On September 23, 2025, the U.S. Court of Appeals for the District of Columbia Circuit set aside the key provision of the Federal Maritime Commission’s (FMC) Final Rule on Demurrage and Detention Billing Requirements, 46 C.F.R. § 541.4, which allowed invoices for demurrage and detention to be issued only to: (1) the person for whose account the billing party provided ocean transportation or storage of cargo and who contracted with the billing party for the ocean transportation or storage of cargo; or (2) the consignee. World Shipping Council v. Fed. Mar. Comm’n, 152 F.4th 215 (D.C. Cir. 2025).
In fact, that provision limited the parties who could be billed for demurrage and detention to (1) contracting shippers and (2) consignees. The Court set aside that provision as arbitrary and capricious.
I. Background.
To move cargo inland after sea carriage, an ocean carrier provides its equipment, namely containers and chassis, so that the customer’s cargo can be transported to the consignee. “In the shipping industry, [an ocean carrier] may exact a ‘demurrage’ fee when loaded containers are not picked up at the agreed-upon time; similarly, when empty containers and equipment are not timely returned, the carrier may charge a ‘detention’ or ‘per diem’ fee. … ‘Free time’ refers to the number of days a customer or motor carrier is allowed to keep equipment, namely the container and chassis, before detention charges begin to accrue.” Lincoln Transportation Servs., Inc. v. CMA CGM (Am.), LLC, No. 15-9234 DDP-RAO, 2018 WL 501527, at *1 (C.D. Cal. Jan. 18, 2018), aff’d sub nom. Lincoln Transportation Servs., Inc. v. CMA CGM Am., LLC, 772 F. App’x 593 (9th Cir. 2019).1See also 46 C.F.R. § 541.3 (“Demurrage or detention mean any charges, including ‘per diem’ charges, assessed by ocean common carriers, marine terminal operators, or non-vessel-operating common carriers related to the use of marine terminal space (e.g., land) or shipping containers, but not including freight charges.”); Report: Rules, Rates, and Practices Relating to Detention, Demurrage, and Free Time for Containerized Imports and Exports Moving Through Selected United States Ports, Fed. Mar. Comm’n, Apr. 3, 2015, at 1, https://www.fmc.gov/wp-content/uploads/2019/04/reportdemurrage.pdf (“Demurrage is a charge for the use of space; detention is a charge for the use of equipment. Free time is the grace period for which neither of these charges will be incurred. Both are meant to compensate for the use of space and equipment, and to encourage the efficient movement of cargo by importers, exporters, and drayage providers.”).
Demurrage and detention charges are intended to serve “as financial incentives to promote freight fluidity.” 46 C.F.R. § 545.5(c)(1).
1. Interpretive Rule.
On May 18, 2020, the FMC issued the Interpretive Rule on Demurrage and Detention Under the Shipping Act. See Interpretive Rule on Demurrage and Detention Under the Shipping Act, 85 Fed. Reg. 29638. This was in response to “years of complaints from U.S. importers, exporters, transportation intermediaries, and drayage truckers that ocean carrier and marine terminal operator demurrage and detention practices unfairly penalized shippers, intermediaries, and truckers for circumstances outside their control.” Id. The FMC clarified that demurrage and detention practices must be “just and reasonable” and that, “in assessing the reasonableness of demurrage and detention practices, the [FMC] will consider the extent to which demurrage and detention are serving their intended primary purposes as financial incentives to promote freight fluidity.” Id. at 29653.
2. Final Rule.
In 2022, Congress instructed the FMC “to further clarify reasonable rules and practices related to the assessment of detention and demurrage charges to address the issues identified in the [Interpretive Rule], including a determination of which parties may be appropriately billed for any demurrage, detention, or other similar per container charges.” 46 U.S.C. § 41102 note.
On February 23, 2024, the FMC issued the Final Rule on Demurrage and Detention Billing Requirements. See Demurrage and Detention Billing Requirements, 89 Fed. Reg. 14330. In its announcement, the FMC stated that “[a] key provision of this rule determines that demurrage or detention invoices can only be issued to either: (1) the person for whose account the billing party provide ocean transportation or storage of cargo and who contracted with the billing party for the ocean transportation or storage of cargo; or (2) the ‘consignee,’ defined as ‘the ultimate recipient of the cargo; the person to whom final delivery of the cargo is to be made’.”2FMC Publishes Final Rule on Detention and Demurrage Billing Practices, Fed. Mar. Comm’n, Feb. 23, 2024, https://www.fmc.gov/articles/fmc-publishes-final-rule-on-detention-and-demurrage-billing-practices/.
The FMC’s formulation of the first category of billed parties received some criticism. One commenter suggested that, rather than relying on a contractual-relationship approach, the rule should focus on identifying the party “best able to comply with [an ocean carrier’s] reasonable demurrage and detention rules, except when an alternative party requests and assumes this responsibility in a written agreement with the [ocean] carrier other than the bill of lading contract.” 89 Fed. Reg. at 14339.
The FMC declined to adopt this recommendation. When explaining the rationale behind the contractual-relationship approach, the FMC stated that, “[i]f the billed party has firsthand knowledge of the terms of its contract, then they are in a better position to ensure that both they and the billing party are abiding by those terms.” 89 Fed. Reg. at 14339. “Although other parties may in some circumstances have more influence on whether demurrage or detention actually accrues, they are not the best party to understand the terms of the contract and dispute any charges.” Id.
A debate arose over whether motor carriers should be included in the list of parties that could be billed for demurrage and detention.
One commenter requested that the FMC “amend the definition of ‘billed party’ to include motor carriers that control containers to account for situations where VOCCs3VOCC means a “vessel-operating common carrier.” enter directly into written contracts with motor carriers that use containers in the transportation of goods.” 89 Fed. Reg. at 14336.
Initially, the FMC stated that “[n]othing in this rule … prohibits a VOCC from issuing a demurrage or detention invoice to a motor carrier when a contractual relationship exists between the VOCC and the motor carrier for the motor carrier to provide carriage or storage of goods to the VOCC.” Id. It further stated that “this rule, would apply only to cargo moved inland under a through bill of lading and contracts between a VOCC. A motor carrier not based on a through bill of lading would likely be outside the scope of this rule.” Id. (quoted as in original).
These two statements appear to be inconsistent. The first suggests that a motor carrier may be billed for demurrage and detention whenever it has a contractual relationship with the VOCC. The second statement narrows the scope to shipments under through bills of lading. As a result, the two statements create uncertainty: one implies a contractual-relationship approach, while the other imposes a through-bill-of-lading requirement that may exclude motor carriers even when a contract exists.
Moreover, both statements appear to be inconsistent with the Final Rule itself. Under 46 C.F.R. § 541.4(a)(1) (now set aside), a demurrage or detention invoice can be issued by a billing party to “[t]he person … who contracted with the billing party for the ocean transportation … of cargo” (emphasis added). Where the contract is between a motor carrier and a VOCC, it pertains to carriage by land, rather than ocean transportation. Contrary to the FMC’s statement that “[n]othing in this rule … prohibits a VOCC from issuing a demurrage or detention invoice to a [contracting] motor carrier,” the scope of the rule does not extend to motor carriers, as they do not enter into contracts with VOCCs for ocean transportation.
3. Correction to the Final Rule.
On May 9, 2024, the FMC issued a “Correction” to the Final Rule, in which it amended the above statements as follows:
“[W]e presume that the FMC’s jurisdiction would apply only to cargo moved inland under a through bill of lading, and that contracts between a VOCC and a motor carrier not based on a through bill of lading would likely be outside the scope of this rule.”
Demurrage and Detention Billing Requirements; Correction, 89 Fed. Reg. 39569–70.
Although the FMC used cautious language suggesting that motor carriers might, in some cases, fall within the rule (“a motor carrier not based on a through bill of lading would likely be outside the scope of this rule”), the Final Rule effectively excluded motor carriers from being billed for demurrage and detention, as it permitted invoicing “[t]he person … who contracted with the billing party for the ocean transportation … of cargo,” not land transportation.
The World Shipping Council (WSC), a trade association representing a large share of ocean carriers, challenged the Final Rule, arguing, inter alia, that it was arbitrary and capricious on the ground that it was internally inconsistent.
II. District of Columbia Circuit’s Opinion: The Rule Is Arbitrary and Capricious.
The District of Columbia Circuit found the pertinent part of the Final Rule to be arbitrary and capricious under the Administrative Procedure Act “because the [FMC] failed to explain the seeming inconsistency between its contractual-privity-based rationale and its categorical bar against billing motor carriers even when in privity with the billing party.” World Shipping Council, 152 F.4th at 220.
Although the FMC relied on a contractual-relationship rationale as the basis for the Final Rule,4“[T]he [FMC] has determined that prohibiting billing parties from issuing demurrage and detention invoices to persons with whom they do not have a contractual relationship will best benefit the supply chain. If the billed party has firsthand knowledge of the terms of its contract, then they are in a better position to ensure that both they and the billing party are abiding by those terms. Although other parties may in some circumstances have more influence on whether demurrage or detention actually accrues, they are not the best party to understand the terms of the contract and dispute any charges.” 89 Fed. Reg. at 14339. it barred ocean carriers from invoicing contracting motor carriers, even when the contract between an ocean carrier and a motor carrier was based on a through bill of lading. The Court found that the FMC did not provide a reasonable explanation for the exception related to motor carriers.
The Court also found that the FMC’s contractual-relationship rationale conflicted with 46 C.F.R. § 541.4(a)(2), which allowed consignees to be billed regardless of contractual privity with an ocean carrier. The Court stated that “the Rule’s inclusion of consignees among eligible billed parties, without regard to contractual privity, 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.” 152 F.4th at 223.
As a result, the Court set aside the pertinent part of the Final Rule as arbitrary and capricious. Specifically, it severed the provision set forth in 46 C.F.R. § 541.4, which confined the field of properly billed parties to contracting shippers and consignees, and left the remainder of the Final Rule in effect.
III. Impact on the Industry.
By setting aside the provision specifying which parties could be billed for demurrage and detention, the Court left this issue unsettled. Notably, in 2022, Congress expressed particular concern over this issue, instructing the FMC to determine “which parties may be appropriately billed for any demurrage, detention, or other similar per container charges.” 46 U.S.C. § 41102 note. The FMC is likely to revisit the issue.
Until guidance is issued, ocean carriers have discretion in deciding whom to invoice, but that discretion is limited by law. Pursuant to 46 U.S.C. § 41102(c), ocean carriers must “establish, observe, and enforce just and reasonable regulations and practices relating to or connected with receiving, handling, storing, or delivering property.” The FMC interpretive rule further clarifies that, “[i]n assessing the reasonableness of demurrage and detention practices and regulations, the [FMC] will consider the extent to which demurrage and detention are serving their intended primary purposes as financial incentives to promote freight fluidity.” 46 C.F.R. § 545.5(c)(1). For example, a detention charge may be disputed as unjust and unreasonable if a motor carrier could not return an empty container due to a port closure, which prevents the charge from functioning as a “motivating factor for increasing cargo fluidity.” Evergreen Shipping Agency (Am.) Corp. v. Fed. Mar. Comm’n, 106 F.4th 1113, 1116 (D.C. Cir. 2024).
While the requirement that billing practices be “just and reasonable” provides some protection for affected parties, greater clarity is needed to guide industry practice.
The information provided in this article is intended for informational purposes only and does not constitute legal advice. It should not be relied upon or applied without consulting an attorney to address your specific circumstances. Please note that this article was published on the date indicated and may not reflect subsequent changes in the law.
