Hapag Fined $822K by FMC in Bellwether D&D Case
The Federal Maritime Commission won approval on April 22 to impose a significant civil penalty and “cease and desist” orders against Hapag-Lloyd as part of the ongoing disputes in the industry over demurrage and detention (D&D) fees. While recognizing that the case involves a relatively small number of containers, the FMC and Chief Administrative Law Judge Erin Wirth found that it is demonstrative of a systemic disregard for the commission’s policies and frequent statements regarding the charging of D&D fees.
Long disputed, D&D charges have become a flashpoint in the industry as terminals and ports became increasingly overloaded with containers during the past two years. Responding to the complaints, the FMC has become increasingly vocal on the fees and recently encouraged shippers and drayage firms to alert the commission to disputes over the fees.
This case stemmed from a dispute between a California trucking firm, Golden State Logistics (GSL), and Hapag over the return of 11 containers in May and June 2021 that were returned between one and eleven days after the free time provided by Hapag expired. GSL, which reports it employs 75 truckers moving on average 500 containers per week, filed a claim with the FMC in November 2021. The commission’s Bureau of Enforcement (BOE) opened an investigation to determine if by its practices of assessing detention charges Hapag was in violation of the Shipping Act of 1984.
The companies presented their arguments to BOE which in turn presented its findings to the judge. GSL provided copies of emails to Hapag and screenshots from a third-party website, Blue Cargo, showing that reservations were unable on many of the days at the locations specified by Hapag, but that the carrier did not wave the fees. Hapag contended in its response that the failure to return the containers in the provided free time was an omission of the motor carrier citing examples of other container returns and further that the FMC lacked jurisdiction in the matter.
The BOE concluded that Hapag “failed to establish, observe, and enforce just and reasonable regulations and practices,” and should have waived the fees for a total of 14 days. But, in its request for punitive civil penalties, they went further to assert that Hapag’s violations were “knowing and willful” citing the FMC’s concerns over many years and multiple previous guidance from the commission regarding the application of the D&D rules.
The judge writes, “The evidence shows that Hapag-Lloyd reviewed, but did not change, its policies in response to the demurrage and detention rules..... Hapag-Lloyd could have sought guidance from the commission .... instead it continued to impose detention charges in violation of the Shipping Act.” The judge also found that in arguing the case BOE established that Hapag “failed to revise its policies and sufficiently train its staff after the demurrage and detention rule was issued.”
After reviewing the evidence in this case, the ruling concludes that Hapag’s policy and practices due not comply with the FMC’s D&D rule. “Hapag-Lloyd has been clear that this was their normal policy and practice,” writes Judge Wirth. “Therefore, it may be presumed that this issue was not isolated to these shipments, but that detention was imposed, and not waived, on other empty containers that could not be returned due to insufficient appointments.”
BOE asserted that a significant penalty was required to “both deter Hapag-Lloyd’s violative behavior and ensure future compliance.” While the judge dismissed the requested civil penalty for the statutory maximum for a knowing and willful violation, which would have totaled $16.5 million, she also rejected Hapag saying the penalty was “arbitrary and capricious on its face,” asserting that it was a novel case and that an appropriate penalty was just $144,452.
The ruling orders Hapag to pay $58,730 per violation of the Shipping Act for 14 violations and a total amount of $822,220. Accepting that this was not an isolated case and demonstrative of broader actions, the judge also ordered Hapag to cease and desist from imposing D&D fees when there are insufficient appointments available and also to cease and desist from violating the Shipping Act or FMC regulations including the D&D rule.
The complaints about the assessment of D&D charges have grown more pronounced over the past two years. While the FMC is encouraging shippers and drayage firms to report suspected cases, it remains to be seen how many cases will be filed. The Hapag case, however, establishes a precedence that other shippers and drayage firms may use in their complaints against the carriers.