FMC Lastly Acts on Unfair Charges with Hapag-Lloyd Wonderful

On Friday, the Federal Maritime Fee (FMC) served its preliminary determination, fining Hapag-Lloyd over $800,000 for violating the Transport Act by assessing unfair detention charges in opposition to a drayage firm referred to as Golden State Logistics (GSL). Among the many determination’s orders are that:

… Hapag-Lloyd, A.G. is liable to america for the sum of $822,220 as a civil penalty for fourteen willful and figuring out violations of part 41102(c) of the Transport Act of 1984. It’s

FURTHER ORDERED that Hapag-Lloyd, A.G. and its brokers stop and desist, absent extenuating circumstances, from imposing demurrage or detention when there are inadequate appointments accessible…

This seems like an enormous win for shippers, who’ve lengthy complained about unfair demurrage and detention charges assessed by ocean freight carriers like Hapag-Lloyd, however will this be sufficient to discourage carriers from persevering with to cost these charges unfairly?

The Lead-Up of Unfair Detention and Demurrage Charges

The difficulty turned particularly pronounced throughout the pandemic. In November of 2020, when a robust and already prolonged peak season was seeing port congestion, I wrote in Common Cargo’s weblog about how that congestion was inflicting shippers to unfairly be hit with demurrage and detention charges. As cargo quantity and disruptive Covid insurance policies and occasions within the provide chain stored compounding port congestion, unfair demurrage and detention charges turned one thing of a motif in Common Cargo’s weblog all through the pandemic.

Unfair detention and demurrage charges at all times appear to develop into particularly prevalent when there’s port congestion. Particularly main port congestion.

Suppose again to when imported items didn’t make it to retailer cabinets and agricultural exports rotted on the docks due to the congestion attributable to the 2014-15 contentious contract negotiations between the Worldwide Longshore & Warehouse Union (ILWU) and the Pacific Maritime Affiliation (PMA). The financial influence on the nation could possibly be measured within the billions as U.S. shippers misplaced income and worldwide enterprise partnerships because of the pricey delays of shifting their items by way of West Coast ports. And prime of that, they have been hit with unfair detention and demurrage charges.

These charges in 2014 and 2015 have been so extreme and dangerous that, in June 2015, the Los Angeles Customs Brokers and Freight Forwarders Affiliation (LACBFFA), together with 94 different organizations, was petitioning the FMC to ban the unfair follow and I used to be protecting it on this weblog.

Among the many many such blogs I wrote regarding detention and demurrage charges which have lengthy plagued shippers, the FMC has performed a featured however in the end disappointing position. There was “FMC Investigating Detention, Demurrage & Per Diem Expenses” in March of 2018 that had shippers hoping to lastly see motion from the fee on the problem.

After an 18-month reality discovering investigation into detention and demurrage charges, Commissioner Rebecca Dye put ahead an interpretative rule designed to make the evaluation of detention and demurrage charges affordable. Commissioner Dye wrote:

These monetary incentives function to make sure that cargo pursuits do every thing usually required to be positioned to retrieve cargo and return tools inside the time allotted. Absent extenuating circumstances, nevertheless, when incentives not operate as a result of shippers are prevented from choosing up cargo or returning containers inside time allotted, fees ought to be suspended.

I coated this in additional element in September of 2019 with a publish entitled “FMC Lastly Addresses Unfair Demurrage & Detention Expenses.” It lastly appeared like shippers might need lastly gotten some motion from the FMC with this interpretative rule, however in fact, inside months they have been being hit as onerous or tougher than ever with unfair demurrage and detention charges.

In October of 2020, complaints in regards to the charges have been so loud that the FMC invited shippers to touch upon the equity of ocean service billing. However that too simply felt just like the fee pacifying shippers as I used to be writing about shippers nonetheless awaiting motion on charges in April of 2021.

Nevertheless, Commissioner Dye’s work did lead to a last Interpretive Rule on Demurrage and Detention beneath the Transport Act (“demurrage and detention rule”). The over $800,000 effective on Hapag-Lloyd is a direct results of that, because the FMC wrote in its determination:

This continuing is the Fee’s first enforcement continuing alleging a violation of the demurrage and detention rule.

Deterrence of Future Unfair Charges?

Now the query is whether or not this determination will considerably lower the implementation of unfair detention and demurrage charges in opposition to shippers sooner or later.

As a named occasion within the case, the FMC’s Bureau of Enforcement (BOE) acted like a prosecutor in opposition to Hapag-Lloyd and wished a a lot larger penalty levied in opposition to transport line. BOE requested a penalty of $16.5M to assist deter future violations:

BOE calculates the requested penalty utilizing the statutory most for a figuring out and willful violation in 2022, for eleven containers, for a unbroken violation of 228 days till the submitting of BOE’s transient ($65,666 x 11 x 228=$164,690,328) and argues that ten p.c is critical to discourage future violations and due to this fact requests a civil penalty of $16.5 million.

The FMC didn’t discover it match to effective Hapag-Lloyd that a lot. The fee mentioned that although “a big penalty is required to discourage future violations and guarantee compliance
with the demurrage and detention rule,” the “penalty should be proportional to the violation established, notably the place BOE didn’t set up a violation for all eleven shipments or for all days of detention.” As a substitute of $16.5M, the FMC went with $58,730 per violation for fourteen violations, which got here to the aforementioned $822,220 penalty complete.

Whereas that a lot cash would probably sink the common shipper’s enterprise, the effective is moderately negligible for Hapag-Lloyd. Main ocean freight carriers have been pulling in income by the billions over the past couple years, and Hapag-Lloyd isn’t any totally different.

Hapag-Lloyd itself reported, in a press launch in January, in regards to the billions the corporate took in final yr:

On the premise of preliminary figures, Hapag-Lloyd’s earnings earlier than curiosity, taxes, depreciation and amortisation (EBITDA) for the 2021 monetary yr elevated to greater than USD 12.8 billion (roughly EUR 10.9 billion). Earnings earlier than curiosity and taxes (EBIT) rose to roughly USD 11.1 billion (roughly EUR 9.4 billion)….

Revenues elevated to roughly USD 26.4 billion (roughly EUR 22.3 billion).

these numbers, Hapag-Lloyd might have paid the proposed $16.5M quantity fairly simply. You’re guess is pretty much as good as mine as as to whether the effective Hapag-Lloyd was hit with will truly deter the corporate or different ocean freight carriers from persevering with their use of unfair detention and demurrage charges. Detention and demurrage charges gained’t go away, however perhaps carriers will probably be extra cautious about imposing unreasonable ones when shippers are unable to clear or return containers resulting from port congestion.