Federal Maritime Commission Continues to Grapple with Detention and Demurrage Issues
- The Federal Maritime Commission (FMC) recently met to discuss its efforts to address ocean carriers' detention and demurrage practices, as well as improve supply chain data transparency.
- The FMC has released a pre-publication draft of an Advance Notice of Proposed Rulemaking (ANPRM) that seeks public comment on whether the FMC should require common carriers and marine terminal operators to provide certain information concerning (or with) demurrage and detention billings.
- The FMC is continuing various initiatives and audits following a 2021 memorandum of understanding between the FMC and the U.S. Department of Justice's Antitrust Division, along with President Joe Biden's "Executive Order Promoting Competition in the American Economy," concerning anti-competitive conduct and the potential for both criminal and civil violations.
- This Holland & Knight alert provides a review of the ANPRM and regulatory landscape for shipping companies and other participants in the maritime industry.
The Federal Maritime Commission (FMC or the Commission) met during both open and closed session on Jan. 27, 2022, to discuss the Commission's efforts to address ocean carriers' detention and demurrage practices, as well as improve supply chain data transparency. The session is the latest in the ongoing saga over the reasonableness of various detention and demurrage practices that have been under FMC scrutiny since before the COVID-19 pandemic.
The pandemic, however, has fueled increasing supply chain congestion throughout the transportation industry, which has exacerbated cargo fluidity problems and concerns in the shipper community about related costs and charges. Consequently, the FMC is continuing efforts to monitor, investigate and look for creative solutions during the ongoing supply chain crisis.
Meeting Overview and ANPRM
Topics discussed in the closed session included: 1) a briefing on the draft Advance Notice of Proposed Rulemaking (ANPRM), which would seek public comment on whether the FMC should require common carriers and marine terminal operators to provide certain information concerning (or with) demurrage and detention billings; 2) an update from Commissioner Carl Bentzel about the Maritime Transportation Data Initiative, an effort to use data to speed up the nation's cargo delivery system; and 3) issues pertaining to the Vessel-Operating Common Carrier (VOCC) Audit Program established in July 2021.
During the open session, the Commission discussed the Audit Team's data that reported sharp increases in demurrage and detention charges in 2021. FMC staff and Chairman Daniel Maffei explained that increases were expected in the context of the overall supply chain congestion situation, but Chairman Maffei noted that the data also warranted the Commission's ongoing attention to industry-wide detention and demurrage best practices.
The ANPRM discussed in the meeting was released in pre-publication form on Feb. 4, 2022. As set forth in the ANPRM, the Commission intends to solicit comments on whether the Commission should require ocean carriers and terminal operators to "include certain minimum information ... [and] to adhere to certain practices regarding the timing of demurrage and detention billings." Importantly, the ANPRM seeks comments on a broad array of detailed issues, including:
- distinctions in practices and interests among different stakeholders – e.g., VOCCs, non-vessel-operating common carriers (NVOCCs) and marine terminal operators (MTOs)
- a broad range of fees (which appear to potentially include congestion-focused fees)
- potentially required billing information and questions on regulation of billing practices and time limits for billing
- communication of, and the substance of, demurrage and detention waiver and dispute policies and practices
Responses to the ANPRM will be due 30 days from publication in the Federal Register. Potentially affected stakeholders should strongly consider preparing and submitting comments in response to the ANPRM.
Increased Focus from Executive Branch, DOJ
In addition to the FMC's efforts, cargo fluidity and increasing costs have been flagged as priorities by the executive branch, and echoed by FMC partnerships with other agencies concerning competition. For example, on July 9, 2021, President Joe Biden signed an "Executive Order on Promoting Competition in the American Economy," which is aimed at promoting competition across various aspects of the U.S. economy and undoing perceived monopolies. With regard to the shipping industry, President Biden ordered U.S. transportation agencies to crack down on anti-competitive conduct and fees that the rail and sea shipping industries have viewed as unjust in efforts to reduce costs to consumers. (See Holland & Knight's previous alert, "New Presidential Executive Order Targets Maritime Industry and Ocean Carriers," July 12, 2021.)
In their first-ever joint memorandum of understanding (MOU), the U.S. Department of Justice's (DOJ's) Antitrust Division and the FMC committed to interagency cooperation and assistance to promote "healthy competition in the maritime industry" and "protect the integrity of the marketplace" with respect to the U.S.-international ocean liner shipping industry, including marine terminal services. The MOU's express purpose is to improve each agency's effectiveness in carrying out its legal responsibility in "the enforcement of antitrust and other laws related to the [i]ndustry."
For the DOJ, that means criminal enforcement capabilities, and for shipping generally, that means enhanced scrutiny of competition matters both falling under the Shipping Act and potentially falling outside of the Shipping Act. Although the FMC and DOJ have different jurisdictional mandates when it comes to shipping matters, the DOJ has prosecuted violations in the ocean shipping industry before — notably price fixing and bid rigging in the roll-on/roll-off (Ro-Ro) shipping industry that led to criminal antitrust conspiracy charges against 13 industry executives and five companies, and yielded prison terms and criminal fines of more than $255 million.
In light of the MOU, as well as the renewed aggressiveness of the DOJ and the Biden Administration's Competition Executive Order, the maritime industry can well expect its practices to undergo increased scrutiny for both criminal and civil violations. Accordingly, it is an opportune time for shipping companies and other industry participants proactively to take a fresh look at their existing compliance policies to determine whether they are effective or whether modifications are warranted.
Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.