A Dance with Demurrage and Detention

Demurrage and detention fees arise while surging imports are causing never-before-seen delays and complications at the ports of Los Angeles and Long Beach as containers of PPE, e-Commerce, holiday, and restocked inventory bound for US businesses and consumers flood into the ports. The numbers don’t lie – Long Beach’s Q3 and September were the busiest ever and Los Angeles did the same – posting a year-on-year increase of 13.3% in September. October’s figures are due any day now and should continue to show an upward movement.

Because of the volume of import containers, export containers and backed up inland rail moves, containers are physically unable to be removed from the terminals. Once the free time expires, shippers must pay for the time on the terminal and the time the container is out of service by the line. These two penalties amount to hundreds of dollars per day per container in fees, not to mention the cascading costs to shippers unable to access their cargo to ship to customers.

The congestion and abysmal traffic jam of containers, trucks, and chassis imbalances between the United States and Asia has led truckers and carriers to seek relief for demurrage and detention penalties in Washington from the Federal Maritime Commission. Carriers and terminals are mostly foreign-owned, and shippers are concerned that these non-US companies are taking advantage of the situation. 

The FMC interpretative rule, further defined in the spring, speaks to the reasonableness of fees compared to port operations. Demurrage is the fee for leaving a container with the port for longer than allowed; detention is the fee for keeping the container away from the port for longer than allowed; both of these fees are compounding as truckers face port delays picking up containers and getting them turned and returned in time because of the traffic and congestion.

The agency determined these fees are meant to equalize the efficiency when one side of the system is operating inefficiently, but the side paying fees aren’t the issue at hand in the current situation.

Weston LaBar, CEO of the Harbor Trucking Association (HTA) referred to the situation as a “meltdown” and pointed out that, “people should be making money from cargo moving, not from cargo not moving.

During a press call on Monday, LaBar also hinted that carriers were looking at those fees the same way airlines look at charging for baggage and aisle seats – as a revenue stream that contributes to their bottom line. If that’s the case, it goes a long way to explaining Maesk’s record Q3 numbers

The shortage of containers is another issue because many carriers aren’t waiting for boxes to be emptied and refilled with cargo returning to Asia. They’re taking the empties straight back across the Pacific to more swiftly reload for transport back to the US because the export market in Asia is on fire for the United States. These record volumes are expected to rage through the Chinese Lunar New Year in February before abating.

American agricultural exporters are feeling the pain, unable to secure containers at inland depots to load cargo like grain or soybeans for shipping back to Asia. 

There’s no great relief on the horizon for importers waiting on cargo from Asia and the rest of the year looks just as difficult. This is the time when we need to ensure we have plans in place to mitigate the issues by rerouting, advance planning, and being flexible with equipment requirements.

As for what can be accomplished in the here and now, Zarach has several suggestions. First, we are working with our contracted carriers and overseas partners to seek mitigation or waiver of Demurrage & Detention fees that are out of our ability to control or resolve. Second, we are watching the incoming administration to identify opportunities for a sympathetic government ear to plead our case, but know that this will be months away at the earliest. Finally, we are encouraging customers to utilize trade associations they belong to as well as communicating with their Congressional representatives to underscore the financial and employment impact to the businesses in their districts.

Loathe as everyone is to have the FMC wade into the fray, government regulators may be the course of last resort to remediate this ongoing problem.