Key Takeaways from the FMC Remand Ruling on TCW v. Evergreen Shipping

Types : Alerts

The Federal Maritime Commission (FMC) recently issued a decision on remand from the United States Court of Appeals for the District of Columbia Circuit regarding Evergreen Shipping Agency’s imposition of detention charges. The appellate court had vacated the FMC’s prior ruling and directed the Commission to reassess whether the charges were unjust and unreasonable under the Shipping Act of 1984 (46 U.S.C. § 41102(c)).

Upon reconsideration, the FMC reaffirmed that Evergreen’s detention charges imposed while the port was closed were unreasonable and awarded reparations to the complainant, TCW, Inc. However, the FMC reversed its earlier cease-and-desist order, signaling a shift in how similar cases will be handled moving forward.    

What This Means for Ocean Carriers

1. Detention and Demurrage Must “Promote Freight Fluidity”

The FMC reaffirmed that detention and demurrage charges should incentivize the movement of cargo rather than serve as mere penalties. If a shipper or trucker is physically unable to pick up or return a container due to circumstances beyond their control, “absent extenuating circumstances or other arguments,” imposing detention charges is likely to be deemed unreasonable.

2. Contractual Agreements Do Not Automatically Justify Charges

Ocean carriers cannot rely solely on contractual terms to justify detention and demurrage charges. The FMC disagreed and made this point clear:

“Ocean carriers and marine terminal operators (and ocean transportation intermediaries) do not have an unbounded right to contract for whatever they want. They are limited by the prohibitions of the Shipping Act, one of which is section 41102(c).”

This signals the FMC’s continued scrutiny of power imbalances between shippers and ocean carriers, along with their contracts and agreements.

3. Advance Notice of Port Closures Does Not Automatically Justify Charges

The Respondent, Evergreen, had argued that its detention charges were reasonable because shippers had advance notice of the port closure. The FMC disagreed again and stated that:

“… [A]dvance and well-publicized notice of port closures can weigh in favor of the reasonableness of assessing detention charges during those closures because parties will have more time to take steps necessary to return equipment prior to the closures. But this consideration is not dispositive and must be considered alongside other factors and the specific facts of each case.”

This suggests that prior notice(s) of closure or possible congestion alone is insufficient to establish the reasonableness of detention or demurrage charges.

FMC’s Partial Reversal of Its Decision

Initially, the FMC ordered the Respondent to cease imposing detention charges when equipment could not be returned due to port closures, weekends, or holidays. However, following Respondent’s appeal, the D.C. Circuit remanded the case, instructing the FMC to reassess whether the charges incentivized cargo movement.

The FMC then reaffirmed that Respondent’s detention charges were unreasonable because the trucker had no way to return the container while the port was closed. However, the FMC reversed its cease-and-desist order, reasoning that each case must be evaluated individually rather than issuing a blanket prohibition against detention charges during port closures. This shift or adjustment indicates that rather than adopting blanket regulatory prohibitions, the FMC will now “utilizes a broader lens when applying the incentive principle, as one facet of its reasonableness analysis, to determine if the charges at issue are furthering the goal of promoting freight fluidity.”

Implications for Future FMC Cases: “Case-by-Case Review”

Probably the most meaningful take away from this decision for the carrier is that the FMC may be shifting its approach to review and enforce detention and demurrage regulations.  

A very similar “case-by-case review” standard was recently announced in the FMC’s Final Rule on Unreasonable Refusal to Deal, titled “Definition of Unreasonable Refusal To Deal or Negotiate With Respect to Vessel Space Accommodations Provided by an Ocean Common Carrier” (Federal Register). In that rule, the FMC adopted a “case-by-case” and “totality of circumstances” approach to determine whether a carrier had unreasonably refused to deal or negotiate with customers regarding vessel space allocation.

Similarly, in detention and demurrage disputes, the FMC is expected to evaluate each case based on its specific facts, rather than imposing blanket prohibitions.

However, nothing will change regarding an ocean carrier’s burden of proof in defending its charges, particularly its obligation to explain and justify the certification now expressly required on all invoices: “The charges are consistent with any of the FMC’s rules related to demurrage and detention, including, but not limited to, this part and 46 C.F.R. § 545.5.”

And while the FMC will review “extenuating circumstances” and “other arguments” from carriers to justify their charges, proving or satisfying these exceptions remain a significant challenge.

Final Thought

This ruling implies the FMC’s evolving approach to assessing or reviewing reasonableness of carrier’s detention and demurrage charges. But Carriers should continue to closely evaluate each detention and demurrage charge and its circumstances on a case-by-case basis. More importantly, they must be able to demonstrate that these charges “incentivize or promote freight fluidity.”

If you have any questions regarding the decision, please contact Wook Chung or Montgomery McCracken’s Maritime and Transportation Industry Group.