The Federal Maritime Commission (FMC) has announced a new audit program and dedicated audit team. The program will assess carrier compliance with the agency’s rule on detention and demurrage, and provide additional information that will help the FMC monitor the marketplace for ocean cargo service.
Launched July 19 by FMC Chairman Daniel Maffei, the Vessel-Operating Common Carrier Audit Program will examine how the nine largest ocean carriers comply with 46 U.S. Code 41102(c), as it applies to detention and demurrage practices in the U.S. The code establishes an obligation for marine terminal operators (MTO), ocean transportation intermediaries, and common carriers to establish, observe, and enforce “just and reasonable” practices and regulations related to or connected with receiving, handling, storing, or delivering property.
The agency will audit each carrier, “irrespective of whether a formal or informal complaint has been filed at the Commission,” according to a news release. The audit program first will establish a database of quarterly reports the FMC can use to assess how carriers administer demurrage and detention.
U.S. shippers are facing many challenges, including port congestion; labor unrest; inadequate vessel capacity; reduced equipment availability (like shipping containers); rising demurrage and detention charges; cancelled service contracts; high freight rates; and business interruptions. “The delays, uncertainty, and congestion have at least two immediate effects for ISRI members,” says David Eaton, ISRI’s director of government relations. “Members don’t know if or when they’ll be able to get shipments in and out of ports on time, which affects their contracts with the companies receiving their material. Shippers are also charged exorbitant, unfair amounts for the material sitting at the ports.”
Disruptions to commercial contracting markets mean ocean carriers are ignoring commitments and pushing companies to the spot market. Shippers worry they will face retaliation from ocean carriers if they complain. Though the FMC has no jurisdiction over breach-of-contract issues, it can take action if there’s a pattern of bad behavior in business practices.
“The Federal Maritime Commission is committed to making certain the law is followed and that shippers do not suffer from unfair disadvantages,” Maffei said in the FMC’s release. “The work of the audit team will enable the Commission to monitor trends in demurrage and detention practices and revenue, as well as to establish ongoing dialogue between staff and carriers on challenges facing the supply chain.” Maffei added the FMC will take “appropriate action” if the audit team discovers prohibited activities.
The audit program builds on investigations the FMC launched in 2020, beginning with the Los Angeles and Long Beach, Calif., and New York-New Jersey ports, and container shortages. The FMC’s Fact Finding 29, which is ongoing, seeks to identify operational solutions to COVID-19-related cargo delivery system challenges. In February, FMC Commissioner Rebecca Dye issued information-demand orders to ocean carriers and MTOs to determine if they were meeting legal obligations related to demurrage and detention practices.
“The investigation looked to see if there were bad practices from the ocean carriers; the audit will look more specifically inside their books,” says Billy Johnson, ISRI’s chief lobbyist. He anticipates the audit will examine the details of complaints submitted to the FMC. “The audit will look at inconsistences, like how many containers came in, how many went to detention, how many got charged demurrage, how many got rolled off ships, how many went back empty, and how many orders were unfulfilled,” he explains.
The audit program aims to address one of the immediate problems affecting shippers: rising detention and demurrage charges. “The other leg, at least for ISRI members, is the uncertainty that stems from the delays and rampant congestion,” Eaton says. “But addressing the congestion delays and unpredictability involves many moving parts, and can take much longer to figure out and to and develop solutions. The [Biden] administration closely examining detention and demurrage practices can start to relieve some of the pressure on shippers in the near future.”
Lucille Marvin, the FMC’s managing director, leads the audit program and team. Before joining the FMC, Marvin worked at the Surface Transportation Board (STB), directing the Office of Public Assistance, Governmental Affairs, and Compliance. “She helped with rail-service issues such as demurrage, so she knows our industry and the issues very well,” Johnson says.
Knowing the FMC will examine all complaints lodged against each carrier may encourage more shippers to come forward. “The audit program will not be reactive to any specific complaint,” Eaton explains. “Therefore it removes the complainer from the spotlight.” Johnson encourages ISRI members to voice their concerns and complaints to the agency. “This is the time for our members to share their stories with the FMC,” he states. “The audit team will identify and examine all the issues during the audit.”