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On April 28, the Federal Maritime Commission (FMC or Commission) issued a final interpretative rule on ocean carrier and marine terminal demurrage and detention practices governed by the Shipping Act of 1984. The rule runs nearly 100 pages and provides important and extensive guidance on the factors the FMC will consider when determining whether demurrage or detention practices and regulations are unjust or unreasonable.

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The rule is the result of a nationwide fact-finding investigation the FMC initiated in response to an industry petition filed by the Coalition for Fair Port Practices – a group of trade associations representing importers and exporters, draymen, freight forwarders and customs brokers. The petition identified concerns about the assessment of demurrage and detention charges when delays in cargo pickup and equipment return are beyond the control of importers, exporters or intermediaries and inadequate processes for disputing the charges. The rule largely follows the principles the Commission set forth in its September 13 proposed version of the rule, with a few minor changes. It also contains extensive commentary in response to hundreds of comments the agency received on the proposed interpretive rule, including legal and policy challenges ocean carriers and marine terminals asserted in opposition to the rule.

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The final rule contains a non-exhaustive list of factors the Commission may consider in its reasonableness analysis. The rule’s overarching principle requires the Commission to consider the extent to which demurrage and detention charges serve their intended purpose as financial incentives to promote freight fluidity (“Incentive Principle”). Nonetheless, the Commission amended the rule’s language to recognize that these charges might have other purposes, such as reimbursing ocean carriers for “additional costs associated with cargo remaining on a pier after the expiration of free time.” The Commission explained that “demurrage and detention are not the mechanism by which ocean carriers recover all costs related to their equipment, and the Commission cannot assume that these charges are the primary method by which ocean carriers recover their capital investment and container costs….” as some ocean carriers suggested.

The Commission also clarified that the Incentive Principle would be applied to evaluate the reasonableness of charges assessed in relation to force majeure events and in other cases where free time has expired. Moreover, the rule recognizes that fulfillment of cargo retrieval responsibilities by shippers, receivers and draymen is relevant to reasonableness assessments.

Other key principles the Commission will consider when determining whether demurrage and detention practices and regulations serve their intended purpose of promoting freight fluidity include:

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Finally, the Commission added a new paragraph to the final rule clarifying that it may consider other factors, arguments and evidence in addition to those listed in the rule.

In a statement about the final interpretive rule, FMC Chairman Michael Khouri explained that the guidance is intended to reform and influence future demurrage practices and noted that the Commission may take future actions to further clarify how the guidance will be implemented in various factual circumstances. Specifically, he stated that “this guidance for industry stakeholders will hopefully result in revised and reformed business practices that, in turn, will lead to improved freight fluidity. As the Commission moves forward in this area, future actions may include Notices of Inquiry (NOIs) into various focused fact scenarios. These NOIs will be designed to bring public awareness to problematic business practices and provide further clarity to potential applications of the Interpretive Rule.”

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Karyn A. Booth 202.263.4108 <a href="mailto:Karyn.Booth@ThompsonHine.com">Karyn.Booth@ThompsonHine.com</a>

Jason D. Tutrone 202.263.4143 <a href="mailto:Jason.Tutrone@ThompsonHine.com">Jason.Tutrone@ThompsonHine.com</a>

Kerem Bilge* 202.263.4104 <a href="mailto:Kerem.Bilge@ThompsonHine.com">Kerem.Bilge@ThompsonHine.com</a>

*Admitted only in Istanbul and New York; not engaged in the practice of law in the District of Columbia.

This advisory bulletin may be reproduced, in whole or in part, with the prior permission of Thompson Hine LLP and acknowledgment of its source and copyright. This publication is intended to inform clients about legal matters of current interest. It is not intended as legal advice. Readers should not act upon the information contained in it without professional counsel.

This document may be considered attorney advertising in some jurisdictions.

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FMC Issues Final Guidance on Unreasonable Demurrage and Detention Practices to Improve Ocean Freight Fluidity

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