Shipper ire rises with D&D costs

Detention and demurrage, or D&D as Federal Maritime Commissioner (FMC) Carl Bentzel refers to the static charges for cargo stored at ports, remains a contentious issue in the US as charges rack up and delays and congestion at ports remain a significant difficulty for shippers.

According to Bentzel in a Charlie Pesti interview with Hariesh Manaadiar, editor at the Shipping and Freight Resource website, the FMC does not collect data on D&D charges, so the scale of the problem is unknown, in terms of the cost to US industry.

Congestion at major seaports and inland terminals has, however, seen an increase in complaints from service users regarding charges considered to be unfair due to covid-induced congestion. There are still more than 20 vessels at anchorage close to Los Angeles and Long Beach Ports, with a further 20 waiting outside Oakland, but the major problem is when ships are delayed in southern California they may skip the Pacific northwest and Canada ports in order to return to Asia.

“That plays out in different markets,” said Bentzel, who added, “if you’re a shipper anticipating a sailing onto Seattle, but the ship doesn’t make it there because of the delays in LA, then we’re seeing economic disruption in the US as a result that builds in multiple areas.”

Decongestant needed

Issues around congestion in key US ports mean that dwell times for containers have increased sharply as shortages of labour, due to Covid -19, and the movement of containers to inland locations have seen shortages of equipment and drivers. Intermodal cargo movements have been curtailed as a result. Ultimately the effect of the pandemic has seen trade between Asia and the US slow, as the supply chain comes under severe strain.

Congestion and prolonged dwell times led to complaints by beneficial cargo owners (BCOs) that D&D charges were being levied unfairly. But as Bentzel points out D&D charges are penalties and fines designed to keep equipment moving, so that BCOs do not keep containers for longer than necessary, and for carriers to shift empties out of ports.

“We protect the public from unjust and unreasonable practices, including D&D penalties,” pointed out Bentzel.

After the latest round of assessments on D&D charges, following the bankruptcy of Hanjin Shipping, the FMC issued guidance in how penalties should be assessed in the aftermath of a force majeure event such as the demise of Hanjin.

Following a petition by a coalition of shippers, an FMC fact-finding investigation, in the end that investigation resulted in guidance on how D&D charges should be applied.

“The general principle is to evaluate whether D&D charges are fair, is to look at whether or not they are intended to create fluidity in the movement of cargo or whether importers and exporters and truckers are being penalised based on conditions that are outside of their control,” …

Carl Bentzel, Federal Maritime Commissioner (FMC)

Footing the bill

The focus from the FMC, in looking at the application of the D&D charges, is on the transportation in terms of its availability, billing practices, empty returns of containers and any issues related to the intermodal supply chain in the US.

Bentzel said he had visited many ports around the world and compared the situation in the US to these foreign facilities, and “I’d say the situation we have in the US is incredibly complex,” concluded the commissioner.

He pointed to the variety of stakeholders involved including the ocean carriers, the marine terminal operators, who are often different from the lines themselves, owners of intermodal chassis, that are separate from the intermodal operators and drayage companies, rail terminals domestic trucks and warehousing all adds to the mix.

“We need to look closely at how penalties are constructed, but further how our major ports handle complex operations, and that’s why we waited to make sure there was a focus on the operational requirements,” …

Carl Bentzel, Federal Maritime Commissioner (FMC)

There were also challenges in trying to assign liabilities and responsibilities, it is important to remember that D&D charges serve the interests of both parties the carriers and the shippers. However, carriers are sometimes blamed for charging penalties, but the movement of containers through the supply chain must remain fluid for the system to work.

For the FMC it is clear that shippers should not be charged when a terminal is closed, and a shipper cannot return a container. “But it becomes more complex when you look at issues such as who can charge penalties during periods of government inspection,” Bentzel points out.

Shippers railroaded

Moreover, the impact of international events, such as Covid-19, can lead to disruption, as seen with a 20-30% reduction in intermodal traffic through US ports in the early period of Covid disruption, followed by a 20-30% increase in cargo volumes by early summer, that caused a shortage of chassis, slowing the movement of containers through the terminals and into the intermodal system, and the backlog rapidly built up as a consequence of cargo delays.

Vaccinations of the US labour force are having an effect with the backlog of containers at key US terminals slowly “dissipating” at terminals, but was now emerging at intermodal facilities, “where a lot of international cargo is being held up due to a lack of railroad equipment, according to Bentzel.

So against that backdrop D&D is in place and is intended to facilitate the flow of containers. However, the commissioner said the FMC is getting a surge of claims that D&D is “being used as a penalty, where shippers are forced to pay D&D claims even though they could not impact on what had actually occurred.”

Facing facts 

As a result of the Covid challenges the FMC has launched another fact-finding mission to investigate three key issues; The FMC is looking at whether D&D is being used as a penalty for shippers in an environment where it’s difficult for them to operate; In addition the FMC is evaluating whether or not in the rush to return containers to Asia, for high paying import cargo, exporters are being denied a service, a violation of the common carriage statutes; And also looking at availability of equipment, both containers and intermodal chassis.

Commissioner Bentzel believes it’s unusual that the container manufacturers have been unable to fille the gap in demand for containers, and he points out that this equipment is mostly held up in China, not the US.

Moreover, the commissioner points out that with the technology available to the industry it is “disappointing” that the shipping lines have been unable to provide transportation details and notices of service to shippers, “they are not doing a great job of providing that information, where ships are, when they’re unloading and when cargo will be available for delivery.” The technology at the disposal of the carriers has not been harnessed properly, according to Bentzel.

As the poor service into the US has developed the lines have admitted that there needs to be an improvement, particularly when scheduling is concerned, but the FMC has acknowledged that shippers are apprehensive about complaining for fear of some form of retribution from the lines.

It is a concern that Bentzel believes is due to the consolidation in the container shipping industry, with more than 20 lines each with around a 4% market share 10 years ago, now there are just eight or nine major carriers, and they are operating in just three major global alliances.

However, the FMC also points out that due process is critical and if there are allegations made of unfair practices against the lines, then the carriers must have the right to defend themselves. It is clear that the FMC’s powers are limited to the ocean and intermodal rates through rates issued, while the Surface Transportation Board regulates domestic intermodal movements.

Asked if new legislation is required to control and regulate D&D charges more closely, the commissioner is guarded, “I’ve heard rumblings of legislative changes, but it’s difficult to conceive what those changes could be at this point,” said Bentzel. 

He admits to having had, “numerous calls from congress,” with particular concerns regarding the export of agricultural products, which was the subject of a new trade deal with China, but that deal has not brought the benefits that were expected according to the FMC.

Meanwhile, the FMC will maintain it policy of continuous monitoring of the industry and collect rate and other charging information, and to review the service levels. Rate situations differ widely with some cargo moving under contract, some under spot, other BCOs use NVOCC’s to move their cargo.

It has been a favourable market for the shippers, with carriers making a loss in eight out of the last 10 years. Now rates have doubled or tripled over the last year, and Bentzel believes, that level of cost “might be permanent”.