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Are Ocean Carriers Complying With Detention and Demurrage Rules? New Audit Finds Out

The Federal Maritime Commission (FMC) has established a new audit program and dedicated audit team to assess carrier compliance with its rule on detention and demurrage, as well as to provide additional information to aid in regular monitoring of the marketplace for ocean cargo services.

The “Vessel-Operating Common Carrier Audit Program,” which launched immediately, was established at the direction of chairman Daniel B. Maffei and came after industry calls for greater monitoring of detention and demurrage charges.

Earlier this year, Steve Lamar, president and CEO of the American Apparel & Footwear Association (AAFA), sent a letter to the FMC urging it to take immediate steps to stem the surge in contract violations and the spike in detention and demurrage charges.

“Despite having contracts in place, our members have had to pay unexpected and unplanned surcharges, premiums, and/or spot rates to get their cargo on ships,” Lamar said in February. “Even then, their cargo has still been rolled, forcing them to miss key delivery dates, leading to further lost sales (particularly for seasonal product) or further charges from their customers.”

In addition, Lamar said AAFA members have faced a spike in detention and demurrage charges “for situations completely out of their control.”

The audit program will analyze the top nine ocean cargo carriers by market share for compliance with the FMC rule as it applies to detention and demurrage practices in the United States. The commission will work with companies to address their application of the rule and clarify any questions or ambiguities. Information supplied by carriers may be used to establish industry best practices.

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Other audit focus areas may include company practices related to billing, appeals procedures, penalties assessed by the lines and any other restrictive practices.

“The Federal Maritime Commission is committed to making certain the law is followed and that shippers do not suffer from unfair disadvantages,” Maffei said. “The work of the audit team will enable the commission to monitor trends in demurrage and detention practices and revenue, as well as to establish ongoing dialog between staff and carriers on challenges facing the supply chain. Of course, if the audit team uncovers prohibited activities, the commission will take appropriate action. Furthermore, the information gathered by the audit process might lead to changes in FMC regulations and industry guidance if warranted.”

The audit program will begin with an information request establishing a database of quarterly reports allowing the FMC to assess how detention and demurrage is administered. Responses will be followed by individual interviews with the carriers.

Each of the nine largest carriers by market share will be audited irrespective of whether a formal or informal complaint has been filed at the commission.

FMC managing director Lucille Marvin will lead both the audit program and the audit team, which will initially be comprised of existing commission employees.