New Rules Affect Demurrage and Detention (D&D) Policies

On Tuesday, a new rule by the Federal Maritime Commission (FMC) of the US came into effect, creating a clear framework to deal with detention and demurrage charges (commonly known as D&D). Although this legislation will only have an impact on US cargo, it will likely become a standard for international shipping.

In broad terms, this new rule will require three changes on the shipping industry:

  1. Limiting the number of people that can be charged for D&D,
  2. Establishing a timeframe to when D&D charges can be applied, and
  3. Clearly outlining the required information to include in D&D charges.

The rule itself comes after nearly two years of the passage of the Ocean Shipping Reform Act (OSRA 2022) which focuses on ensuring “an efficient, competitive, and economical transportation system” in the US maritime industry. More specifically, this implied creating a clear set of rules to govern common interactions between shippers and carriers. 

When it comes to D&D charges, the fight had focused more specifically on the protection of shippers who, in recent years, had incurred a large number of surcharges imposed by the largest carriers around the world. 

The logic behind these charges is simple. Carriers can charge their clients if their cargo stays in a port longer than the allowed number of “free days” (demurrage charges) or if they take longer than expected to return an empty container (detention charges). However, a lack of transparency around D&D costs often resulted in frustration amongst clients who, after receiving their cargo, would endure unexpected surcharges.

In fact, between 2020 and 2022 alone, the FMC estimated that the nine largest carriers collected $6.9 bn from these charges. Some companies have gone as far as suing carriers for these increased and unexpected costs—including, most prominently, Peloton’s lawsuit against Flexport.

Now, with these new rules, the FMC hopes to make the D&D process more transparent in three key ways,

First, carriers are now only able to issue D&D charges to a single person. Furthermore, the charges can only be applied to either the consignee who will ultimately receive the cargo or the person who contracted the carriers for ocean transportation. Quite crucially, D6D invoices can only be issued to one party at a time, forcing carriers to choose carefully to whom they impose such costs.

Second, carriers now have a limited time frame upon which to establish D6D charges. Now, carriers must emit a D&D invoice within 30 days of when those charges were first incurred. Carriers, in turn, will have another 30 days to dispute or pay for siad charges.

Third, and finally, there are now clear information requirements that carriers must follow when emitting a D&D invoice. This, in great part, will allow shippers to identify the containers that are subject to sudden charges and dispute them if necessary. The minimal list of information contained in this new rule and first outlined in OSRA 2022 includes the following:

  1. Date that container is made available,
  2. Port of discharge,
  3. Container number or numbers,
  4. Earliest return date (for exported shipments),
  5. Allowed free time in days,
  6. Start date of free time,
  7. End date of free time,
  8. Applicable detention or demurrage rule on which the daily rate is based,
  9. Applicable rate or rates per the applicable rule,
  10. Total amount due,
  11. Email, telephone number, or other appropriate contact information for questions or requests for mitigation of fees,
  12. A statement that the charges are consistent with any of Federal Maritime Commission rules with respect to detention and demurrage, and
  13. A statement that the common carrier’s performance did not cause or contribute to the underlying invoiced charges.

While the long term implications of this rule remain unclear, it will certainly impact the shipping industry as a whole, keeping transparency as a driving force. Not to mention the possibility that other federal agencies will soon follow the FMC’s example.

Picture by frank mckenna for Unsplash