FMC Finalizes New Demurrage, Detention Billing Requirements

The Federal Maritime Commission issued its long-awaited final rule for new demurrage and detention billing requirements, describing the information carriers and marine terminal operators must include in their invoices, clarifying which parties can be billed and under what time frames, outlining the processes for disputing charges, and more.

The 115-page rule, released Feb. 23 and effective May 28, will help contribute to “supply chain fluidity” by clarifying the responsibilities and requirements of each party when picking up or returning cargo and equipment, the FMC said. If billing parties don’t include certain required fee information in their invoices, they will void “any obligation” by the billed party to pay the charge, the commission said. “The new rule will provide relief to parties who should never have received a bill for detention or demurrage.”

The final rule solidifies a host of changes the FMC has been considering since it proposed the requirements in October 2022 (see 2210070079), including one that will force ocean carriers and MTOs to issue detention and demurrage invoices within 30 calendar days from when the charges were last incurred. Similarly, non-vessel-operating carriers will need to issue those invoices within 30 days from the “issuance date” of the invoice they received. Billed parties will have 30 days to request a refund or waiver, and the billing party must try to resolve the issue within 30 days.

Several shipping trade groups had praised the proposed time-frames, although carrier representatives, including the World Shipping Council, pushed back on the 30-day deadline. The FMC said carriers asked the commission to “prove why other deadlines are unreasonable.”

The FMC “declines this invitation to try to prove a negative,” it said. Carriers “did not offer concrete examples of why billing parties could not comply with a 30-day deadline, and instead made reference to delays caused by third parties without offering specifics of the types of delays they routinely face or how long they take to resolve.”

The rule also clarifies who may be billed for detention and demurrage charges, a topic that polarized portions of the ocean cargo transportation industry during the FMC’s rulemaking process (see 2212130059 and 2212210058). The FMC said invoices can only be issued to either the consignee, or “the person for whose account the billing party provided ocean transportation or storage” of the cargo and who contracted with the billing party for cargo transportation or storage.

The FMC said a “primary purpose” of the rule is to stop detention and demurrage invoices from being sent to parties who didn’t negotiate contract terms with the billing party. It also noted that it included consignees as a party “to whom an invoice can be properly billed” after commenters supported the idea.

“After careful analysis, the Commission has determined that prohibiting billing parties from issuing demurrage and detention invoices to persons with whom they do not have a contractual relationship will best benefit the supply chain,” the commission said. “If the billed party has firsthand knowledge of the terms of its contract, then they are in a better position to ensure that both they and the billing party are abiding by those terms.”

Although the FMC said other parties, in some circumstances, may have more influence on whether demurrage or detention actually accrues, they’re not always the party that best understands the contract and that should be disputing the charges. “The Commission understands that some regulated parties will need to change their business practices in order to comply with this rule,” the FMC said.

It also rejected suggestions by some trade groups for “bright-line rules” that would establish which party should be receiving an invoice in specific scenarios. The FMC specifically pointed to a recommendation from the National Retail Federation, which said drayage motor carriers should potentially be the responsible billed party under “certain conditions.”

That suggestion “fails to account for situations where a motor carrier’s delay is the result of no action of their own, but rather the result of the actions of others,” including terminal operators canceling appointments without notice to the motor carrier, the FMC said.

The rule also finalizes a range of information that must be included in detention and demurrage invoices, including the date the container was made available, the port of discharge, the container number, the start date and end date of the free time, and more. The FMC said any bills that don’t have all this information “would not constitute having just and reasonable practices relating to or connected with receiving, handling, storing or delivering property.”

Several commenters raised concerns about the minimum information that must be included on invoices, including a requirement that they include the bill of lading number along with the container number. Publishing those numbers could lead to cargo theft and other security risks “by allowing for false pick-up appointments,” commenters said, and could “require significant and costly upgrades” to some companies’ information technology systems.

The FMC disagreed that listing the bill of lading and container number is a security risk, saying that bill of lading numbers are publicly available through “import and export data systems,” and container numbers also aren’t protected because they’re written on the outside of the container.

“Including an already publicly available number on an invoice does not increase security concerns,” the FMC said. It also said “the commenters’ claims also do not consider the multiple levels of security at the port that deter an incorrect party from taking the cargo.”

FMC Commissioner Carl Bentzel said one of the rule’s “more contentious” issues revolved around whether to include both ocean carriers and marine terminal operators, but he said the decision to make MTOs subject to the billing requirements was the “correct” one. “To waive MTO participation would create such a large-scale exemption, it would eviscerate the protective intent of the rule,” he said. “That would not be good precedent.”

In the rule, the FMC said it’s “confident that the strong commercial relationships” between carriers and MTOs is “enough to ensure that the proper information is shared and that the party who ultimately receives the invoice is receiving accurate information.” But Bentzel said he didn’t necessarily agree.

“I am not as confident in the existence of such a strong commercial bond, but I encourage both common carriers and MTOs to quickly work toward those ends,” he said. “This rule does not regulate the billing practices between MTOs and VOCCs. This may need to be looked at further.”

The FMC addressed a host of other comments in the final rule and made certain tweaks from the proposed version, including new language that adds a definition for “person” in the terms for “billed party” and “billing party.” Notably, the commission declined a request from USDA and at least two trade groups to require billing parties to also include in their invoices the “transportation history information,” such as the date and time a container was loaded on or off a vessel along with the vessel used to transport the cargo. Although this information “may be helpful in some circumstances,” the FMC said it’s not sure those benefits would outweigh the extra burden this would place on billing parties.

But the FMC said that could change. “The Commission will continue to monitor detention and demurrage billing trends and retains the authority to revise non-statutorily mandated detention and demurrage invoice data elements in the future if it determines there is a need to do so.”

The final rule was applauded by some in the shipping industry, including the Agriculture Transportation Coalition, which called it a “major step” toward reforming detention and demurrage billing practices. In a Feb. 23 email to members, the group said it was “particularly pleased” to see the FMC establish that failure to provide certain required information in a bill “voids the obligation” to pay the invoice.

“This addresses one of the major motivations for [the Ocean Shipping Reform Act] -- the shipper was not informed why and how it was being assessed these charges, and all too frequently, the ocean carrier wasn’t able to provide this information either. It seemed 'the computer' was to blame for spitting out these charges,” AgTC said. Now “all parties will know the basis for each charge, which will allow them to review and determine if justified.”

It also called the 30-day invoicing requirement “a major improvement.” Although it’s “unfortunate that it took an Act of Congress,” AgTC said “we are glad that thus far, most carriers say they are able to comply.”

A spokesperson for the World Shipping Council, which represents many major carriers, said it's still "closely reviewing" the final rule and isn't yet ready to comment.