Remarks of Commissioner Rebecca Dye at the Journal of Commerce Port Performance North America
My favorite business author is Jim Collins, who wrote Built to Last, and most recently, Great by Choice. Collins says that the most important executive responsibility is to hire the best people and make sure they’re in the right place in your organization. He refers to that responsibility as, “getting the best people on the bus.”
Two of the best people on the “FMC bus” are with me today: Erin Tasova and Randy Johnson. Please take the time to introduce yourselves to them.
Demurrage and Detention Investigation
Following the two-day public hearing earlier this year on the Coalition for Fair Port Practice’s demurrage and detention petition, the Federal Maritime Commission issued an Order establishing a fact-finding investigation and authorizing me as Fact-Finding Officer.
The purpose of the investigation was to aid our understanding of the full extent of the problems related to demurrage and detention charges, and to make recommendations to address the problems, if warranted.
My first step as Fact Finding Officer was to issue a demand letter to obtain the extensive information we needed from ports, liner companies and marine terminal operators.
Of course, that action boosted my popularity in the industry!
But to many of you who responded seriously and thoughtfully to the information demand, thank you. We appreciated your valuable responses.
At the same time, we began interviewing shippers and intermediaries, and created an e-mail account so that shippers and other affected parties could contact us about their demurrage and detention experiences.
And they did!
The extensive information we received allowed us to identify key issues on which we focused during the investigation’s succeeding months.
Those key issues include:
- Transparent, standardized language for demurrage and detention practices;
- Greater clarity, simplification, and accessibility regarding demurrage and detention billing practices;
- Greater access and clarity regarding dispute resolution processes;
- Explicit guidance regarding evidence relevant to resolving demurrage and detention disputes;
- Consistent notice to shippers of container availability and reasonable opportunity to retrieve cargo; and
- An FMC Shipper Advisory Board.
We also recommended consideration of an optional billing model under which MTO’s would bill shippers directly for use of the terminal as demurrage, and VOCC’s would bill shippers for use of containers as detention.
Focus on the Delivery System as a Whole
At the Commission hearing on the Coalition’s petition, I emphasized that my focus was on how demurrage and detention practices could optimize, not diminish, the performance of the overall American international freight delivery system.
After all, charges for the use of terminal space and carrier equipment are assessed as an incentive for shippers to promptly move cargo off terminal and return containers to the shipping lines for future use.
The principle that demurrage and detention charges exist to create an incentive is something the liner companies, in particular, emphasized in their hearing testimony before the Commission and in subsequent submissions and interviews during the investigation.
It is a point of agreement that can provide the basis for a focused discussion among industry representatives to refine commercially viable demurrage and detention practices as we move forward to final Commission action.
On December 3, at the conclusion of the second phase of the investigation, I presented my findings and recommendations to the Commission.
Last Friday, after our December Commission meeting, the full report was published on the Commission’s website. If you haven’t had a chance to read it yet, I hope you will soon. We also have some copies available at the Registration Desk.
The first part of the investigation was devoted to collecting and analyzing information concerning existing demurrage and detention practices — what revenues were generated, at what ports and by which parties.
The carriers and terminals also provided information on their billing and dispute resolution practices.
We published our Interim Report in September– outlining what we had learned and the areas we would focus on for the remainder of the investigation.
Taking a Third Step
The second phase of Fact Finding 28 was about collecting information on the areas we identified – discussing them in field interviews and in other conversations, and assessing the next steps to define the boundaries of workable, practical approaches in the areas we presented in the Interim Report.
The Final Report we just issued presents the investigation’s findings and recommendations. I ask you to think a little “outside the box” about these conclusions.
My FF28 Findings are:
First, that demurrage and detention are valuable charges when applied in ways that incentivize cargo interests to move cargo promptly from ports and marine terminals.
That’s a position that all parties support, and it provides an important touchstone as we consider the most important need to focus attention on “notice of actual availability of cargo” and “reasonable opportunity” to pick up cargo.
Second, that all international supply chain actors could benefit from transparent, consistent and reasonable demurrage and detention practices.
This isn’t about a zero-sum game, between shippers vs. carriers or drayage providers vs. marine terminal operators. It’s about operations that benefit all supply chain actors by improving throughput velocity, making more efficient use of assets, and reducing administrative costs.
Most important it’s about resolving issues that take your time and resources away from moving cargo!
At this point in my speeches I usually choose someone in the audience to help illustrate a point about the need for all parties to consider change to optimize the performance of our international freight delivery system.
Someone who won’t be “taken aback.”
So, Weston LaBar, it is easy for YOU to convince ME that it is in MY interest for YOU to change to harmonize operations of the international supply chain;
It is difficult for YOU to convince ME that it is also in MY interest for Me to change to harmonize the operations of the international supply chain.
I understand that it may be difficult to accept that systemic change is to everyone’s benefit. But harmonizing the overall operation of the international freight delivery system will provide the economic foundation for sustained financial growth for all parties involved.
My last finding is that focusing operations on notice of actual cargo availability would allow us to better achieve the goals of demurrage and detention and improve the performance of the international commercial supply chain.
The goal of incentivizing the prompt movement of cargo off-terminal and the return of equipment within the agreed timeframe can best be achieved, by assuring timely notice of actual cargo availability and a reasonable opportunity to pick it up.
That is why I recommend that the Commission organize FMC Innovation Teams, on a short-term basis, to refine commercially viable approaches to the identified demurrage and detention practices.
The four areas the teams will discuss are:
- Standard Terminology
- Dispute Resolution and Demurrage and Detention Billing Processes and Procedures, including the operational billing model where terminals and carriers charge directly for use of their assets.
- Evidence for prompt resolution of disputes; and
- Most important, Notice of Actual Cargo Availability.
Why Small Teams
Why Innovation Teams now?
I confess that I was concerned that some of our stakeholders might jump to the conclusion that I was, “kicking the can down the road,” rather than recommending immediate Commission action.
I recommend the use of small teams because I believe that focused engagement among industry leaders, based on the wealth of information and advice we have already received, will assure that our implementation will work in the marketplace.
Furthermore, there are many industry leaders, including shippers, carriers, terminals, intermediaries, truckers, who have invested their time to share candid and constructive views with us on the five areas recommended. I want these leaders, and others, to continue to be involved. Please let me know if you’d like to be involved by calling my office.
There are obvious commonalities between the Commission’s original Innovation Teams initiative — responding to congestion and other supply chain challenges — and the investigation of demurrage and detention practices.
In both of those cases the Commission was:
- Responding to requests from American cargo interests and other stakeholders;
- Seeking practical commercial solutions; and
- Focusing on systemic improvements to increase supply chain reliability and resilience.
I believe that our 4 areas of demurrage and detention improvements will benefit from Team discussions to refine approaches for possible later Commission action.
The Road Forward
If you follow the trade press, you’ve no doubt noticed that many recent articles deal with two major themes. One is environmental. It focuses on impending low sulfur fuel requirements.
The second is operational. It centers on landside bottlenecks at ports, railyards and distribution centers.
Articles about the second theme often open with commentary on drayage trucking capacity and hours of service rules, or on supply chain stresses related to cargo handling challenges. Sooner or later, however, a central, unifying element appears: the increasing complexity in our ocean freight delivery system.
Demurrage and detention practices are an important part of that story of complexity.
As our most recent Report shows, there is broad agreement among shippers, drayage providers, ocean transportation intermediaries, marine terminal operators and liner shipping companies that greater clarity, accessibility and standardization of demurrage and detention practices could improve operational efficiency, asset utilization, and financial results.
Some carriers and terminals already have practices of this type in place. Others told us that they are currently working on improvements.
The area in which the greatest potential for operational improvement would be to provide greater focus on actual cargo availability, including notice and a reasonable opportunity to collect the cargo. This concept was the priority for shippers in the first FMC Innovation Teams project.
Notice of cargo availability is the area where future team engagement can make the greatest contribution, ensuring that demurrage and detention charges perform effectively as true incentives in the increasingly challenging American seaport operational environment.
We are far enough along now, with the information we have developed under the investigation, to define the details concerning the five key areas we recommended for action, and with that, provide for productive discussions among industry leaders.
Please don’t forget my last recommendation: an FMC Shipper Advisory Board, and boards representing other stakeholders, if possible. I joke that the FMC doesn’t have stakeholder Advisory Boards, because they might try to give us some actual advice! That’s not the reason, of course. The real reason is resources. But regardless, I strongly support a Shipper Advisory Board, and for our other stakeholders as well, and I hope we can find a way to make it happen.
Finally, I want to especially thank the many industry leaders who reached out to me to offer your time and advice on based on many years of industry success. I hope you all will continue to be involved as we continue the process.
Thank you for your kind attention.