The passage by the United States Congress of the Ocean Shipping Reform Act (OSRA), which was signed in June, has opened the floodgates for complaints filed by shippers and importers against ocean carriers, and the U.S. Federal Maritime Commission (FMC) is pushing for more levers to reign in anticompetitive acts by the shipping lines.
The legislation aims primarily to prevent international ocean carriers from declining cargo from bona fide U.S. exporters and to move against excessive carrier charges for demurrage and detention. The FMC gains more powers to investigate carriers’ business practices and apply enforcement measures.
Shippers wasted no time filing complaints on alleged detention and demurrage charges. Between mid-June and late November, the FMC received 175 filings, which translates into over 30 cases reported each month.
Over the past couple of years, the ocean carriers have collected record amounts of money in detention and demurrage fees, and their charges have often been deemed opaque. OSRA requires them to provide more details on those charges and shifts the burden of proof to them.
According to the National Industrial Transportation League (NITL), unreasonable detention and demurrage fees have cost U.S. businesses billions of dollars.
Among a flurry of recent complaints filed against MSC is one by MVM Logistics, which ceased trading in February of 2022. The claim alleges that MSC caused delays, for which late charges were applied, augmented by “late gate” charges for truckers failing to pick up the boxes, which was often impossible, as the pick-up windows were too short to accommodate all truckers showing up.
Another complaint about MSC claims that a lengthy inspection process by customs officers of one container out of a consignment of 10 boxes resulted in a charge of US$114,000 for all 10 units. Yet another shipment that was stuck in customs for four months incurred US$260,000 in detention and demurrage charges from the ocean carrier.
Shipping lines have argued – in the same vein as U.S. rail carriers – that detention and demurrage charges have been necessary to push importers to collect containers in a timely manner and not use carrier terminals or containers parked at their own facilities for supplemental storage capacity.
Without a doubt, this has happened, but in many cases, beneficial cargo owners were unable to collect containers and were still charged.
There has been criticism of OSRA, depicting it as an attempt to address pricing, but NITL executive director Nancy O’Liddy in Washington refuted this as missing the point of the legislation.
“The law’s updated policies are to provide the Federal Maritime Commission with additional tools to better identify, prevent and hold ocean carriers accountable for unfair or deceptive practices and behaviours – many of which created a market where freight rates and ancillary charges skyrocketed unreasonably to the detriment of U.S. businesses,” she said.
FMC commissioner Carl Bentzel remarked that the failure of ocean carriers to adhere to shipping contracts has been a massive problem. He added that the FMC had received complaints alleging that ocean carriers had retaliated against beneficial cargo owners that had complained about their charges.
In mid-December the FMC requested the Top 20 shipping lines serving the U.S. to provide information on how they comply with new prohibitions on retaliation established in OSRA. These apply to common carriers, marine terminal operators and ocean transportation intermediaries.
“The Ocean Shipping Reform Act made it clear that it is absolutely illegal for ocean carriers to discriminate or retaliate against a shipper for filing a complaint or challenging a charge. The FMC will thoroughly investigate any allegation of illegal behaviour and prosecute aggressively when warranted,” declared FMC chairman Daniel Maffei.
Rules for OSRA are not going to be finalized until the coming summer. Until then the FMC is investigating complaints under rules for interim procedures that were announced at the beginning of December. Upon receiving a complaint, it contacts the carrier to respond and justify the charges. If the investigation supports a finding that the carrier’s charge is not in compliance, the FMC will issue an Order to Show Cause to the carrier and, based on the reply it receives, make a decision on whether or not the charges are in compliance with the law. In addition, the FMC may initiate a separate civil penalty proceeding.
The final rules will be in place by mid-June. The FMC received 115 comments from the shipping industry for the proposed rulemaking process. Beneficial cargo owners suggested that the window for charges, which can be as long as 90 days from detention, should be narrowed to make it easier for them to determine if a charge is valid. They also want a tighter focus on situations where charges are levied although appointments to pick up or drop off containers were not available.
Another suggestion was that invoices should be issued by the carriers and not marine terminal operators, as the latter rarely have contractual relationships with the cargo owners.
Terminal operators and carriers reiterated their argument that restricting their ability to use fees to encourage speedy box collection or drop-off might affect cargo flows at ports.
For their part, FMC commissioners have called for amendments that would give the organization the ability to block ocean carrier agreements like space charters or vessel-sharing deals if they are determined to reduce competition.
Currently, the FMC must file a lawsuit to block such agreements and has the burden of proof to demonstrate that such a deal is anti-competitive. Instead, the commissioners want to have the authority to issue an injunction against an agreement and shift the burden of proof to the carriers.
Maffei said earlier in the year that existing rules do not allow enough time to review vessel-sharing arrangements. If market conditions change to make an existing agreement anti-competitive, those deals remain in place, limiting the ability of the FMC to mount a challenge, he added.
By Ian Putzger
Correspondent | Toronto
