The Federal Appeals Court upheld the decision of the Federal Maritime Commission (FMC), stating that ocean carriers cannot charge delay fees that do not contribute to the efficient movement of cargo through the supply chain.
In a unanimous decision, the U.S. Court of Appeals for the District of Columbia rejected all arguments from Evergreen Shipping Agency (America) Corp. against the FMC order, which deemed the delay fees unjustified after the carrier failed to return equipment during a three-day closure of the Savannah port.
The ruling stemmed from a dispute between Evergreen and Georgia-based carrier TCW Inc. over $510 charged as delay fees during the three-day closure of the Savannah port on Memorial Day in 2020. In April, the Appeals Court unanimously affirmed the FMC's ruling that the fees violated the Shipping Act, as the carrier had no practical ability to return the equipment while the port was closed.
The court agreed with the FMC that the fees violated the Shipping Act's requirement that carriers must establish and enforce 'just and reasonable' practices, as they could not facilitate the earlier return of equipment under the circumstances.
Senior Judge Harry Edwards noted that the commission reasonably concluded that the fees did not serve the 'primary purpose' of delay as financial incentives to promote cargo flow, as TCW could neither pick up the equipment faster nor return it while the port gates were closed. The court also noted that Evergreen acknowledged it incurred no costs as a result of the three-day delay.
This ruling strengthens the FMC's 2020 interpretive rule on delays and demurrage, which directs the agency to assess whether such fees act as financial incentives to improve cargo flow rather than merely as penalties for revenue generation. The rule also states that, in the absence of exceptional circumstances, delay fees imposed when empty containers cannot be returned are likely to be deemed unjustified.
Evergreen argued that delay fees during scheduled port closures still encouraged carriers to return equipment before the closure began, and that the commission improperly replaced the 'incentives' principle with a broader 'cargo flow' standard.
The Appeals Court rejected this argument, noting that cargo flow has always been central to the FMC's interpretation. The court stated that the commission was entitled to rely on its expertise in determining whether delay fees would enhance the overall flow of cargo and equipment through the supply chain, rather than merely facilitate the quickest possible return of containers.
The ruling also confirmed that carriers seeking to justify delay fees based on compensation rather than solely incentives must provide evidence showing that the fees reflect actual incurred costs. In this case, the court found that Evergreen did not present evidence that the delay in return during the port closure incurred additional costs for the carrier.
This decision is expected to strengthen the FMC's oversight of billing practices for delays and demurrage, an area that has been a focus for the agency since supply chain disruptions during the COVID-19 pandemic led to widespread complaints from shippers, carriers, and cargo owners about container fees that continued to accumulate even when equipment could not be moved.
