A federal appeals court has upheld a significant decision made by the Federal Maritime Commission (FMC), stating that ocean carriers are not allowed to charge detention fees that do not help in moving cargo efficiently through the supply chain.
In a unanimous ruling, the U.S. Court of Appeals for the District of Columbia Circuit dismissed all objections from Evergreen Shipping Agency (America) Corp. against an FMC order. This order determined that the carrier's detention fees were unreasonable when a trucking company couldn't return equipment during a three-day closure of the Port of Savannah.
This ruling is part of a well-followed dispute between Evergreen and Georgia trucking company TCW Inc., which involved $510 in detention charges during the Memorial Day 2020 closure of the Port of Savannah. In April, the D.C. Circuit Court upheld the FMC’s decision that these fees were in violation of the Shipping Act since the trucker had no means to return the equipment while the port was closed.
The court agreed with the FMC that the charges violated the Shipping Act's requirement for carriers to maintain "just and reasonable" practices, as they could not have prompted an earlier return of the equipment given the situation.
Senior Circuit Judge Harry Edwards, writing for the court, stated that the Commission was correct in concluding that the charges did not fulfill their primary role of serving as financial incentives to ensure smooth freight movement. This was because TCW could not retrieve the equipment sooner or return it while the port was closed. The court also pointed out that Evergreen admitted it incurred no extra costs due to the three-day delay.
This decision supports the FMC's 2020 Interpretive Rule on detention and demurrage. This rule instructs the agency to assess whether such charges genuinely serve as financial incentives to enhance freight movement, rather than merely functioning as revenue-generating penalties. The rule further states that, unless there are special circumstances, detention charges should be considered unreasonable when empty containers cannot be returned.
Evergreen contended that detention fees during scheduled port closures still motivated truckers to return equipment before the closure started and argued that the Commission wrongly replaced the rule's "incentive principle" with a wider “freight fluidity” standard.
The appeals court dismissed this argument, emphasizing that freight fluidity has always been a key aspect of the FMC's interpretations. The court affirmed that the Commission was justified in using its expertise to determine whether detention charges would actually improve the overall movement of cargo and equipment in the supply chain, rather than just promote the fastest return of containers.
The ruling also confirmed that carriers wanting to justify detention charges based on compensation, not just incentives, must provide proof that the fees reflect real costs incurred. In this instance, the court found that Evergreen did not provide evidence showing that the delayed return during the port closure caused extra costs for the carrier.
This decision is anticipated to strengthen the FMC's control over detention and demurrage billing practices, an area that has gained significant attention since supply chain disruptions during the COVID-19 pandemic led to numerous complaints from shippers, truckers, and cargo owners about container fees that kept accumulating even when equipment was unable to be moved.