What constitutes unreasonable terminal charges?

By: | Issue #660 | at 08:00 AM | Channel(s): Ports & Terminals  Terminals  

Federal Maritime Commission takes up issue

On September 20, the Federal Maritime Commission voted to hold hearings on a petition filed last December by the Coalition for Fair Port Practices, requesting that the FMC adopt a policy on what constitutes unjust and unreasonable demurrage, detention, and per diem charges under existing rules.

It’s been a controversy that has pitted shippers and truckers against ports, terminals, and ocean carriers for some time. Cargo owners and trucking companies are normally given a certain number of free days to pick up containers from ports, after which they can be charged demurrage. Detention and per diem fees can also be charged if containers and chassis are not returned within a specified time.

That issue came to a head last fall when the bankruptcy of South Korea’s Hanjin Shipping left cargo owners unable to pick up containers on time and later prevented them from returning containers and chassis. Two members of the National Customs Brokers & Forwarders Association of America (NCBFAA) filed complaints with the Federal Maritime Commission (FMC) alleging they were illegally charged thousands of dollars by Maher Terminals, in the Port of New York and New Jersey, for containers stuck in the port. Delays have also occurred during the 2014-2015 labor slowdown at West Coast ports and Hurricane Sandy on the East Coast in 2012.

Port Congestion

One of the big points of contention between the stakeholders involves the persistent problem of port congestion. Shippers complain that congestion prevents them from picking up containers on a timely basis while terminal operators counter that shippers’ punctuality failures exacerbates congestion. Carriers and terminal operators also contend that charges are routinely negotiated down based on circumstances. The petition asks the FMC to adopt a policy that would require free days to be extended when delays are caused by circumstances beyond the control of the parties.

The controversy is already being played out before the FMC, as shippers, intermediaries, terminal operators, and ports have filed comments with respect to the pending petition. The FMC is currently working to put the matter on its hearing calendar.

“Recent events involving port congestion, labor strife, an ocean carrier bankruptcy, inclement weather, and other disruption events have had crippling effects on U.S. ports and the stakeholders who rely on the efficient movement of goods,” the 25-member Coalition for Fair Port Practices said in the petition. During the incidents, storage and use charges have continued “even though shippers, consignees, and drayage providers had no control over the events that caused the ports to be inaccessible and prevented them from retrieving their cargo or returning equipment.”

A typical comment in support of the petition came from Matthew Brauner, president of Brauner International, Corp., an ocean transportation intermediary. “Recurring port congestion resulting from significant weather events, port labor issues or inadequate port infrastructure have caused lengthy delays in moving the cargo and empty containers,” Brauner wrote. “Yet, ports and carriers have routinely assessed demurrage and/or detention charges to us and/or our customers even though the delays in moving the containers are normally beyond our control.” Arguing with carriers or ports, or challenging the bills before the FMC “is time consuming and unwieldy,” Brauner added.

Other shippers and forwarders recounted nightmare scenarios of being charged ungodly penalties for situations beyond their control. Marina Radcliffe, regional trade compliance manager at APL Logistics, wrote that one of her customers incurred penalties of over $375,000, and that APL was hit with $57,000 in demurrage as a result of the Hanjin bankruptcy.

Johnsonville Sausage of Sheboygen Falls, Wisconsin, incurred $219,292 in additional cost in 2014 and 2015, including detention, storage, airfreight, demurrage, and per diem cost due to the West Coast shutdown, according to Curt Reynolds, the company’s director of logistics. “Our company has experienced repeated incidents of severe congestion at container terminals in U.S. ports at Oakland, Tacoma, Los Angeles, and Long Beach which have prevented us from delivering our cargo,” he wrote the commission.

MacMillan-Piper, which is an operator of four warehouses in the Seattle/Tacoma area, was billed $1.25 million in detention charges by 17 steamship lines from May 2014 through August 2015, for 953 containers, according to Suzanne Tilley, the company’s compliance and assets manager. “To support our normal volume of business, trucks leased to us need to each move an average of eight containers a day through the ports,” she wrote. “This was not possible during much of 2014 and 2015, during which time trucks often had no more than two moves per day.” The $1.25 million was eventually reduced to $250,000 after a year of disputes.

Issue of Risk Transfer

Opponents of the petition included Crowley Maritime Corporation, which submitted a document authored by Alan R. Twaits, its vice president and chief counsel. “The shipper petition would transfer risk for detention and demurrage situations to liner operators (and marine terminal operators),” he wrote. The petition’s “proposal would practically eliminate the ability to charge detention and demurrage. Shippers could claim any delay is out of their control and carriers and terminal operators would be forced to prove otherwise.”

Carriers like Crowley routinely negotiate with shippers to mitigate extra charges “where it is equitable to do so,” Twaits added.

The Port of NY/NJ Sustainable Services Agreement, a conference comprising marine terminal operators doing business in the Port of New York and New Jersey, argued that “the present regulatory framework provides adequate remedies.” The organization opposes the petition, also, because the FMC lacks the legal authority to grant what the petitioners seek and because “the proposed rule…will create confusion, undue agency action, and exacerbate congestion.”

At least one shipper is anxious that congestion at U.S. ports will be getting worse, a situation which would only complicate the issue of demurrage and other penalties. Sharon Schneider, director of operations and logistics at Marc Fisher Footwear in Greenwich, Connecticut, reported that the company could pull a container from the Los Angeles pier in two to three business days six years ago and that it now takes an average of six days.

“We can still enjoy the two to three days in Port Newark,” she added, “but once the Bayonne Bridge is fully functioning, it is a matter of time before we re-live the LA congestion nightmare in New Jersey and I fear that six-day discharges and excess terminal handling may be our future and the new normal for NY and NJ.”

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American Journal of Transportation

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Peter Buxbaum has been writing about international trade and transportation, as well as security, defense, technology, and foreign policy, for over 20 years. Besides contributing to the AJOT, Buxbaum's work has appeared in such leading publications as Fortune, Forbes, Chief Executive, Computerworld, and Jane's Defence Weekly. He was educated at Columbia University.