight fluidity”— which wouldn’t include fees for late pickups if the delays were beyond the shipper’s control. In fact, the FMC has punished ocean carriers when they unreasonably refuse to waive charges, as it did with Hapag-Lloyd last year, hitting the company with a $2 million civil penalty.
Rail Delays & Who Pays?
But what happens if, say, an ocean transportation intermediary contracts with an ocean carrier to move 16 containers from Rotterdam to Nashville? The carrier issues a through bill of lading and subcontracts the inland portion of the moves to a Class I railroad. But when the containers get to Nashville, there’s a month-long delay in getting 10 of them mounted on chassis and moved off the terminal. As a result, the ocean carrier, and the railroad both bill the shipper for six-figure detention and demurrage fees.
By the terms of United States statute, the FMC lacks jurisdiction over rail carriers. The Surface Transportation Board (STB) has some authority to regulate rail demurrage and accessorial charges, but only as those apply to rail cars. STB Chair Martin Oberman has written that he is “troubled” over excessive rail storage charges imposed on containers and the STB has requested that rail carriers disclose their charges—which range from $75 to $350 per day for Canadian Pacific and $100 to $500 per day for CSX. But that’s about all the STB can do about rail storage fees when it comes to containers.
Complaint Before FMC
The Rotterdam-to-Nashville scenario represents the basic facts included in a complaint filed in December before the FMC. The intermediary in question is the Milwaukee-based NVOCC M.E. Dey & Co., the ocean carrier is Hapag-Lloyd, and the railroad is CSX.
In late December, the FMC secretary issued a notice indicating that the agency had received the complaint, recognizing specifically that “rail storage charges” were an element of the controversy. Less than two weeks later, an administrative law judge was assigned to the case. These actions suggest that the FMC is exercising jurisdiction over a matter involving excessive rail storage charges.
That may be good news for shippers seeking relief from unreasonable charges imposed on international containers by railroads. But, because of a few wrinkles in the M.E. Dey case, and because it’s very early in the proceedings, it’s probably too soon for a full-on celebration.
The M.E. Dey containers were delivered by Hapag-Lloyd to Charleston, after which they were transported by CSX to its terminal in Nashville, arriving there in early September 2022. By the time the trucking company New Age Logistics was able to move the ten delayed containers off the terminal a month later, Hapag had imposed late charges of over $150,000 and CSX hit them with over $135,000. After some wavering, Hapag-Lloyd agreed to rescind its charges, but, according to the complaint, both Hapag and CSX “refused to take any action to reduce” the CSX charges. Dey paid CSX its fees to get the containers released and is now asking the FMC to order their refund.
FMC and Rail Storage
Although the controversy boils down to the reasonableness of rail storage fees, the jurisdiction of the FMC is predicated on its authority to regulate ocean carriers. The contract for carriage was entered into between M.E. Dey and Hapag-Lloyd and the case before the FMC was filed against Hapag-Lloyd only, although it is demanding the refund of the CSX charges. As the complaint alleges, “The Commission maintains jurisdiction over rail transport with such an ocean nexus, where the cargo moves intermodally under one bill of lading, and Hapag is responsible for the improper storage charges of its subcontractor, CSX.”
The FMC’s action in accepting the case does not suggest any independent jurisdiction over rail fees that were not related to a through movement contracted with an ocean carrier. By proceeding with the case, the FMC apparently understands that it has jurisdiction over the CSX charges by way of its regulatory power over the ocean carrier.
Other wrinkles add additional texture to the M.E. Dey scenario. According to the complaint, the trucker New Age Logistics offered to provide its own chassis to move the containers, but Hapag-Lloyd refused to authorize that. The complaint also alleges that CSX advised that “Hapag’s failure to provide chassis” was the reason the containers were not mounted. CSX claimed it could not request that Hapag approve the waiver of the CSX charges, and “Hapag refused to take any action to reduce the charges being assessed by CSX despite the fact that Hapag’s own actions caused the demurrage to occur.” These allegations suggest that the crux of the complaint involves the wrongdoing of Hapag-Lloyd, more so than CSX.
An eventual FMC determination could hinge on its evaluation of Hapag’s actions and inactions, in which case its decision would not provide a clear precedent for the assertion of jurisdiction to regulate rail storage charges on a through bill of lading when the railroad acted unreasonably. It’s possible that shippers will have to wait for a better case to come along before they can be confident that disputes over rail storage charges come under FMC purview. It’s also possible that Hapag’s waiver of its own detention and demurrage charges will motivate the FMC to rethink its assertion of jurisdiction over CSX’s rail storage charges as the case proceeds.
It’s still too early in the case to understand all of its implications. As of early February, an answer to the complaint had yet to be filed. If the M.E. Dey matter does proceed to a decision, the FMC’s final determination is expected in early 2024.