Sacramento, Calif. (February 17, 2023) - California Governor Gavin Newsom recently signed Assembly Bill 2406 (AB 2406) into law. The bill, which became effective January 1, 2023, increases regulatory scrutiny of certain maritime practices relating to detention and demurrage (D&D) charges. Specifically, the bill significantly limits the ability of marine container providers or terminal operators to impose certain charges and fees on motor carriers or cargo owners for failure either to pick up or to return containers within allotted free time periods. The new law, which amended § 22928 of the California Business and Professions Code, identifies 10 scenarios in which container providers or terminal operators may not commence/continue free time or impose D&D or similar charges on motor carriers or cargo owners due to circumstances ostensibly beyond those parties' control.
Notably, in addition to strengthening the prohibition on certain charges and fees for failure to pick up or return containers, AB 2406 removed the term "weekend" from subpart (b)(1), indicating some legislative intent to remove the prohibition on weekend charges. Nevertheless, the legislative committee's analysis of AB2406 makes clear that the overarching aim of the amendment is to expand, not reduce, prohibitions on D&D charges.
Indeed, the relevant portion of the statute provides that intermodal marine container providers and/or intermodal terminal operators "shall not commence or continue free time or impose per diem, detention, demurrage . . . during any other planned or unplanned action that closes the truck gate." See § 22928(b)(1)). This mandate can be quite expansive in scope and include perceived labor slowdowns, which result in delays. On this issue, under California law, detention or per diem fees may not be assessed against a motor carrier when the terminal gates are closed, including as the result of labor disruptions, where there has been sufficient evidence of a labor slowdown that occurred around the dates of the charges.
On a final note, D&D charges must conform with the Ocean Shipping Reform Act of 2022 (OSRA), signed into law on June 16, 2022, which aimed to provide relief to U.S. importers, exporters, freight carriers, port operators, and other companies experiencing sharp spikes in shipping costs and supply chain disruptions since the beginning of the COVID-19 pandemic. OSRA includes new, immediately-effective requirements for ocean carriers regarding D&D billing practices.
On a related matter, the Federal Maritime Commission (FMC) published its industry advisory opinion on
July 22, 2022, advising that there will be no phase-in period for
this provision of the law. Vessel-Operating Common Carriers (VOCCs)
are required to comply with D&D billing practices established
by OSRA. In addition, VOCCs must immediately come into compliance
with all self-executing provisions in OSRA, including specifically
the requirements for D&D billing.
In particular, under OSRA, common carriers are required to certify,
subject to penalty, that D&D charges comply with federal
regulations. In addition to the certification, OSRA requires all
invoices to include detailed information each time a common carrier
imposes D&D fees. The law further provides that if the carrier
fails to include the required information in each invoice, the
obligation to pay D&D charges is nullified and the FMC is
empowered to assess penalties on the intermodal maritime carrier
for their failure to comply with this rule.
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