S3.E6 - FMC's Final Rule on D&D Billing Requirements RELEASED - Part 1 - MTOs included in scope

Topic of the Week (2/23/24):

The FMC released their final D&D rule this morning - let's have a first impressions look.

Federal Maritime Commission Final Rule on Demurrage and Detention Billing Requirements:
https://public-inspection.federalregister.gov/2024-02926.pdf

Part 1 - MTOs included in the scope of this rule
(this will be a multi-part discussion)

The Maritime Professorᵀᴹ presents By Land and By Sea - an attorney breaking down the week in supply chain

with Lauren Beagen (Founder of The Maritime Professorᵀᴹ and Squall Strategies)

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** As always the guidance here is general and for educational purposes only, it should not be construed to be legal advice and there is no attorney-client privilege created by this video. If you need an attorney, contact an attorney. **

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Transcript

Lauren Beagen: 0:55

Did you hear the news? The Detention and Demurrage Final Rule has been released. I've been combing through it all morning. It's a doozy. It's 115 pages long. Yeah, 115 pages long. But that's okay, we'll work through it. Let's at least get some initial impressions here. I have notes all over on this. Let's start chatting about it. Let's go.

Lauren Beagen: 1:22

i, welcome to by land and by sea, an attorney breaking down the weekend supply chain presented by the Maritime Professor Me. I'm Lauren Beagen, founder of the Maritime Professor and Squall Strategies, and I'm your favorite maritime attorney. Join me every week as we walk through both ocean transport and surface transport topics and the wild world of supply chain. As always, the guidance here is general and for educational purposes only. It should not be construed by legal advice and there is no attorney client privilege created by this video or this podcast. If you need an attorney, contact an attorney. So usually before we get into the discussion of the day, we go through my top three stories of the week, but we're not going to do that today. We are going to just dive right into it.

Lauren Beagen: 2:03

There was notable news that happened this week and last week, admittedly, but let's just jump right into it because we need to hit. There's a lot of information in this detention to merge final rulemaking. There was some very important things that happened, but let's just dive right into it. Otherwise, there's going to be a two hour podcast. I don't want to do that, so, in the interest of keeping these moving, I'm going to also. We'll see how this goes. I usually have a lot more clarity on how I'd like this to go. There's so much information in this D&D final rulemaking that I want to make sure that we hit as much as we can. But I'd also like to give the initial disclaimer that you can probably see it. I'm still digesting what some of this is and how this all applies, but this is it. This is the final rule.

Lauren Beagen: 2:54

So today, february 23rd, the Federal Maritime Commission released their final rule text. The final rule will actually appear in the Federal Register on Monday, which will be the first, the true publication of this final rule, but they released it today so you can see all the language. So it was released today. What the announcement said is that this new rule established new requirements for how common carriers and marine terminal operators MTOs we're going to talk about that in a minute. They said how common carriers and MTOs must bill for demerging detention charges, providing clarity on who can be billed, within what timeframe and the process for disputing bills. I stopped at the MTOs because, if you remember and if you've been listening to these podcasts we've talked about, there was a big push to get MTOs removed. Right, mtos, marine terminal operators those are essentially ports and terminals. There was a big push to get marine terminal operators removed from this final rule congressional push to get the MTOs removed. But here it is. We'll talk about it.

Lauren Beagen: 4:02

Here's a little forward glimpse, though MTOs were not removed, okay, so continuing on with the announcement, a key provision of this rule determines that D&D invoices can only be issued to either one the person for whose account the billing party provides ocean transportation or storage of cargo and who contracted with the billing party for the ocean transportation or storage of cargo, so that direct contractual relationship that they've talked about many, many times before. Or they're also adding in now the consignee. So they define the consignee as the ultimate recipient of the cargo, the person to whom final delivery of the cargo is to be made. Again, this is the announcement, giving kind of a brief summary. They also say in this announcement D&D bills cannot be issued to multiple parties simultaneously. We're going to be talking about that again. We're going to be talking about that a little bit later too.

Lauren Beagen: 4:54

So the rule also requires VOCCs and MTOs here it is again and MTOs to issue detention, to merge invoices within 30 calendar days from when charges were last incurred. Okay, so 30 calendar days calendar is new. They previously just said days, 30 calendar days from when charges were last incurred. And then this is also new non-vessel operating common carriers NVOCCs must issue to merge in detention invoices within 30 calendar days from the issuance date of the invoice they receive. We're also going to talk about that in a minute. But this is new, the NVOCC now has 30 days, because sometimes the NVOCC is the billed party and the billing party, meaning they might be passing it through or they might be incorporating it with other charges. But that's what's happening here is they're saying look, the billed party, the billed party can send it to the NVO sorry, the building part. They send it to the NVO and then the NVO has 30 days from the issuance date of the invoice they received to issue that next one. That goes down the line. That's new. We'll talk about that a little bit more.

Lauren Beagen: 6:02

Build parties have at least 30 calendar days to make fee mitigation, refund or waiver requests. So this again is calendar days that they're including here. So build parties have at least at least they're making it a clarification that it's at least 30 days. If a timely filed request is made, the building party must attempt to resolve the matter within 30 days. So if they make that request for dispute resolution within those 30 days at least 30 days it must be attempted to be resolved within 30 days. You can't just sit on it unless both parties agree to a longer timeframe. We're going to be talking about that in a minute too. So that's new, right? That's new, saying that at least 30 days and that you can agree to a longer timeframe if you want, if the two parties want.

Lauren Beagen: 6:52

The rule also ensures that build parties understand that demurged or detention invoices they receive by requiring certain identifiable information be included on the building party by the building party on the invoice. So failing to include any of the required information in a detention to merge invoice eliminates any obligation of the build party to pay the applicable charge. I'm going to say that again. This is in the announcement that the FMC set out Failing to include any of the required information in a D&D invoice eliminates any obligation of the build party to pay the applicable charge. We're going to talk about that also in a few minutes. But it used to say within 30 days. There was a 30 day piece. The FMC has taken away that 30 day piece and kept the elimination of obligation to pay because that's what was given to them. That was a statutorily I think it was congressionally put in there, so they couldn't remove that. So the elimination of any obligation to the build party to pay the applicable charge.

Lauren Beagen: 7:53

I say all that with caution, though, because I want you to make absolutely sure that you're reading that right. For your instance, this does not eliminate the need for you to talk to your attorney. You definitely need to talk to your attorney, or any attorney, when you just determine if this applies to you and, if you have been, if your obligation to pay has been eliminated based on this final rule. It also says that this is just the announcement. It also says if an invoice does not comply, a charge party does have an obligation to pay. If an invoice does comply sorry, excuse me, let me repeat all this If an invoice does comply, a charge party does have an obligation to pay charges bill. Okay, simple. The new rule will provide relief to parties who should never have received a bill for D&D, and that's where they're talking about that direct contractual relationship. They want it to go to who it's supposed to go to, to the person who knows the most about what's going on.

Lauren Beagen: 8:53

Most important piece of this whole thing this rule takes effect May 26, 2024. They gave it a 90-day effective upon publication or effective upon 90 days after publication. So you have 90 days to read this, digest it, understand it, apply it to your own situation, perhaps update your systems to be able to handle some of this invoicing requirement information, although the industry, it seemed, especially over the last summer, started to update some of their systems already. Thank you, but you have 90 days from Monday. So actually you have like 93 days, right? They give you an extra three days because today's the 23rd. This goes into the federal register on February 26th. That will be the day that 90 days starts, which puts us at May 26, 2024, as the date that this final rule will become effective.

Lauren Beagen: 9:50

So the question is is this done? Are there any comments allowed? Is there any way that this might stop in its tracks or somehow not be implemented come May 26? Great question, probably, this is it, and, and every lawyer loves to say probably right, and this is not legal advice, this is general information. But I say probably because if there is a significant adverse comment filed or significant adverse Reason for this not to go into effect, it could potentially be stopped. But I'm telling you the train has been built, the people are on board, that the. The conductor has said all aboard, the doors are shut and it's about to pull away from the station. We are there and unless something happens that you put a blockade in front of that train and it's got to be a Significant blockade it's got to be a significantly adverse comment or a significantly adverse reason the the train is going to move forward. So there's a small bite at the apple, but this is not likely to be stopped at this point.

Lauren Beagen: 11:00

That's what made the advanced notice of proposed rulemaking Stage so important. That's what made the notice of proposed rulemaking so important. So the a nprm and the nprm that's what made those stages so important, because your comments would be addressed. The comments that come in Should they come in in the next 90 days need to be significantly adverse and likely, because there were over a hundred and a hundred eighty hundred ninety comments submitted. We're not likely to see anything that rises to that level because there was plenty of opportunity and plenty of comments that came in that a significantly adverse comment likely would have been addressed through those, those exhaustive mechanisms.

Lauren Beagen: 11:44

So here we are. We're already 12 minutes in. We're just going through the announcement. So I think what we're gonna do for today is go really high level. We'll hit some of the main topics, but I'm gonna have to do a one, two, maybe even three part series on this. I'm also gonna be distilling this down into webinars, should you want a, a direct webinar to your employees or to your association or whatever you'd like.

Lauren Beagen: 12:06

But there's a lot of information here, so let's go through. That's. That was the announcement. There's one little caveat. There's a piece of the final rule that may or may not be effective on May 26. Contents of invoice section five four one, point six involves information collection and must be approved, as Stated by the FMC, by the OMB, the office of management and budget, so that five four, one dot six Might have a different effective date. Maybe that all happens quick and maybe that can still be part of this May 26, but just so you know, there's one little piece that is outside of the FMC's ability to have it effective on this 90-day. So if we go through the history, let's let's kind of take a step back right.

Lauren Beagen: 12:47

So the FMC on its own, through the fact finding 29, decided that this was an important thing, that detention and demerge billing practices, invoicing, was important and that they needed to clarify it. They needed to get some, some guardrails in place here, because prior to this whole Process, you could have a barnapkin that had a number on it and say this is your demerge charge, and there wasn't a lot of clarity on what was required. So then, okay, so that the FMC actually started its own Rulemaking. They started in the spring of 2022 their own rulemaking. That was the advanced notice of proposed rulemaking, and at that point they asked a lot of questions to the industry, saying what do you think we're thinking about doing the rulemaking here? What do you think? We have some questions. What do you think the language should be?

Lauren Beagen: 13:36

Congress was working through Osra at the time. The OSHA should bring a form act of 2022, and so that was the spring of 2022, it was the. The spring of 2022 was the ANPRM and then over that summer is when Congress finally passed Osra. The OSHA should inform, like their 2022, and said, hey, in there. It said, hey, fmc, you should do a rulemaking on detention to merge. The FMC is like we already, we're already started that. That started in the spring. Did you read fact finding 29? Did you know that we started this rulemaking process? But, regardless, fmc said okay, okay, thanks, congress, we will take that under advisement. And so they they folded that into their already existing process of this detention to merge rulemaking Process that they had, and so in Osra in the US, to ship or inform after 2022, congress listed which I found very unique, but Congress listed 13 minimum information requirements that you needed to include on detention to merge billing invoices.

Lauren Beagen: 14:37

So no longer could a napkin be appropriate. You had to have all of this stuff on an invoice, and so these items were the date that the container is made available. The port of discharge. The container number or numbers for exported shipments. The earliest return date. The allowed free time in days. The start date of free time. The end date of free time. The applicable detention or demerge rule on which the daily rate is based. The applicable rate or rates per the applicable rule. The total amount due. The email, telephone number or other appropriate contact information for questions or requests for mitigation of fees. A statement that the charges are consistent with any of federal maritime commission rules with respect to detention and merge. And a statement that the common carriers performance did not cause or contribute to the underlying invoice charges. So that's what Congress said. They went through and said these 13 things must be included.

Lauren Beagen: 15:32

So then, fast forward a little bit to October 2022, the FMC came out with the notice of proposed rulemaking, and that was the last stage. That's the stage that we've been mulling over quite a bit recently. We've been talking about it. I think a lot of the industry was already starting to maybe make some initial modifications based on some of the NPRM thinking that, you know, probably some of this might end up in the final rule, and so 191 comments were received from this notice of proposed rulemaking from this October 14th 2022 text, and so that's what the NPRM was was a text that the commission put out that said we're thinking about this being the final rule. What do you think? So then they received 191 comments that tweaked it, and that's where we're at now. Is those tweaks?

Lauren Beagen: 16:23

The FMC, through this 115 page final rule document, addresses some of those comments, addresses whether they adopted or declined to adopt any of those comments and why. So this goes through pretty systematically and actually, I think, very cleanly, looking at each little area. So if you had an area that you are really passionate about or that you felt very strongly that the FMC should amend or correct or change, you can kind of as long as it was kind of part of one of those bucket categories go through pretty quickly and find your topic and see if it was something that was maybe modified, updated or declined to be included at this stage. And so what we had was 191 comments. They said all major groups of interested persons were represented in the comments. So they had VOCCs, they had NVCCs, they had MTOs, they had motor carriers, they had beneficial cargo owners, bcos, ocean transportation intermediaries, otis, third party logistics providers, we had customs brokers, we had bipartisan groups of the US House of Representatives. We talked about those letters a couple of times. We had other federal agencies. We had the National Shipping Advisory Committee. That is the commission's own federal advisory committee. All of those different interested groups submitted comments in this 191.

Lauren Beagen: 17:45

This was, I feel, like a pretty exciting collection of comments that were submitted. What they said was about 75% of commenters supported the rule generally. About 75% of commenters supported the rule. About 15% questioned the rule and about 10% did not specify which to me, if they're breaking it down into percentages, they were dissecting those comments so finely and they really were taking into consideration what people were saying. What they said was motor carriers overwhelmingly supported the entire rule.

Lauren Beagen: 18:17

Bcos beneficial cargo owners mostly supported the rules, but some objected to prohibiting others from being billed. Nvoccs and OTIs generally supported the rules, but with many objecting to the inclusion of NVOCCs they wanted to be left out. Voccs overwhelmingly questioned or did not support the rule. Nearly all VOCCs questioned the rule prohibiting billing other parties and the timing of billing requirements. About half of VOCCs questioned the required information from the ANPRM that the commission added to the information specifically required by ASRA 2022. And MTOs overwhelmingly questioned this rule, with most arguing these regulations should not apply to MTOs. Like I said, there was congressional support. There was a lot of discussion over MTOs being included at all. They were ultimately included. They were. So the FMC addressed or identified that the top three issues addressed by commenters were one concerns with the prohibition on billing other parties that are not contractually connected. Two concerns with additional information the commission proposed to require, in addition to the ASRA 2022 mandated information. And three concerns with time periods for billing.

Lauren Beagen: 19:36

So we are already 20 minutes in, so I'm unfortunately not gonna be able to go through each and every one today. This is gonna have to be a part one, part two, but I do wanna start to tackle a little bit and maybe what we can do is tackle a little bit of the MTO discussion. So the FMC breaks it down into, kind of the different pieces of the new part 541. So this part 541 will be the entirely new part that talks about detention emergency billing practices, and so Under 541.2, scope and applicability, 1a is regulation of MTO demerge and detention billing practices and FMC's authority to Regulate. Well, I should I should pause there. This is just kind of how, like I said, they're identifying it within the final rule text.

Lauren Beagen: 20:24

And so this is what they said is the issue is MTO's and MTO, which rated associations argued the MTO should fall, should not fall within the scope of this rule and the FMC's response. And that's how they issued, that's how they identified and kind of captured all of this is that they would go with the regulation that they're talking about. They would go with kind of the, the shortened issue, and then they would write out and say issue and who said what, and then, not much further down, they would say the FMC's response in italics and and go through. It's a very systematic way of addressing all of these comments and they've kind of clumped them together and and highlighted some of the notable commenters Making some of these comments. So really good process. I think that as a document itself, I think that the FMC did a great job here. Okay, so MTO's and MTO trade associations argue that MTO's should not fall within the scope of this rule. Fmc said the Commission has the statutory authority to apply this rule to MTO's and declines to exclude them from the duties and responsibilities of issuing Accurate D&D invoices Declines to exclude them.

Lauren Beagen: 21:29

Commenters raised two major arguments against the Commission's proposed inclusion in the regulations of MTO's. Commenters argued that the Commission did not have authority to apply the regulations to MTO and that it should not apply regulations to MTO's for a variety of reasons Addressed below individually, and that's where they kind of go through each of the different commenters and what they said. The Commission is clear statutory authority to regulate MTO's under section 4 1 1 0 2 sub sub part C, that's the shipping act. There is also a clear need, based on the record of this rulemaking, for these regulations to address MTO's D&D invoices sent to entities other than VOCC's. It continues on to say the Commission concludes that this rule will help ensure the MTO's D&D billing practices are just and reasonable Pursuant to the shipping act generally. 4 1 1 0 2 is the section they reference.

Lauren Beagen: 22:23

The FMC also declined to follow the commenters into Discussion of legislative intent and so that's what was happening here was the MTO's and certainly any anybody who was Making an argument saying that the MTO's should not be included. We're saying that legislative intent and perhaps some of the Discussions of Osra leading up to the final enactment of law Osra Suggested that MTO's shouldn't be part of it, but the FMC pretty clearly said that they didn't want to go into a discussion of legislative intent and that it wasn't as compelling as the actual language given to the FMC and some of that statutory statutory text. And they said they instead would like to focus on the plain letter of the law and the shipping act to keep the jurisdiction of MTO's intact. So what they said was this is direct language, the actual statutory text of 46 USC 4 1 1 0, 2 sub part C in Congress's direction to use 46 USC. So this is the code, this is the shipping act to define prohibited, prohibited emergent attention practices for MTO's is clear and does not necessitate resorting to the incomplete history of the legislative drafting process of Osra 2022. So that's what they're saying. They didn't want to keep going down that line of of the. It almost felt like the FMC was saying speculatory or speculative, but but basically they said look, our statutory sec text says that we can define Prohibited detention merge practices for MTO's under the shipping act, and so that's what we are going to be doing here.

Lauren Beagen: 23:51

Further, on the issue of MTO's being subject to this final rule, it's as part 5 4 1 governs any invoice issued by an ocean common carrier and VOCC for the collecting of D&D charges. Part of the 5 4 1 does not govern the billing relationship among in between ocean common carriers and Marine terminal operators. So this is talking about VO's, vocc's and the MTO's the ports. So the Commission has not received information about the relationship or interactions between VOCC's and MTO's that warrants regulating the format used by MTO's to bill VOCC's Says. At the present time the Commission is confident that the strong commercial relationship between the parties is enough to ensure that the proper information is shared and that the party who ultimately receives the invoice is receiving accurate information.

Lauren Beagen: 24:35

Remember, the FMC said and this is something to kind of guide the discussion as you read through this rulemaking the FMC said that the whole reason for their starting this rulemaking, that is the reason for the FOMC's. This is something to kind of guide the discussion as you read through this rulemaking. The FMC said that the whole reason for their starting this rulemaking, that they started this rulemaking on, was to clarify what is being billed by whom. They wanted clarity over the billing practices on what is being billed and by whom. It says Part 5, 4, and 1 does apply to all other demerging detention invoices issued by MTOs. Mtos often do not have direct contractual relationships with shippers. However, mtos are entitled to separately assess demerge as an implied contract, provided that it is published as part of an MTO schedule, and there are some situations where marine terminal operators impose fees directly on shippers and NVOCCs.

Lauren Beagen: 25:34

A primary concern of the commission is to ensure billed parties understand the D&D invoices they receive. That's what they want to do. They want to ensure billed parties understand the D&D invoices they receive. Therefore, in those cases when MTO charges any party other than a VOCC, detention or demerge charges so anytime the MTO is charging anybody other than the common carrier, the VOCC, the commission finds that MTOs should be subject to the same regulations that apply to VOCCs and NVOCCs. So that's what they're saying.

Lauren Beagen: 26:09

Mtos were not carved out. They also went on to say very plainly that the need for consistency in demerge and detention invoicing further supports requiring MTOs to comply with this rule, because billed parties should be able to expect a standardized set of information in a demerge or detention invoice, regardless of whether it comes from a carrier or an MTO. They're saying look, in the interest of keeping this clean, we're not going to create separate rules here. We're going to say that MTOs, when they're invoicing demerge or detention, need to include all of the same information and follow all of the same rules that the, whether it comes from a carrier or an MTO. The FMC also addressed MTOs collecting D&D on behalf of ocean carriers and basically said that they see this as akin to an agent relationship. So they called the MTO the agent who must assume the same obligations as the VOCC or the NVOCC under the Shipping Act, as kind of a general statement. So the text also says look, this is what the text says of the final rule.

Lauren Beagen: 27:11

An agent is free to negotiate the specific acts they will or will not undertake on behalf of the principal. It is possible that in particular MTO principle demerge and detention billing relationship that the MTO is responsible for providing all of the invoice elements in 41 USC 41104D2, while in other MTO principle demerge and detention billing relationship that the MTO complies with only certain elements of the code and that the invoice must be sent back to the principal for completion of the other elements before the invoice is issued to the bill party. So what they're saying is the MTO can act as an agent on behalf of the VOCC, but when that happens they're going to be responsible for providing all of the invoice elements unless it was otherwise agreed to, and then it could be sent back to the principal for the other elements, but that it needs to be even in that agent relationship. It needs to be that consistency. So that's where we're going to stop today. We already have about a half an hour of discussion here. I'm going to be doing a part two, probably a part three here. Perhaps I'll even release these earlier than my weekly Fridays. But that's what we have for today.

Lauren Beagen: 28:24

I hope that you are as excited as I am about this rule coming out because, whether you like it or hate the final result here, it's a decision, it's a movement in a certain direction. We have progress. There is a final rule out. We have 90 days to digest it, 93. We have May 26 as the final rule effective date. This is when all of this goes into effect.

Lauren Beagen: 28:48

But, as always, the guidance here is general and for educational purposes. It should not be construed to be legal advice directly related to your matter. If you need an attorney, contact an attorney, but if you have specific legal questions, feel free to reach out to me at my legal company, skoll Strategies. Otherwise, for the non-legal questions, the e-learning and general industry information and insights, come find me at the Maritime Professor. If you like these videos, let me know, comment, like and share.

Lauren Beagen: 29:10

If you want to listen to these episodes on demand or if you missed any previous episodes, check out the podcast by Landon by Seed. If you prefer to see the video, they live on my YouTube page by Landon by Seed, presented by the Maritime Professor. While you're at it, check out the website MaritimeProfessorcom. Until next week. This is Lauren Began, the Maritime Professor, and you've just listened to by Landon by Seed. I said see you next week, but look, I think we're going to be hitting this sooner than next week, so we'll see you next time. This is part one of the Detention and Demerge final rule released from the Federal Maritime Commission. We'll see you next time.