Detention, demurrage ‘pain point’ in international trade
Date: Wednesday, January 23, 2019
Source: American Shipper
National Industrial Transportation League panel focuses on ways to reform charges.
While she was not able to attend the meeting in person because of the federal government shutdown, a speech by Federal Maritime Commissioner Rebecca Dye was read at the meeting. “This is the point where you close your eyes and imagine I’m four inches taller,” quipped Karyn Booth, the NIT League’s general counsel, before she read Dye’s remarks.
Dye asked NIT League members to consider volunteering to join four “innovation teams” the agency is organizing to address complaints of container shippers about detention and demurrage charges.
Dye led an investigation of detention and demurrage practices last year and submitted a report that was adopted by the FMC in December.
Her report found that while demurrage and detention can be valuable in providing an incentive to move cargo inland from ports and marine terminals, there was a need to improve notice of cargo availability and reasonable opportunities to pick up cargo.
“This isn’t about a zero sum game between shippers versus carriers or drayage providers versus marine terminal operators. It’s about operations that benefit all supply chain actors by improving throughput velocity, making more efficient use of assets and reducing administrative costs,” she said.
The teams will discuss four areas: standard terminology for demurrage and detention practices; dispute resolution and demurrage and detention billing processes and procedures; evidence needed for prompt resolution of disputes; and what Dye said was the most important issue — giving cargo interests consistent notice of actual container availability.
Siva Narayanan, global logistics director at the chemical company Solvay, applauded Dye’s work.
“From my point of view, we are running shipping with a 20th century model and we are already in the 21st century,” he said.
Containerships have grown enormously in size since the beginning of the century, marine terminals are congested and, he said, “the system continues to breakdown.
“We, as an industry, are in denial, thinking that Band-Aids will work,” he said. “We need to take the pain and rip off the Band-Aid.”
He said detention and demurrage is a “pain point” in international trade because it is not transparent. “What the steamship line charges the customer is not what the steamship line pays the terminal.”
Demurrage and detention today are managed in multiple ways, including contracts, equipment interchange receipts and other agreements, and need to be harmonized, said Narayanan. By his estimate, 90 percent of containerized cargo moves by contract, and he said, a “detention and demurrage collection mechanism needs to be with the contracts.”
“Leave the poor trucker out. He is just a messenger. He is picking up and letting go. ... Even with a door delivery the trucker is a contractor of the shipping line.”
Narayanan noted detention and demurrage is also an issue inland at congested rail terminals, where a company may not receive advance notice from a shipping company of when cargo will arrive and then is given a very short time to pick up a container before incurring demurrage charges from the railroad.
He said companies insist on checks for demurrage instead of allowing shippers like his company to be billed.
“This is the 18th century way of working, where we exchange cash. We should have e-commerce today. We can’t open a blanket P.O. to a line, funded with $10,000 and say, ‘As long as my trucker comes in, you charge me against my P.O.’ We do it with travel, we do it with raw materials, we do it with gases,” said Narayanan.
He asked his audience to think about “how can we collectively change the model.”
Christian Pedersen, regional head of revenue management and ocean at Maersk, also said his company was supportive of the FMC report and discussed steps his company is taking to simplify shipping and eliminate shipper concerns about detention and demurrage.
“We have reached the point where the size of the ships is no longer an avenue to reach the efficiencies to help you continue to become more efficient. It is actually counterproductive” as the landside infrastructure at terminals is “maxing out,” he said.
He said Maersk is seeking to make shipping as easy as it is to buy sneakers over the internet and integrate supply chains so that shippers have a single point of contact.
Maersk has been divesting itself of its energy businesses to focus on shipping and logistics and on Jan. 1 merged its ocean shipping business, Maersk Line, and logistics arm, Damco, into a single entity.
Shippers now can buy integrated ocean-truck service from Maersk and rely on the company for inland delivery. Should a container incur demurrage charges because trucks are not available, Maersk will foot the demurrage bill, he said.
The company also will make the use of “peel-off” piles at terminals available to a wider group of shippers if they are buying integrated ocean-truck transportation from Maersk.
Peel-off piles are used by shippers moving multiple containers through a terminal. Instead of having their truckers come one by one requesting a single, specific container when they arrive at a terminal, the shipper allows them to pick up any one of the containers stored in a dedicated stack of containers at the terminal.
This speeds the flow of trucks and containers out of a terminal. Containers can be peeled off from the top of the pile and placed on the next drayage truck that is queued up to evacuate them from the terminal. That saves a great deal of time since the terminal operator does not have to dig through a pile of containers to find one particular containers.
While Maersk has used peel-off piles in the past, the company now will offer it to shippers with smaller volume commitments, Pedersen explained. Maersk plans to offer the service from its terminals in Los Angeles and Elizabeth this year.
Maersk also is working on information standardization by forming an association of ocean carriers “with the sole purpose of driving data and terminology standards across our industry.” Other companies in the group are MSC, CMA CGM, Hapag-Lloyd and ONE. The group is awaiting regulatory approval, and other companies have been invited to join the group.
Maersk has worked with IBM on the use of blockchain in the transportation industry and after a year of pilot projects has “onboarded our first commercial customers,” he said. Blockchain allows shipments to be tracked through 155 milestones — from orders being placed overseas to delivery at the door of a customer. These include events such as interactions with other transportation providers such as truckers, certificates of origin, financial transactions and customs approvals.
“This is a game changer for us as an industry if it gets scale,” he said. But he said it will only be a success if the industry gets over formats that he compared to the battle years ago to competing Betamax and VHS videotape formats.
“Our big encouragement to everybody including our rail and truck colleagues in the room is to get in the dialogue for those of you who are not already there. Help us develop those standards,” said Pedersen. “We really mean it when we say we want this to be an open industry standard. We expect this technology will help us make the next quantum leap in container shipping.”