Thursday, October 10, 2019

Demurrage and Detention Fees Under the Freight Forwarders Microscope

Claims that Charges are Unfair and Must be Justified
Shipping News Feature

WORLDWIDE – Demurrage. For freight forwarders and shippers the word ranks right up there with 'bankruptcy' and 'General Average' when it comes to upsetting them. Now, in its latest Best Practice Guide, FIATA’s Sea Transport Working Group has given its support to the Federal Maritime Commission (FMCs) initiatives to bring clarity and fairness to the assessment of demurrage and detention fees, specifically in the container market.

The Guide has focused on container cash deposits levied by shipping lines and suggested that such cash guarantees must be reviewed as they do not meet contemporary business needs and more importantly are unreasonable. It says the Guide can be used as industry input for the FMC’s next move to publish a notice of proposed rulemaking to establish ‘interpretive’ rules to address future demurrage and detention disputes brought before the commission by the industry.

Whilst FIATA acknowledges that the imposition of detention charges is a global instrument for shipping lines to encourage the timely return of empty containers after vessel discharge in some (often developing) countries, shipping lines seem to have greater concerns that empty containers will not be returned at all. Often these cash deposits or bonds are considered poor business practice and in some cases shipping lines are not only collecting cash deposits, but also demanding letters of guarantee as well as a fixed charge (non-refundable) per container.

Theft of containers in these circumstances is doubtless a genuine fear of the lines, however FIATA members report that in many countries shipping lines take many weeks to process and return cash deposits compounding already stretched cash flow and impacting on the productivity of the international freight forwarder who has to implement procedure and process to monitor the timely and legitimate return of funds. Jens Roemer, Chair of FIATA Working Group Sea, comments:

“If shipping lines need additional securities to ensure the return of an empty container in good condition in a given country, they should provide transparency to their risk assessment and related conclusions as to the application of such requirements. There should be data available (for example the number of containers that have not been returned), to document and explain a decision to collect such a cash deposit, plus reasonable explanations and transparency as to how such decisions to require additional security is determined”.

Furthermore, FIATA adds that cash transactions should be considered as a relic of the past and if there are valid reasons to require additional securities to ensure the return of containers in a good condition, shipping lines should ask for bank guarantees. In addition, FIATA says it is simply neither fair nor ethical to demand cash guarantees for containers in merchant haulage in today’s business environment and it must be assumed that the only motivation for this practice is to make life difficult for the forwarder arranging transport in merchant haulage. FIATA suggests that commercial partners negotiate terms to reduce this unfair differentiation. Jens concludes:

“Shippers and international freight forwarders have a clear obligation to return the empty container within a reasonable time and in a good order/condition. By charging demurrage and detention shipping lines already have tools to encourage the timely return of their containers. Likewise, by charging well founded cleaning and repairing charges shipping lines have tools in place to ensure containers returned are fit for purpose.”

Photo: Many of the ‘missing’ boxes turn up as complete dwellings when they have been converted.