Federal Maritime Commission Announces Demurrage and Detention Final Rule

Following its Feb. 23, 2024, release of a pre-publication draft, the Federal Maritime Commission (FMC)'s Final Rule on Demurrage and Detention Billing Requirements (Final Rule) was published on Feb. 26, 2024, in the Federal Register. The Final Rule builds off of the FMC's Feb. 15, 2022, Advance Notice of Proposed Rulemaking (ANPRM), the subsequent enactment of the Ocean Shipping Reform Act of 2022 (OSRA 2022) on June 16, 2022, and the FMC's Feb. 15, 2022, Notice of Proposed Rulemaking (NPRM). (See 87 FR 14330 (Feb. 26, 2024), as well as Holland & Knight's previous alerts, "Federal Maritime Commission Continues to Grapple with Detention and Demurrage Issues," Feb. 17, 2022, and "Beyond the Ocean Shipping Reform Act: Recent FMC Decisions and Settlement Implications," June 22, 2022). The Final Rule addresses 1) new requirements for how common carriers – including vessel operating common carriers (VOCCs), non-vessel operating common carriers (NVOCCs) and marine terminal operators (MTOs) – must bill for demurrage and detention (D&D) charges, and 2) the entities that can be billed, within what period of time, and the process for disputing charges. Absent any challenge, the Final Rule will take effect on May 28, 2024, except for the specific invoicing requirements proposed for Section 541.6, which will not be promulgated and will not take effect until the FMC receives approval from the Office of Management and Budget (OMB) and a subsequent Final Rule.

The Final Rule adopts, with some changes and clarifications, the rules proposed in the NPRM of Oct. 14, 2022.

What Shipping Industry Stakeholders Need to Know

Who Can Be Invoiced

One of the key provisions of the Final Rule is the requirement that D&D invoices can be issued to either 1) the person for whose account the billing party provided ocean transportation or storage of cargo and who contracted with the billing party for the ocean transportation or storage of cargo, or 2) the "consignee," which the Final Rule defines as "the ultimate recipient of the cargo; the person to whom final delivery of the cargo is to be made."

The inclusion of the consignee in the Final Rule is a significant change from the NPRM; the NPRM only allowed billing a party in contractual privity. However, after receiving 29 comments on the issue, the FMC determined it was appropriate to include the consignee as well since they are in a position to assess and dispute improper D&D charges. In its response to comments, the FMC explicitly stated that simply appearing on the bill of lading does not support billing the consignee – the relevant fact is whether the consignee is in contractual privity with the billing party. (See Final Rule at 14340.) As discussed below, the FMC also clarified that the Final Rule "does not prohibit or otherwise limit an MTO from maintaining the practice of issuing any party – including BCOs or Motor Carriers – an invoice based on a Terminal Schedule, including charges for detention or demurrage" pursuant to a published Terminal Schedule. (See Final Rule at 14339).

The Final Rule prohibits D&D invoices from being issued to multiple parties simultaneously. This restriction ensures that a billing party does not simply invoice any and every one that appears on the bill of lading – only the correct party should receive an invoice. The FMC reasoned that this would relieve confusion and double-billing or payment issues.

Properly Issued Invoices (Section 541.4)

As noted above, the Final Rule as adopted expanded the parties who can be properly invoiced to include consignees. In response to comments received, the FMC concluded that "prohibiting billing parties from issuing [D&D] invoices to persons with whom they do not have a contractual relationship will best benefit the supply chain." (See Final Rule at 14339.)

The FMC received several comments requesting clarification of what is meant by "must have contracted," including in the context of MTO-published Terminal Schedules. In its response, the FMC clarified that a "contract" has its "normal and ordinary legal meaning," which would include contracts of affreightment and bills of lading (though the FMC states in no uncertain terms that merely being listed on a bill of lading does not create a contract unless there is also a meeting of the minds). Regarding MTO Terminal Schedules, the commentary clarified that the Final Rule does not prohibit MTOs from invoicing based on the Terminal Schedule, which the FMC expressly recognized is enforceable as implied contracts pursuant to 46 U.S.C. § 40501(f) and 46 CFR § 525.2(a)(2). Id. The FMC did not modify its position that demurrage invoicing between MTOs and VOCCs are not subject to the Final Rule; however, the FMC proceeded with its proposals requiring MTOs to follow specific invoicing requirements that Congress did not impose on MTOs in OSRA 2022. Thus, under the Final Rule, MTO invoices (excluding MTO-VOCC invoicing) will be required to comply with Section 541, although promulgation of the specific invoicing requirements that would be applicable to MTOs in Section 541.6 (in contrast to the invoicing requirements applicable to other entities under OSRA 2022) have no enactment date.

Timing of Invoices (Section 541.7)

The FMC maintained the requirement from the NPRM that VOCCs and MTOs must issue all D&D invoices within 30 calendar days from when charges were last incurred. (See 46 CFR § 541.7.) If an invoice is not issued within 30 calendar days, the billed party is not required to pay.

The FMC received several comments pointing out that billing parties are penalized for missing the deadline, but there is no equivalent consequence for billed parties not disputing an invoice timely. The FMC responded that the Final Rule provides a minimum time for disputing invoices, after which the billing parties can reject a dispute as untimely and/or otherwise determine how to remedy the failure to timely dispute the charges. (See Final Rule at 14348.)

In the NPRM, the FMC explicitly requested feedback on whether a different time frame should apply to NVOCCs issuing D&D invoices. In response to the many comments received, the Final Rule was amended to allow NVOCCs an additional 30 days to issue an invoice from the date the original invoice is received by the NVOCC. Id.

Another significant change from the NPRM and the Final Rule was the removal of the link between a billing party's ability to reissue an invoice to a dispute from the incorrectly billed party. By removing the requirement that the incorrectly billed party dispute the invoice, the Final Rule ensures that the burden of issuing a proper invoice is on the billing party, since if an 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. (See Final Rule at 14349.)

Timing of Disputes (Section 541.8)

The FMC received 45 comments from interested parties on the issue of timing for requesting fee mitigation, refunds or waivers. Among the issues raised was the short 30-day time frame to dispute an invoice, the short 30-day time frame to resolve a dispute and the lack of consequence for failure to meet the dispute deadline.

In response to the comments, the FMC stressed that the time frames for disputes serve as a minimum time frame that must be permitted by billed parties; there is nothing to prevent the parties from agreeing to a longer time frame. (See Final Rule at 14351.) The FMC also reminded parties that nothing in the Final Rule prevents a billed party from filing a charge complaint or formal complaint with the FMC during the 30 days – exhausting the dispute process is not a prerequisite to these remedies. Id.

Required Contents of Invoices (Section 541.6)

Following OSRA 2022, VOCC and NVOCC D&D invoices are required to include specific information elements. (See 46 U.S.C. § 41104(d)(2)). The Final Rule would promulgate certain modifications of the OSRA 2022 requirements, including those noted above for MTO invoices. Although Section 541.6 will not take effect until a later date, entities should take note of the proposed modifications that are likely to become effective in the future. (See Final Rule at 14342-14347.)

Through Bills of Lading

The FMC received comments requesting clarification on whether or how the Final Rule would apply to D&D in connection with inland rail transportation of cargo under through bills of lading. The FMC declined to modify the proposed rules and expressly reiterated that the FMC's jurisdiction extends to ocean cargo that is shipped under a through bill of lading to a final inland destination in the U.S. (See Final Rule at 14353.) The FMC additionally cited to existing Shipping Act precedent, U.S. Supreme Court precedent and legislative history stating that "when an ocean carrier offers an intermodal service, that carrier has the single responsibility for assuring the delivery of cargo from point to point, and only that carrier needs to be concerned with the arrangements for transferring the cargo between modes." (See Final Rule at 14354.) The FMC concluded that nothing in the Final Rule changes its authority in relation to cargo moved under a through bill of lading. Id.

Holland & Knight Parting Considerations

The FMC has expressed that the Final Rule will standardize billing practices and reduce disputes over D&D charges. There is little doubt that the Final Rule will result in changes to D&D billing practices. Some of those changes may reduce invoice and collection issues, but as is often the case with new regulation of industries with disparate stakeholders and interests, some of the changes may create new issues and difficulties. As Commissioner Carl Bentzel noted in connection with the release, work still remains.

For more information or questions about the Final Rule, contact the authors or a member of Holland & Knight's Maritime Team.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.