Freight forward lessons to Africa: US demurrage charges

According to The Loadstar, the US regulatory body, the Federal Maritime Commission (FMC) is backing proposals with the objective of reforming how demurrage and detention fees are levied by ocean carriers on shippers and consignees in the United States.

For many years ocean carriers have made “free time” penalties, like demurrage and detention, a major cost for importers and exporters, often threatening to lock out truckers and or hold containers pick ups for those who did not pay immediately these charges, making shippers and exporters protest very difficult.

The main change to be implemented in the US is that charges will be suspended in cases when shippers and or exporters (or even their 3 PLs) are prevented from moving cargo out of the terminals by factors beyond their control.

Following an 18 month investigation into the topic by FMC commissioner Rebecca Dye, the FMC announced last Friday it had formally adopted her recommendations.

In a letter to the commission Ms Dye stated that “… the rule flows from the longstanding principle that practices imposed by tariffs, which are implied contracts by law, must be tailored to meet their intended purpose.

In case of demurrage and detention fees, the purpose is to act as financial incentives to cargo interests to retrieve cargo and return equipment.

Absent extenuating circumstances, however, when incentives no longer function because shippers consignees are prevented from picking up cargo or returning containers within time allotted, charges should be suspended.”

The measure to be put in place brings to the surface at least two major issues that are very common in many ports of southern Africa:

  1. Application of charges

On this regard and from my own (20 years+) experience in the freight forwarding industry, these charges are being applicable to cargo owners with no regard for the circumstances that might have originated them like, for example: port congestion or late notice of containers availability. You will note that on these two examples we have the same supplier: the container terminal operator.

It is curious, to say the least, to note that on the cases where the liability runs for the port terminal the charges are always being paid by the cargo owner.

Now imagine when the port operator is a company that it is hold directly or indirectly by a shipowner company – An issue to be addressed in a new future.

It is also fair to say that besides the port container terminal operator there are  the other stakeholders in the process and might be liable for such costs. 

But it is also much more fair to say that shippers and consignees should not pay fees when they are nor liable for delivering equipment out of the free time.

  1. Notice of container availability by the port container terminal and other procedures.

It is worth mentioning that in some cases the lack of container availability information is a key factor for the application of such fees because the free time starts to count before that communication.

We must add to the problem that the port booking procedures to get the release of the containers from the port terminal might have to be taken in consideration as well because of the time that usually ports take to make containers available.

The new definition of the application of these charges, that are currently a consistent source of revenue for the shipping lines, will force a major development of tools to speed up the process of making available the containers to cargo owners.

So we will most probably see major increase on equipment in those containers terminals and more technology to support the container port services.

This is a major victory for shippers and consignees that will apply for sure in  the near future in the rest of the world.

In southern Africa, the implementation of this rule will depend on the strength of the supervision entities of each state and or organisations (SADC for example) to ensure the protection of shippers in each country.

Pedro Monjardino – Managing Partner of Strategic Consulting

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