DC Circuit Vacates FMC Detention Charges Ruling Over 'Illogical' Reasoning

July 9, 2024 by Jacob Kopnick|Penalties and Courts

The U.S. Court of Appeals for the District of Columbia Circuit on July 5 rejected an order by the Federal Maritime Commission that said ocean carrier Evergreen Shipping Agency (America) Corp.'s detention charges collected from trucking company TCW were "unjust and unreasonable." FMC failed to meaningfully respond to Evergreen's arguments, the court said, and the responses the commission did offer were "implausible" (Evergreen Shipping Agency (America) Corp. v. Federal Maritime Commission, D.C. Cir. # 23-1052).

The court vacated the FMC order and sent the case back to the commission "for further proceedings."

Evergreen Shipping Agency, a subsidiary of Taiwan-based Evergreen Marine, invoiced TCW in 2020 for detention charges for the "late return of a container and vehicle chassis." The shipper of the goods, Yamaha Motor Co., entered into a deal with Evergreen to transport motorcycles from Japan to Georgia. Yamaha designated TCW as its "Preferred Trucker," giving the firm 21 days of free time with Evergreen's container and four days of free time with its chassis.

Due to a "COVID-related closure at the Yamaha warehouse" in Georgia, TCW returned the container seven days late and the chassis 22 days late. Evergreen invoiced TCW $1,490 in detention charges. TCW objected to a portion of the charges on the grounds that the Georgia port was closed for two days.

The FMC found the detention fees to be "unjust," noting that "no amount of detention can incentivize the return of a container when the terminal cannot accept the container." The commission centered its decision on its "incentive principle," rejecting the claim that failing to impose the detention charges during the port closure "would have disincentivized the return of the container before the closure."

The D.C. appellate court said the FMC failed to "consider relevant facts," including "Evergreen’s allotment of 21 days of free time for the container and four days of free time for the chassis," TCW's obligation to pay detention charges, the Georgia port's announcement of the closure prior to TCW taking the container and the fact that free time on both the container and chassis expired before the port closure.

While acknowledging these points "in passing," the commission failed to explain "why they either were not relevant to whether the detention charges were just and reasonable" or "outweighed by countervailing considerations," the court said. The FMC treated its incentive principle as a "bright line" rule that replaces "reasonableness" -- something the commission itself warned against in publishing the rule.

The FMC said it would consider "additional or countervailing arguments or evidence" in each case. The commission acted arbitrarily and capriciously in committing to "making a circumstantial, fact-bound inquiry in the interpretive rule and then, when it came time to apply the rule, to jettison all but its favorite factor," the court said.

The commission also erred in finding that a "detention charge necessarily lacks any incentivizing effect because it is levied for a day on which abcontainer cannot be returned to a marine terminal," the decision said. Rather, being charged during a port closure that was announced before the carrier picks up the equipment "heightens the incentive to return equipment on time," the court noted.

The court called the FMC's position "illogical," illustrated by the "very reason it offered in its support," which is the need to consider the "broader context of freight fluidity throughout the supply chain." If the FMC is right, "they why would there be a logjam to avoid the detention charge?" the court asked.

"This logical inconsistency alone renders the Commission’s Order arbitrary and capricious."

An FMC spokesperson noted that the case is now back before the commission for review. The commission last year said it was monitoring ocean carriers and marine terminal operators to make sure they were complying with its ruling in this case, which specified that carriers and MTOs can't charge per diem detention charges if a port is closed and equipment can't be returned (see 2303230060).