U.S. Court of Appeals upholds FMC decision that detention fees must promote freight fluidity

The U.S. Court of Appeals for the D.C. Circuit recently issued a decision upholding the FMC’s determination that detention fees levied on a trucker by an ocean common carrier during a three-day port closure were unreasonable. The federal appeals court unanimously denied all aspects of the petition filed by the carrier, Evergreen Shipping Agency (America) Corp., that challenged the FMC’s order, and the court affirmed that detention and demurrage fees must promote freight fluidity.

The case filed at FMC Docket No. 1966(I) concerned detention fees issued to a trucker for its late return of a shipping container and chassis for three days when a port was closed over a holiday weekend and the trucker had no practical ability to return the equipment to the port before the closure. In its Order, the Commission applied its Interpretive Rule on Detention and Demurrage to conclude that Evergreen’s detention fees violated the Shipping Act’s requirement that ocean carriers employ “just and reasonable” practices in handling property. 46 U.S.C. § 41102(c).

The D.C. Circuit fully endorsed the Commission’s application of the Interpretive Rule, which focuses on the extent to which demurrage and detention fees are serving their intended primary purposes as financial incentives to promote freight fluidity. 46 C.F.R. § 545.5(c). The Commission found the detention fees did not effectively incentivize freight fluidity because the evidence showed the trucker could not retrieve the equipment from the cargo owner before the port’s closure, and therefore, the fees during the closure were not incentivizing an earlier return. The court affirmed that the FMC can rely on its expertise and experience to balance competing incentives when determining whether detention and demurrage fees will encourage the efficient flow of equipment through the ocean shipping supply chain.

The Commission’s Order also determined that none of Evergreen’s explanations justified the fees under the specific circumstances of the case, which the Commission must consider. The Commission further ruled that the fees were not reasonable as compensation to Evergreen for additional costs from the late return without sufficient evidence from Evergreen about its costs. The D.C. Circuit affirmed that the burden is on carriers to provide evidence in adjudications showing how their fees may serve a compensatory purpose.