US regulator FMC increases scrutiny of ocean carriers’ detention & demurrage practices

The US Federal Maritime Commission (FMC) has increased its scrutiny of international carriers by establishing a new audit programme and dedicated team to assess carrier compliance with the agency’s rule on detention and demurrage.

The “Vessel-Operating Common Carrier Audit Program” was established officially on Monday July 19th at the direction of FMC Chairman Daniel B Maffei. It will launch immediately.

The programme will analyze the top nine carriers by market share for compliance with the Commission rule, interpreting 46 USC 41102(c) relating to detention and demurrage practices in the US. The FMC said of the nine largest carriers (Maersk, MSC, CMA CGM, COSCO, Hapag-Lloyd, ONE, Evergreen, HMM and Yang Ming) would be audited irrespective of whether a formal or informal complaint had been filed.

The FMC said it would work with companies to address their application of the rule and to clarify any questions or ambiguities. Information supplied by carriers could also be used to establish industry best practices. Other areas of the audit process might include practices of companies related to billing, appeals procedures, penalties assessed by the lines, and any other restrictive practices.

A few weeks ago President Biden issued an executive order directing over a dozen federal agencies to take action to promote competition in the American economy and urge a crack down on anti-competitive practices. In that order the FMC was directed to take steps to protect American exporters from high costs imposed by ocean carriers and to crack down on “unjust and unreasonable fees,” including detention and demurrage charges, which have risen dramatically during the pandemic.

Detention and demurrage charges cover the use of shipping containers beyond a free time period and are applied to encourage timely pickup and return of cargo and equipment.

When White House Press Secretary Jen Psaki announced the president’s EO she noted that just three foreign-owned shipping alliances now controlled more than 80% of the market. She said that this had contributed to a spike in shipping costs and fees during the pandemic, leaving exporters at the mercy of large non-US companies.

Chairman Maffei  said that “the Federal Maritime Commission is committed to making certain the law is followed and that shippers do not suffer from unfair disadvantages”, adding that “the work of the audit team will enable the Commission to monitor trends in demurrage and detention practices and revenue, as well as to establish ongoing dialog between staff and carriers on challenges facing the supply chain. Of course, if the audit team uncovers prohibited activities, the Commission will take appropriate action. Furthermore, the information gathered by the audit process might lead to changes in FMC regulations and industry guidance if warranted.”

That EO was followed by the FMC and Department of Justice’s Antitrust Division signing an agreement to increase cooperation and communication in oversight and enforcement responsibilities of the ocean liner shipping industry. That agreement, a first between the FMC and DOJ, established a framework for the two agencies to continue regular discussions and review law enforcement and regulatory matters affecting competition in the shipping industry.

The audit programme and the audit team initially will be comprised of existing Commission employees. Lucille Marvin, the Commission’s Managing Director, will lead both.