As a potential strike looms along East Coast and Gulf Coast Ports, the trade community is pondering what may lie ahead in the weeks to come.

Our friends with the NY/NJ Foreign Freight Forwarders and Brokers Association (NYNJFFFBA) in conjunction with Husch Blackwell LLP have offered the following insights to the trade. 

Exporters and Importers are encouraged to review their supply chains and consider alternative movement options as shifts in their supply chains to off-set potential disruptions may be required to ensure supply chain resiliency.

ILA Strike: Demurrage and Detention: The Strike: The Incentive Principle or Once-in-Demurrage, Always-in-Demurrage

First, the International Longshoremen’s Association (“ILA”) and the United States Maritime Alliance (“USMX”) have made no progress in negotiating a new contract which expires on September 30, 2024. This strike would cease operations at the East Coast and Gulf Coast ports for the first time in over 40 years. The most immediate concern from the shipper perspective is how to minimize demurrage for incoming containers, and how to best handle the return of empty containers to prevent detention/per diem charges. The obvious question here is who will pay for these charges which are caught up during the strike period, which we can assume will not be a short one.

During rulemaking relating to the Interpretive Rule on Demurrage and Detention, ocean carriers and marine terminal operators urged the Commission to reaffirm that notwithstanding the Incentive Rule, the principle of “once-in-demurrage, always-in-demurrage” still governs.

According to these parties, under this principle, shippers “bear the risk of any disability that arises after free time has ended.” In other words, their position is that once free time ends, it would not be unreasonable to impose demurrage (or detention) on a shipper even if the shipper is unable to retrieve the loaded container or return the empty container due to circumstances outside the shippers, or anyone’s, control. In other words, if after free time expires in the middle of a strike, the equipment finds itself incurring demurrage and/or detention which could be significant sums. The question arises as to whether those assessments could be lawfully assessed by the ocean carriers and/or terminals even if a strike impedes the ability for shippers to respond to demurrage/detention invoices by picking up loaded containers and/or returning empty containers. Pursuant to the “Once-in-Demurrage, Always-in-Demurrage” perspective the charges would be attributable to the shippers who did not timely pick-up loaded containers or returned empties before the commencement of the strike.

Conversely, other commenters requested that the Commission expressly overrule the once-in-demurrage, always-in-demurrage principle. The Commission has taken the position in the past that two legal principles are in place before the expiration of free time relevant to demurrage:

1. During free time the ocean carrier must allow a shipper a reasonable opportunity period (“free time”) to pick up its container load; and
2. During the free time period ocean carriers remain subject to 46 U.S.C. 41102(c)’s reasonableness standard and its practices must meet those requirements.

The Commission has taken the position that once free time expires, the first legal standard (“a)” noted above terminates and the ocean carrier can and should charge demurrage. At that point in time the only standard to cover whether the ocean carrier meets the reasonableness standard of applying the Incentive Principle is to determine whether the ocean carrier’s practice of assessing demurrage during a strike meets the reasonable standard of the statute—i.e., does the demurrage practice of invoicing demurrage during a strike act as a financial incentive for cargo and equipment fluidity? The obvious answer invoicing demurrage and/or detention during a strike will never provide a financial incentive for cargo and equipment fluidity. Let’s see what the Commission has said on this.

Boston Shipping Association Case and Other New York Cases. Boston Shipping Association stands for the proposition that in the strike context, in the context where the charging entity was a terminal the issue was whether the shipper or the ocean carrier was required to pay the terminal once free time ended. The Commission found that the requirement to pay the terminal was to the ocean carrier for the charges applied during free time; and, that the shipper was liable to pay the terminal once free time expired. The case did not deal with the interaction between the shipper and the ocean carrier but rather between the ocean carrier and the underlying marine terminal operator. The rationale was that when the cargo was in free time and the strike occurred, it was the vessel operator that yet had the obligation to tender the containers for delivery and that the terminal operator is therefore entitled to collect from the ocean carrier to whom the terminal operator is supplying the facilities and services. The commenters, however, have argued that the shipper is responsible for demurrage for containers that were in free time when the strike broke out for failing to pick up the containerload(s) during free time before the strike took place. The Commission further cites a case, In re Free Time and Demurrage Practices on Inbound Cargo at New York Harbor, 20 years after the Boston Shipping Association case, which involved containerized cargo as opposed to loose cargo as the Boston case did, and concluded that notwithstanding the Boston Shipping Association case and prior New York cases, “[d]uring longshoremen’s strikes affecting even a single pier, the penalty element of demurrage affords no incentive to remove cargo from the pier because the consignee cannot do so for reasons entirely beyond his control.”

The Dilemma. The Commission, however, limited their view by further adding in the rule-making that the “. . . rule does not preclude the Commission from considering whether demurrage and detention have some compensatory aspect (to the ocean carriers/terminals) when determining the reasonableness of specific practices in individual cases.” In short, the Commission left the door open for consideration of whether demurrage and detention charges can be collected by ocean carriers/terminals if the charges are not considered penalties but rather compensatory. In fact, this language juxtaposed to the Incentive Principle rationale leaves room for concern. The straightforward Incentive Principle position as expressed by the Commission is the following:

“That is, in assessing the reasonableness of demurrage and detention practices, the Commission will consider the extent to which demurrage and detention are serving their intended primary purposes as financial incentives to promote freight fluidity, including how demurrage and detention are applied after free time has expired.”

Clearly these two conflicting positions, leaves room for ending on either side of the issue in the strike context of demurrage and detention.

Suggested Next Steps: In this ambiguous context, we would advocate that the shipper (including NVOCCS acting as consignees) take the following steps:

1. Take all steps to clear cargo from the piers prior to the strike if the cargo is still in free time or not.
2. Before the strike, create an electronic record of the attempts to make appointments to pick up loaded containers and to return empty containers.
3. Before, the strike, ensure that all these steps are taken and the loaded containers are not released, and empties are not accepted due to lack of appointments or other reasons given by the ocean carriers/terminals.
4. After the strike commences, if the release of loaded containers and the acceptance of empties is not accomplished immediately communicate to the ocean carriers and/or

terminal that your company will not be responsible for ensuing demurrage and detention charges and that if invoices are received that these will immediately be passed on to the Commission pursuant to the Charge Compliant or formal Complaint procedures.

Obviously, the Commission may take the clear position that demanding demurrage and detention for the strike period is an unjust and unreasonable practice in violation of the Incentive Principle, but since there is enough ambiguity from Commission statement in the rulemaking and the September 30, 2024 date is literally around the corner, we urge that shippers (including NVOCCs) take the steps indicated to protect their interests in what might otherwise be an expensive exercise.