In the maritime industry, detention and demurrage charges are crucial for managing the logistics of cargo transportation. These charges serve as penalties for the late pickup of cargo or delayed return of containers, ensuring that the flow of goods remains uninterrupted.
However, the lack of standardized billing practices has often led to disputes and confusion among stakeholders. To address these issues, the Federal Maritime Commission (FMC) has issued a Final Rule on detention and demurrage billing requirements.
This article delves into the specifics of the rule, its implications, and the practical steps industry stakeholders must take to comply.
Background
FMC’s Role in Maritime Regulation
The Federal Maritime Commission (FMC) plays a vital role in regulating the U.S. maritime industry. Established to ensure fair and efficient ocean transportation, the FMC oversees various aspects of maritime commerce, including detention and demurrage charges. Historically, the FMC has implemented regulations to promote transparency and fairness in billing practices, but the complexities of these charges have persisted.
Legislative Framework
The Ocean Shipping Reform Act of 2022 (OSRA 2022) mandated the FMC to develop reasonable rules and practices regarding detention and demurrage. The FMC’s Final Rule, issued on February 26, 2024, aims to fulfill this mandate by establishing clear billing requirements that enhance transparency and accountability in the industry.
Key Provisions of the Final Rule
Contents of Invoices
One of the most significant aspects of the FMC’s Final Rule is the detailed specification of the contents that must be included in detention and demurrage invoices. These requirements aim to eliminate ambiguities and disputes by providing clear and comprehensive information.
Mandatory Information Requirements
Invoices must now include specific identification details, such as the bill of lading number, container number, and the dates when charges were incurred. Additionally, the invoices should specify the applicable rates and provide a detailed explanation of the charges. Importantly, the rule mandates clear instructions for disputing charges and requires certain certifications to ensure the accuracy of the information provided.
Implementation Timeline
Initially, the effective date for these detailed invoice requirements was postponed to allow for the Office of Management and Budget (OMB) review. However, as of May 13, 2024, the OMB has approved the rule, and all provisions, including the detailed invoice requirements, took effect May 28, 2024.
Billing Parties and Timeframes
Eligible Billing Parties
The Final Rule stipulates that demurrage or detention invoices can only be issued to either the person who contracted with the billing party for ocean transportation or storage of cargo, or the consignee, defined as the ultimate recipient of the cargo. This provision prevents multiple parties from being billed simultaneously, thereby reducing confusion and disputes.
Billing Timeframes
Vessel-operating common carriers (VOCCs) and marine terminal operators (MTOs) are required to issue invoices within 30 calendar days from when charges were last incurred. Non-vessel-operating common carriers must issue invoices within 30 days from the date they receive an invoice. Billed parties then have at least 30 calendar days to request fee mitigation, refunds, or waivers, with the expectation that the billing party will attempt to resolve these requests within 30 days.
Recent Developments and Challenges
World Shipping Council’s Challenge
The World Shipping Council (WSC) has raised significant challenges to the Final Rule. On April 18, 2024, the WSC filed a petition in the United States Court of Appeals for the District of Columbia Circuit, arguing that the rule is contrary to the Ocean Shipping Reform Act of 2022 (OSRA 2022), exceeds the FMC’s authority, and is arbitrary and capricious.
Legal Challenge Overview
The WSC’s primary concerns revolve around what it perceives as internal contradictions between the preamble and the text of the Final Rule. The Council seeks clarity from the Court on whether the Final Rule aligns with the OSRA 2022 mandate to implement reasonable rules and practices for assessing detention and demurrage charges.
Litigation Status
Despite the challenge, the WSC did not seek to stay the effective date of the rule. The Final Rule took effect as planned on May 28, 2024 since the court did not rule otherwise. Stakeholders must, therefore, begin to comply with the rule, which is now in effect.
FMC’s Correction to the Final Rule
Clarification of the Rule’s Scope
In response to the WSC’s litigation and other inquiries, the FMC issued a correction on May 9, 2024, to clarify the scope of the Final Rule. This correction addresses ambiguities in the preamble by explicitly stating that the rule only applies to carrier-trucker relationships on through bills of lading.
Implications for Carrier-Trucker Relationships
The correction clarifies that contracts between ocean carriers and motor carriers not based on through bills of lading are likely outside the scope of the Final Rule. This clarification helps stakeholders understand the exact boundaries of the FMC’s jurisdiction and ensures that the rule is applied consistently.
Practical Implications for Industry Stakeholders
Compliance Requirements
Steps for Ensuring Compliance
To comply with the FMC’s Final Rule, stakeholders must review and update their billing practices to include the required information. Training staff on these new requirements is essential to ensure that invoices are accurate and complete.
Risk Management
Non-compliance with the rule can result in significant penalties. Therefore, it is crucial for stakeholders to develop strategies to mitigate these risks, such as implementing robust compliance programs and conducting regular audits of billing practices.
Operational Adjustments
Impact on Operational Practices
The new requirements will necessitate changes in how detention and demurrage charges are managed. Companies may need to update their billing systems and processes to ensure they can issue compliant invoices within the specified timeframes.
Stakeholder Communication
Clear communication with customers and partners is vital to prevent disputes and ensure smooth operations. Providing detailed and accurate invoices will help build trust and reduce the likelihood of disputes. Additionally, having clear procedures for handling disputes will facilitate timely resolution.
Conclusion
The FMC’s Final Rule on detention and demurrage billing requirements marks a significant step towards transparency and fairness in the maritime industry. By establishing clear billing practices and timelines, the rule aims to reduce disputes and enhance the efficiency of cargo transportation.
As industry stakeholders prepare to comply with these new requirements, staying informed and proactive is crucial. Non-compliance risks can be mitigated through robust compliance programs and clear communication with all parties involved.
