DC Circuit Strikes Down Part of FMC Rule on Demurrage, Detention Fees

The commission failed to explain why demurrage and detention fees couldn't be assessed against motor carriers that are in contractual relationships with the billing party, Srinivasan said, writing for the court. However, the judge clarified that the ruling doesn't preclude the FMC from offering an explanation for the exemption in the future.

Srinivasan also questioned whether the commission's rule is "overinclusive in allowing issuance of an invoice to" consignees who aren't in contractual relationships with the billing party, though the court didn't rule on this point, since it wasn't before the court.

The rule at issue concerns demurrage and detention fees, which are often imposed by ocean carriers or marine terminal operators against the owner of imported goods to incentivize the "movement of cargo" and promote "freight fluidity." The charges are imposed when there's "unduly prolonged use of shipping containers or of space in a marine terminal," which causes "delays in the movement of cargo." Such fees have "substantially increased" in recent years, the court noted.

In 2022, the FMC sought to address the concerns of shippers and truckers who were being assessed these fees, since these motor carriers were being assessed penalties for "circumstances outside their control." In its initial rule, the commission said "only the person who contracted with the common carrier for the carriage or storage of goods may be issued an invoice."

The FMC codified this approach in its 2024 final rule (see 2402230049), stating that a "properly issued invoice is a demurrage or detention invoice issued by a billing party to one of two parties: '(1) The person for whose account the billing party provided ocean transportation or storage of cargo and who contracted with the billing party for' those services (usually the shipper); or '(2) The consignee.'" The rule defined "billing party" as the ocean carrier, marine terminal operator or non-vessel-operating common carrier that issues a demurrage or detention notice.

In response to a comment on the rule, the commission said a motor carrier in a contractual relationship with an ocean carrier could be billed. However, in a "Correction," the FMC then said motor carriers aren't "billable parties" under the rule regardless of its contractual relationship with an ocean carrier (see 2405080026).

The D.C. Circuit found that this rule is "arbitrary and capricious" in violation of the Administrative Procedure Act, since it's "internally inconsistent." Srinivasan said the FMC failed to explain the "seeming inconsistency" between its contract-based rationale and its "categorical bar against billing motor carriers," even where the motor carrier contracts with the billing party.

Srinivasan noted that throughout the rulemaking process, the commission's "central organizing principle has been that demurrage and detention charges should be assessable only against -- and only against -- entities" that contract with billing parties. Despite establishing this principle, the FMC bars ocean carriers from invoicing their contractual partners if that partner is a motor carrier. This "discrepancy was pointed out to the Commission, and the Commission gave no reasonable explanation for it," and, in fact, said motor carriers could actually be billed, before reversing course.

The court highlighted the fact that the commission initially "fully endorsed the understanding that the Rule’s basic logic supported issuing demurrage and detention charges to truckers in a contractual relationship with ocean carriers." After flipping on this position, the FMC "said nothing" that "calls into question -- or even engages with -- the substance of its previous response in that regard."

The commission defended the rule by declaring that concerns over motor carrier delays could be mitigated if an invoiced shipper or consignee could recover compensation directly from the motor carrier. While the plaintiff, the World Shipping Council, questioned whether shippers or consignees could actually recover from motor carriers "with whom they have no relationship, contractual or otherwise," the court said the "feasibility of recovering invoiced charges from motor carriers" is irrelevant. This means of recourse "does nothing to explain" the commission's inconsistency in its approach to motor carriers.

The court additionally called into question the rule's application to consignees that don't contract with billed parties. The rule "expressly allows issuing a demurrage or detention invoice to" consignees "as an alternative to invoicing a contracting party such as a shipper." Thus, the commission's "inclusion of consignees among eligible billed parties," without regard to whether they contracted with a billed party, "might be seen to stand in some tension with the Commission’s focus on the existence of a contractual relationship as a necessary precondition for assessing demurrage or detention fees," the court said.

Srinivasan said "there would seem to be questions about the reach of the Commission’s inclusion of consignees as a billing option," though the FMC's inconsistency with regard to motor carriers is enough to set this part of the final rule aside.

An FMC spokesperson didn't immediately respond to a request for comment.

(World Shipping Council v. Federal Maritime Commission, D.C. Cir. # 24-1088, dated 09/23/25; Judges: Sri Srinivasan, Robert Wilkins and J. Michelle Childs; Attorneys: Paul Hughes of McDermott Will for petitioner World Shipping Council; Harry Summers for respondent Federal Maritime Commission)