The US Federal Maritime Commission’s (FMC) increased scrutiny of liner shipping congestion charges should give cause for concern for container ship operators, according to shipping law specialist Holman Fenwick Willan (HFW).
Earlier this month, the FMC initiated an expedited Enforcement Inquiry into the legality of congestion charges, in particular demurrage and detention charges. The catalyst for the Inquiry is a March 31, 2020 Order of Investigation that required the FMC to “engage supply chain stakeholders in public or non-public discussions to identify commercial solutions to certain unresolved supply chain issues that interfere with the smooth operation of the US international supply chain”.
The Enforcement Inquiry also follows a July 9, 2021 Executive Order (EO) issued by the Biden Administration.
“The recent turn of events indicates that the FMC’s enforcement branch may take a more active role during the Biden Administration than in the past,” said HFW’s Michael Wray, Chris Hart and Melanie Fridgant. “Stakeholders should carefully monitor these developments as the FMC and US Department of Justice implement the EO. Stakeholders should also consider reviewing their current contractual arrangements and ensure that their compliance programs can withstand heightened regulatory scrutiny, the experts added.
The recent turn of events indicates that the FMC’s enforcement branch may take a more active role during the Biden Administration than in the past
FMC background
HFW explains that the FMC is an independent federal agency tasked with the regulation of the US’ international ocean transportation system for the benefit of all parties including importers, exporters, and consumers. Of interest to this move is the FMC’s Bureau of Enforcement (BOE), which
investigates potential violations of the Shipping Act of 1984 and FMC regulations, and conducts other fact-finding investigations initiated under US shipping laws within the FMC’s jurisdiction. Under Fact Finding 29: ‘International Ocean Transportation Chain Engagement’ the FMC investigated Covid-19 cargo delivery challenges.
The background to the latest investigation is that while the original March 31 Order of Investigation focused on commercial solutions, a supplemental order issued on November 19, 2020 to address certain stakeholders’ concerns saw the FMC charged with investigating practices by alliance carriers calling at the Port of New York and New Jersey, or the Port of Long Beach and the Port of Los Angeles to determine whether they comply with US shipping laws. It was clear from an advice note that an assessment of demurrage and detention charges by ocean carriers and marine terminal operators was the main focus of the investigation.
Then on July 20, 2021, the FMC announced the establishment of a new audit program to assess carrier compliance with FMC regulations on detention and demurrage as well as to provide additional information beneficial to the regular monitoring of the marketplace for ocean cargo services. HFW’s experts explained: “The FMC stated that the audit program was initiated to
address widespread and prolonged complaints from importers, exporters and motor carriers regarding increasing demurrage and detention charges assessed during periods of port congestion and growing scrutiny by Congress.”
I want to know the carriers’ justifications for additional fees and I strongly support close scrutiny by the FMC’s Bureau of Enforcement aimed at stopping any instance where these add-on fees may not fully comply with the law or regulation
Why now?
HFW makes the link between the FMC’s increased scrutiny and President Biden’s July 9, 2021 EO, entitled “Promoting Competition in the American Economy”. The EO focused on strengthening the open market in the US and promoting fair competition. There was a pointed reference to shipping in the EO with the FMC directed to ensure “vigorous enforcement against shippers charging American exporters exorbitant charges” and to “consider further rulemaking to improve detention and demurrage practices and enforcement of related Shipping Act prohibitions”. HFW pointed out that the EO instructed the FMC to revisit antitrust policies, particularly in light of the high level of consolidation that has occurred in the container industry over recent years.
Moving to the present day, the FMC has now launched its Inquiry into the timing and legal sufficiency of ocean carrier practices with respect to certain surcharges. “The BOE asked eight ocean carriers to provide details about congestion or related surcharges they have implemented or announced. This action was taken in response to communications received by the FMC from multiple parties reporting that ocean carriers are allegedly improperly implementing congestion surcharges,” said HFW.
The hike is in part blamed on the Covid-19-related rise in demand for containerised goods, which has driven freight rates to historic highs and led to an increase in congestion surcharges.
FMC chairman, Daniel Maffei noted that the growth in congestion charges is far from the exception and suggested that these charges should already be incorporated in carriers’ exorbitant fees. “I want to know the carriers’ justifications for additional fees and I strongly support close scrutiny by the FMC’s Bureau of Enforcement aimed at stopping any instance where these add-on fees may not fully comply with the law or regulation,” he said.
After examining the responses of the carriers, the FMC will determine firstly whether the surcharges were implemented following proper notice; secondly, if the purpose of the surcharge was clearly defined; and thirdly, if it is clear what event or condition triggers and/or terminates the surcharge, HFW explained. If the FMC finds that a tariff was improperly established, it can take enforcement action.
“For the past year, there has been significant regulatory and political attention on Covid-19 supply chain issues,” HFW said. “While ocean shipping and intermodal transportation charges are historic points of contention between industry stakeholders, the change in Administration and the FMC’s announcements make it clear that there will be greater regulatory scrutiny in this area, which may lead to vigorous enforcement action.”
Source: The Baltic Briefing