As the Federal Maritime Commission (FMC) keeps pressure on ocean carriers over their enforcement of detention and demurrage (D&D) fees, one container shipping line saw a rare win for the industry that could set a precedent in how these cases play out going forward.
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On Friday, Evergreen won an appeal in the U.S. Court of Appeals in Washington, D.C. in its case against the agency regarding the application of these late fees. As part of its ruling, the court ordered the FMC to review a prior decision that waived $510 in charges that the ocean carrier slapped on a trucking company back in 2020.
The court criticized the FMC’s application of its own interpretive ruling designed to determine the “reasonableness” of the late fees, saying it was too narrow-minded. The court said the agency failed to consider relevant factors due to its focus on the ruling’s “incentive principle”—which broadly states that D&D charges should incentivize cargo flow—therefore ignoring the reasons behind the charges in the first place.
The court didn’t hold back in its words to describe the FMC’s position, calling it “illogical” and “myopic.”
In May 2020, Evergreen invoiced TCW, Inc. $1,490 in detention charges for the late return of a container and vehicle chassis at the Port of Savannah . TCW objected to the $510 charged for May 23-25, with the trucking firm saying it was unable to return the equipment because the port was closed. Evergreen refused to waive the charges.
TCW paid the invoice in full and then filed a complaint against Evergreen with the FMC’s small claims program, with the trucking company calling the $510 charge “unjust and unreasonable” because it could not have returned an empty container when the port was closed and therefore the charge could not have been a “motivating factor for increasing cargo fluidity.” The small claims officer issued an initial decision in favor of TCW.
In December 2022, the FMC affirmed that the D&D charges collected from TCW were unjust and unreasonable.
Evergreen petitioned the appellate court for a review in October 2023, arguing that the commission’s application of the interpretive ruling was “arbitrary and capricious.” The Taiwan-based container shipping liner said the FMC failed to respond reasonably to its arguments and adequately analyze the incentive effect of the detention charges.
The court agreed with Evergreen’s claims.
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“Being charged for detention during a port closing [that was] announced before the carrier picks up the equipment heightens the incentive to return equipment on time,” quipped the court in its decision. “If the Commission is right that there is no incentivizing effect from charging detention fees on a weekend when a port is closed, then why would there be a logjam to avoid the detention charge?”
The World Shipping Council applauded the appeals court’s opinion.
“The opinion is an important reminder that the law applies to everyone, including an agency that issues regulations as well as the companies covered by those regulations,” said World Shipping Council president and CEO John W. Butler in a statement. “For regulation to be effective and fair, it needs to be clear and predictable. The FMC’s ruling that was vacated by the D.C. Circuit failed on both counts, and the Court made the right decision in recognizing the Commission’s mistakes in this case.”
Since the passing of the Ocean Shipping Reform Act of 2022 (OSRA) two years ago, the FMC has frequently sided with shippers in disputes over D&D fees. That legislation not only gave the FMC more oversight over those charges, but effectively shifted the burden of proof for the “reasonableness” of the fees to ocean carriers instead of shippers.
Under OSRA, D&D bills must be transparent on how the fees are calculated and include contact information on how shippers can request to waive the fees. An update to the rule went into effect May 28 to provide more clarity on who can be billed, the allowed timeframe for billing and the process for disputing the fees.
Much of the controversy surrounding these fees stems from the major profiteering the ocean carriers experienced during the peak supply chain congestion of the Covid-19 pandemic, when freight rates reached all-time highs. During that time, shippers levied other allegations against the container shipping companies, namely that they failed to meet service commitments and charged extra for peak season surcharges.
In one such recent instance, Peloton filed an FMC complaint against Flexport for failing to move its cargo in a timely manner over a three-year period, putting the lifestyle brand on the hook for “millions” in extra D&D charges.
Mediterranean Shipping Company (MSC), the largest container shipping company in the world, has been the center of multiple OSRA-related cases, including a massive $316 million complaint from Bed Bath & Beyond alleging breached service commitments from 2020 to 2022. In April, the FMC demanded MSC pay a civil penalty of $63.3 million on allegations of “knowingly and willfully” violating the U.S. Shipping Act.
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