Commissioner William P. Doyle’s remarks to the European Maritime Law Organization (EMLO) Spring Seminar
April 17, 2015
Good morning members of EMLO, Honorable Lord Phillips, EMLO Secretary General Braakman and our hosts Mr. Eugenides and Dr. Bredima. Thank you for inviting me to join with you today to discuss international shipping matters.
The views I am going to share with you are mine and do not necessarily reflect those of the Federal Maritime Commission or my fellow Commissioners.
I am a marine engineer and a lawyer. I favor practical solutions first, rather than legal action.
It’s been busy in the U.S. and my agency the Federal Maritime Commission is actively involved in a whole host of matters related to container shipping and ports.
The Federal Maritime Commission has been very busy monitoring carrier alliances and helping to alleviate port congestion.
I will discuss carrier alliances in relation to port congestion and then discuss recent actions taken by the Commission with respect to the Pacific Ports Operational Improvements Agreement and the Commission’s latest report on demurrage, detention and free time.
Addressing port congestion has been one of the Commission’s top priorities.
There is evidence that some carrier alliance models are contributing to port congestion at terminals in the United States. As a subpart, larger ships in general are stretching the capacity of some gateways.
In my view, we could be experiencing some growing pains, not so much with the two-or-three company-sized alliances, but instead with the alliances that contain a larger number of companies. The problems stem from vessels not meeting their scheduled windows thus, resulting in vessel bunching upon reaching the discharge ports. Once at the terminal, these new larger ships discharge cargo one ship after the other—swamping the terminal.
In addition, with respect to the Asia – U.S. West Coast trade, the vessel loading plans have changed with the new alliances in many instances—the block loading of containers at the load ports in some cases are disorganized and leading to confusion at the discharge terminal. Upon discharge, the containers are scattered all over the west coast terminal(s) making it difficult and time consuming for the truckers and shippers to retrieve their cargo. These are just some of the issues the FMC is examining, and it may be that the FMC initiates more stringent monitoring and information requests on the alliances. But, time will tell, I am one vote of a five member Commission. Nonetheless, I intend to support the placement of monitoring alliances on the agenda of an upcoming Commission meeting.
The West Coast is actively making improvements and developing creative work-arounds. The ports of Los Angeles and Long Beach have developed near terminal depots or drop yards. Currently the ports have located two parcels of property to help manage the flow of cargo (30-acre and 22 acre parcels). Basically, the yards are available for the shippers to have their block-stacked containers immediately diverted from the marine terminal to the drop-yards. The shipper would then send a trucker to the yard to pick-up the inbound containers and deliver to the shipper’s distribution center. The trucker would then bring an empty container back to the drop-yard, unload it, and keep the chassis in order to return to the marine terminal to pick-up another inbound container. The yard would then schedule drayage pick-up for the empty container to return to the ocean carrier.
On Wednesday, April 15, 2015, the FMC unanimously voted to allow the Pacific Ports Operational Improvements Agreement to go into effect. This agreement was filed with the Commission on March 3, 2015 and is scheduled to go into effect today (April 17, 2015). The agreement, filed by parties including members of the West Coast Marine Terminal Operators Agreement (WCMTOA) and the Ocean Carrier Equipment Management Association (OCEMA), will allow parties to discuss factors contributing to congestion, delays at marine terminals and inefficient interchange of equipment, with the ultimate goal of creating ways to address the problems. The cooperative efforts of stakeholders aim to make operations throughout the ports more efficient. The Agreement is a major step toward having key parties cooperate and work together on a common goal of increasing the flow of goods throughout the West Coast.
The filing parties needed the FMC’s approval in order to discuss joint operation matters as required by the U.S. Shipping Act. Under the agreement, which will be monitored by the FMC, parties cannot discuss, negotiate or agree upon freight rates or compensation.
Demurrage, Detention and Free Time
On Monday, April 13, 2015, the FMC issued a report on detention, demurrage and free time. The fees, in my view, are having a negative impact on the fair, efficient and reliable movement of ocean cargo.
The report is styled "Rules, Rates, and Practices Relating to Detention, Demurrage, and Free Time for Containerized Imports and Exports Moving Through Selected United States Ports" and is posted on the Commission’s website: http://www.fmc.gov/assets/1/Page/reportdemurrage.pdf
The report is a natural follow-on to port congestion forums held by Commissioners late last year in Los Angeles, Baltimore, Charleston and New Orleans.
We heard from many importers, exporters, and drayage trucking companies complaining about demurrage and detention charges that they must pay even though they cannot timely access their cargo or drop it off before free time expires.
To be clear, demurrage is a fee for the use of space at a terminal; detention is a fee for the use of equipment such as containers and chassis; and free time is the grace period for which neither of these charges will be incurred.
The report reviews the published rules tariffs of a sample of six vessel-operating common carriers at 32 terminals across the United States, and reveals that average total prices for both demurrage and detention may be higher for importers than exporters and higher for demurrage than detention. The vessel operating common carriers (VOCCs), rather than marine terminal operators (MTOs), generally control these prices and policies affecting importers and exporters directly. The demurrage and detention rates for the VOCCs whose tariffs were studied vary somewhat depending on port and terminal, but the terminology and application of charges with similar names are distinct across these VOCCs, making direct comparisons difficult.
According to the report, operationally, it appears that congestion begets further congestion, which in turn may result in higher costs for everyone in the supply chain. The report does not attempt to reflect the total cumulative effect of the additional expense of congestion on the national economy.
It states that U.S. importers and exporters have expressed their belief that the demurrage and detention practices of MTOs and VOCCs are unfair. One shipper told Commission staff that it has paid over $100,000 in demurrage charges in the last year, as compared to paying approximately $10,000 for the previous year.
The delays in picking-up and returning equipment are out of the control of importers, exporters and truckers and widely viewed by the affected parties as unfair. Shippers are ready, willing and able to retrieve cargo but are precluded from fetching their goods. The disparity noted on charges highlights shippers’ perceptions that demurrage charges are not serving to speed the movement of cargo, the purpose for which those charges had originally been intended. Indeed, the concept of demurrage was originally put in place to improve efficiency so that terminals were not used as warehouses by the shippers. Shippers now feel they are in a "catch-22" when they are not permitted to pick up their container because of MTO congestion, and yet are charged demurrage.
The report identifies possible actions the Commission itself can take to acquire additional information to examine and address concerns relating to free time, detention and demurrage practices:
Order of Investigation – Non-Adjudicatory Fact Finding: the Commission may investigate policies and practices of regulated entities on a wide range of alleged violations, e.g., discrimination, unreasonable practices, anti-competitive practices). The Commission can direct the appointed fact-finding officer to present findings and recommendations for Commission action such as rulemaking or adjudication.
Order of Investigation and Hearing: the Commission, after gathering evidence or credible allegations of a Shipping Act violation related to free time, demurrage, and detention practices, may initiate an adjudicatory proceeding against one or more VOCCs and/or MTOs. The investigation would include discovery including interrogatories, production of documents, depositions, and issuance of subpoenas.
Section 15 Orders: The Shipping Act provides the Commission authority to order VOCCs and their employees and agents to file with the Commission a periodical or special report, an account, or a memorandum of facts and transactions related to the business of the carrier. The report, account, or memorandum may be made under oath.
Special Reporting Requirements: the Commission may seek special reporting from parties to certain filed agreements, i.e., directing MTOs and VOCCs to submit additional data related to demurrage, detention, and free time issues involved in agreements filed with the FMC.
Petition to the Commission: the public may file petitions with the Commission seeking relief or affirmative action by the Commission.
Federal Advisory Committee: an advisory committee made up of representative stakeholders could be formed and directed to offer suggestions for the Commission’s regulation of MTO and VOCC demurrage and detention rates, rules, and practices.
Ombudsman: the Commission can direct the CADRS Director, who also serves as the agency’s ombudsman, to facilitate targeted meetings with industry and to develop findings and recommendations for the Commission and industry.
Rulemaking: the Commission may issue a notice of proposed rulemaking or initiate a negotiated rulemaking to address practices that the Commission has determined violate the Shipping Act.
All stakeholders in the supply chain should read the report and actively engage with each other in the industry. I look forward to hearing from stakeholders with respect to their ideas for next steps now that this report has been made public. My hope is the report would entice the maritime community to resolve their differences on demurrage and detention without direct action being taken by the FMC.
Again, thank you for inviting me to share with you today my views on various international shipping matters under consideration by the U.S. Federal Maritime Commission.