On February 13, 2025, the Federal Maritime Commission (“FMC”) issued its latest ruling in a saga concerning whether an ocean carrier’s assessment of detention and demurrage (“D+D”) charges during periods when equipment cannot be returned due to terminal closures constitutes an “unjust and unreasonable” practice in violation of the Shipping Act. See TCW, Inc. v. Evergreen Shipping Agency (Am.) Corp., Docket No. 1966(I) (FMC Feb 13, 2025).
Brief Legal Background: Under the Shipping Act of 1984, an ocean carrier must “establish, observe, and enforce just and reasonable regulations and practices relating to or connected with receiving, handling, storing, or delivering property,” including with respect to the assessment of D+D charges. 46 U.S.C. § 41102(c). In 2020, the FMC issued an interpretive rule to clarify what constitutes “unjust and unreasonable” practices with respect to the assessment of D+D charges, in which it developed the “incentive principle,” which provides the “reasonableness” of D+D charges is judged by the “extent to which…[such charges] are serving their intended primary purposes as financial incentives to promote freight fluidity.” 46 CFR § 545.5(c)(1) (hereinafter, the “Interpretive Rule”). The Interpretive Rule further specifies that “[a]bsent extenuating circumstances, practices and regulations that provide for imposition of detention when it does not serve its incentivizing purposes, such as when empty containers cannot be returned, are likely to be found unreasonable.” § 545.5(c)(2)(ii). However, when issuing the Interpretive Rule, the FMC acknowledged that the rule did not create any new “requirements, or mandates or dictates,” and specifically rejected calls by some industry groups to adopt a “bright line” rule (i.e., a rule providing that any D+D charges which do not incentivize freight fluidity are per se unreasonable). 85 Fed. Reg. at 29642, 29654.
Relevant Facts and Procedural History: Yamaha Motor Company, a shipper based in Japan, contracted with Evergreen, an ocean carrier, for the transport of its containerized motorcycles from Japan to Georgia, via the Port of Savannah. Yamaha appointed TCW, a motor carrier, to retrieve the container from the Savannah terminal and deliver its contents to destination. Per the governing contract, once TCW retrieved the container, it had 21 days of free time to return the (empty) container before Evergreen began assessing detention charges of $150 per day. (Detention charges for use of a chassis were also assessed at $20 per day following 4 days of free time.) Ultimately, because TCW returned the container and chassis 7 and 22 days after the respective free time periods expired, Evergreen assessed $1,490 in detention charges. TCW objected to the charges assessed during a three-day period when the terminal was closed (amounting to $510) and filed a complaint against Evergreen with the FMC’s small claims program. The small claims officer issued an initial decision in TCW’s favor, which the full FMC affirmed in an opinion dated December 29, 2022. In its opinion, the FMC focused on how assessing D+D when the terminal was closed did not serve the incentive principle, remarking in part that “during the rulemaking the Commission was clear that no amount of detention can incentivize the return of a container when the terminal cannot accept the container.” TCW, Inc. v. Evergreen Shipping Agency (Am.) Corp., Docket No. 1966(I) (FMC Dec. 29, 2022)
Evergreen’s Appeal to the D.C. Circuit: In its appeal to the D.C. Circuit, Evergreen asserted the FMC’s ruling was arbitrary and capricious since it failed to consider several critical facts and extenuating circumstances in determining the reasonableness of the D+D charges, including (1) Evergreen’s allotment of 21 days of free time for the container and 4 days for the chassis, which TCW did not claim was unreasonable; (2) TWC’s contractual obligation to pay detention charges after the expiration of free time; (3) the terminal had announced (before TCW took the container) the days it would be closed); and (4) free time on both the container and chassis had expired before the subject three-day closure.
In a blistering opinion, the D.C. Circuit admonished the FMC for giving short shrift to the points raised by Evergreen and for its outsized reliance on the incentive principle to the exclusion of other considerations. Evergreen Shipping Agency (Am.) Corp. v. FMC, 106 F.4th 1113 (D.C. Cir. 2024). The court made clear that the incentive principle did not replace the Shipping Act’s “reasonableness” standard and did not create a “bright line” rule, remarking: “In effect, the Commission treated the incentive principle as just the sort of ‘bright line’ rule it had denied creating when adopting the rule. Yet, . . . an interpretive rule does not create any legal obligations; terms such as ‘incentive principle’ do not replace ‘reasonableness’ which is the underpinning of the Shipping Act.” Id. at 1117 (cleaned up). The court also characterized the FMC’s reasoning as “implausible,” explaining “the [FMC] errs insofar as it maintains a detention charge necessarily lacks any incentivizing effect because it is levied for a day on which a container cannot be returned to a marine terminal. On the contrary, being charged for detention during a port closing announced before the carrier picks up the equipment heightens the incentive to return equipment on time.”
In vacating the FMC’s ruling, the D.C. Circuit threw down the gauntlet: “Under the [Administrative Procedure Act], the [FMC] cannot rest upon a bare assertion that a detention charge assessed for a day when a port is closed has no incentivizing effect. It must, at a minimum, provide a logical explanation for its view. Perhaps it can do so on remand, but so far it has done the very opposite.”
The FMC’s Order on Remand: In its Order on Remand, the FMC doubled down on its original holding—that the assessment of D+D charges during the three-day period when the terminal was closed was unjust and unreasonable, in violation of § 41102(c)—but bolstered its ruling with new reasoning. While the FMC expressly acknowledged TCW was incentivized “to return equipment before scheduled port closures to avoid accruing detention charges,” it rejected the idea that such financial incentive promotes freight fluidity. In the FMC’s view, incentivizing equipment to be returned “just before scheduled closures” does not necessarily promote freight fluidity because there are no terminal workers to “turn around equipment returned late on the Friday before a weekend closure,” and “multi-day scheduled closures could lead to congestion and logjams at ports when truckers rush to return equipment to avoid harsher penalties, which also hinders freight fluidity.” The FMC also cautioned that allowing detention charges over scheduled closures may also disincentivize ocean carriers and marine terminal operators to perform efficiently, such as by “maintaining open terminals to allow for the timely return of equipment.”
Nor was the FMC persuaded by the various factors and extenuating circumstances offered by Evergreen to justify the D+D charges as reasonable. For example, it found that although TCW had advance notice of the port’s closure (which the FMC acknowledged was a relevant factor in determining the reasonableness of detention charges), TCW was unable to return the equipment sooner due to a Covid-related closure of Yamaha’s plant. (Notably, the FMC appears to take the view here that the ocean carrier should bear the risk of delays caused by the cargo interest.)
Ultimately, whether the FMC’s new reasoning will withstand further judicial scrutiny (or whether it will likewise be deemed “implausible” by a reviewing court) remains to be seen. In addition, in the wake of the Supreme Court’s ruling in Loper, there could be an opportunity for ocean carriers and marine terminal operators to more broadly assert that attempts to narrow the focus of D+D charges within the framework of the incentive principle should not displace the general reasonableness standard imposed by the Shipping Act. See Loper Bright Enters. v. Raimondo, 603 U.S. 369 (2024) (overturning Chevron deference).
For further questions regarding this ruling, contact Liskow maritime attorneys William Yost and Nicolette Kraska and visit our Maritime Litigation & Casualty Response practice page.
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