NVOCCs caught in the middle of Ocean Shipping Reform Act

Commentary by Bryn Heimbeck, President, Trade Tech

The Ocean Shipping Reform Act of 2022, passed by Congress with political expediency without industry input, and signed into law June 16, has left the industry in a quandary over how to comply with the law as it relates to the new legal requirements for invoicing Demurrage and Detention.

At issue is a new event that is now the legal trigger for that calculation called the Container Availability Date, which must now be included on all invoices as the critical piece of information that determines the fair assessment of Demurrage and Detention (D&D) charges. Container availability is distinct from the date a container is discharged from a vessel – the current trigger date for Demurrage.

Non-Vessel-Operating Common Carriers (NVOCCs) are having difficulty providing this information to customers on their invoices because ocean carriers and/or terminals so far have been unwilling, or unable, to provide this critical piece of information to them. There currently is no interface between the parties that conveys this cargo availability information.

What makes this particularly troubling is that the law now places the burden of proof for accurate D&D charges with the ocean carriers and/or NVOCCs as the intermediaries between the shippers and the ocean carriers.

The law says that failure to include the information required on an invoice with any D&D charge shall eliminate any obligation of the charged party to pay the applicable charge. Additionally, shippers and others may file complaints with the Federal Maritime Commission (FMC) over inaccurate invoices relative to D&D. If carriers are unable to establish the reasonableness of D&D charges, they would face the prospect of paying refunds and penalties.

If this technology issue, involving both communication and data structure for capturing and conveying the Container Availability Date, is not resolved, NVOCCs and Customs Brokers, who often advance funds for their customers to ensure the smooth movement of freight, could easily get caught in a disastrous cash flow situation. As the middlemen they could be dispensing funds for customers who may later say they don’t need to pay the invoice because the D&D charges were not invoiced correctly. We’ve already seen this with Bakerly vs. Seafrigo a New York-based food importer, who is seeking relief from the FMC after the company was hit with almost $3 million in D&D fees from Seafrigo, a NVOCC at the port of New York and New Jersey.

This new Container Availability Data element needs to be created, captured, and transmitted both from the terminals to the carriers and from the carriers to the customers and their service providers. We have asked the carriers if they will be providing the container availability date, and they say no – the terminals will provide the information. But the terminals don’t talk with the importers or Customs Brokers or NVOCCs. How are they going to get connectivity to the terminals, and how is this going to play out operationally? Nobody knows.

Further complicating matters is the fact that every ocean carrier has its own ocean tariff and rules for each trade. So, the rules may say that free time begins at midnight on the day after discharge, or it may say something else. But every carrier has its own set of rules. Therefore, free time begins when the carrier’s tariff says it does. When cargo is available is another moving target that the carrier doesn't know until the terminal can tell it.

How are the carriers going to cobble together those invoices when there's no standard for reporting when the cargo is available? Codifying these definitions, which are not currently reflected in the shipping Act, is going to be critical.

The new law is both a major change to terminal processes and a technology issue relative to data structure and communication, and it involves big money. It went into effect without typical industry comment or phase-in periods. Normally laws are general and then rulemaking gets into the specifics, particularly at the level of key data elements, which we have here. It is unusual for a law to be this specific right out of the gate.

Moreover, the industry has been given no time to prepare for this, and the FMC has reiterated that there is no grace period. The industry needs time to work through this issue.

We see the temporary solution to this cargo availability reporting problem being twofold:

• There should be a grace period for the industry to adapt to this new reporting requirement as it relates to cargo availability and D&D. The FMC should be pulling the ocean carriers and terminals in and saying, we expect you to be providing this new data set about cargo availability to the NVOCCs by a certain date. Then the NVOCCs should be given at least another 30-45 days to put in place the mechanisms to work off this new piece of data that doesn’t exist today.

• Barring that, there should be a temporary FMC ruling that D&D be paid on a credit basis so that cargo is not withheld for pick up. If the cargo has cleared customs and the transportation charges have been paid, the cargo should be released for pick up. Any D&D charges would be invoiced and paid after they are verified. In other words, it would no longer be a cash-and-carry situation.

Despite the unintended negative consequences, we see with this cargo availability reporting rule, we do not oppose its intent. It calls for the terminals to address more directly the congestion issue and removes the complacency that huge Demurrage revenues have generated under the current calculations process. However, this is a major change that does not appear to be registering clearly with the industry.

The FMC needs to pump the brakes and allow the industry to catch up.

At Trade Tech we stand ready to help once clear reporting guidelines are established. Within our platform we have already put in an event for the availability date and changed the calculation for Detention. We have all the carriers’ Demurrage and Detention rules already in our tech stack because it is public information. We have a tracking report that calculates out container by container how much Demurrage is due so that can be audited. We're ready, willing, and able to help the trade – both the VOCCs and NVOCCs.