Detention and demurrage charging
The final rule
Detention and Demurrage Charging: The Final Rule
Detention and Demurrage Charging: The Final Rule
On 26 February 2024, the US Federal Maritime Commission (FMC) published their Final Rule with reference to detention and demurrage billing practices.
The Final Rule, which comes into effect on 28 May 2024, reflects the FMC’s aim to promote supply chain fluidity and transparency surrounding billing practices.
The FMC have sought extensive comment from a variety of contributors, this Final Rule building upon the FMC’s Advance Notice of Proposed Rulemaking (ANPRM) dated 15 February 2022, the enactment of the Ocean Shipping Reform Act of 2022 (ISRA 2022) on 16 June 2022 and the FMC’s Notice of Proposed Rulemaking (NPPRM) dated 14 Oct 2022.
The aim of this rule is to provide practical clarity in respect of:
- How common carriers – including vessel owning common carriers (VOCCs) and non-vessel operating common carriers (NVOCCs) and marine terminal operators (MTOs) - are to invoice detention and demurrage (D&D) charges; and
- Who can be billed and the specificities required per invoice, within what period of time an invoice must be raised and the process for disputing charges.
The aim is to make sure that those who are invoiced for detention and demurrage charges (D&D) are the correct party and that they clearly understand the content of the invoice received. Therefore, as harsh as it may seem from a commercial perspective, it stands to reason that non-compliant invoices are not payable.
The ‘billing party’ and ‘the billed party’ – who can be billed
Invoices for detention and demurrage can only be issued to either:
- the person for whose account the billing party provide ocean transportation or storage of cargo and who contracted with the billing party for the ocean transportation or storage of cargo; or
- the “consignee,” defined as “the ultimate recipient of the cargo; the person to whom final delivery of the cargo is to be made.”
Including the “consignee” is a departure from the NPRM which only permitted billing a party who was privy to the contract. However, the inclusion of the consignee has been deemed appropriate, as they are often best placed to assess and dispute improper D&D charges. However, the FMC have made it clear that simply being named on the bill of lading is not enough, the consignee must share contractual privity with the billing party.
Invoices cannot be issued to multiple parties simultaneously. This should ensure that the correct party is invoiced, as opposed to the practice of raising the same charges and submitting to any and all possible parties in the carriage chain, including those with whom a billing party does not share contractual privity.
How to invoice
VOCCs and MTOs may issue detention and demurrage invoices within 30 calendar days from the date the charges were last incurred.
If an invoice is not issued within 30 calendar days, the billed party is not required to pay it.
The onus is therefore on the billing party to issue an invoice to the correct party in the first instance. If the invoice is not reissued to the correct party within 30 calendar days of when the charges were last incurred, the billed party is not required to pay it.
NVOCCs, quite often the middleman in such scenarios, must issue demurrage and detention invoices within 30 calendar days from the issuance date of the invoice they have received.
Furthermore, an NVOCC:-
- Can communicate disputed charges to its billing party on behalf of its billed party; and
- The billing party must provide an additional 30 days for the NVOCC to dispute the charge.
Specified invoice requirements
Invoices will have to include specified content, although these modifications do not come into effect until a later date once the FMC receive approval from the Office of Management and Budget (OBM) and a further Final Rule.
The invoice requirements, when they do come into effect should be as follows:-
- Invoices must include additional information identifying containers eg bill of lading number and the basis on which the billed party is receiving the invoice;
- The billing party must provide information such as the invoice date, invoice due date, specified dates for D&D charges and why the billed party is the correct party; and
- The invoice may also include digital aspects, eg QR Codes to readily identify a contact to whom the billed party may direct invoice related queries, as well as to process mitigation, refunds, or waivers.
Failing to include any of the required information in a detention or demurrage invoice eliminates any obligation on the billed party to pay the applicable charges. One would hope that carriers will include this information in their invoices prior to inception of the further Rule.
Issues/disputes
Billed parties have at least 30 calendar days to make fee mitigation, refund, or waiver requests – this time frame is a specified minimum.
The billing party must attempt to resolve the matter within 30 calendar days, unless both parties agree to a longer timeframe.
Nothing in this rule prevents the billed party from filing a formal complaint with the FMC during that 30-day period.
Practical considerations
It is clear that transparency is the aim of The Final Rule. Transparency around and standardisation of billing practices will result in a reduction in the number of disputes centred on D&D charges.
The short implementation period (90 days from publication of The Final Rule) means all operators will need to adjust and absorb these practices swiftly into their existing regimes.
There is also a keen understanding that, in light of OSRA 2022, these are just the first in what we anticipate to be numerous future changes and future rule makings, to which the market will need to adapt and implement changes.
It will also be interesting to note if other jurisdictions follow suit, with a view to gaining more control over D&D charging practises.
Please see our previous article on this topic here.
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