The FMC Audit Program and Its Impact on Shipping

Supply chain disruption negatively impacts relationships with vendors and makes maintaining customer loyalty difficult. For shippers, the supply chain disruptions could cause financial ruin. In addition to goods not being delivered in a timely fashion, shippers and carriers also have to navigate the complexity of demurrage and detention (D&D) charges.

Demurrage charges are fines levied by carriers when a full shipping container is not moved from the port or terminal for unpacking with the designated free days. Detention charges occur when the importer has picked up the container for unpacking but hasn’t returned the empty container within the agreed-upon time. While a port will typically offer 3-5 days of free storage time, each terminal has different rules and fees can rack up quickly.

In this past year, there were a record number of ships waiting out in the waters just off the port of Los Angeles and Long Beach. This occurrence offers a perfect illustration of how demurrage and detention charges can be so detrimental for shippers.

The Audit Aims to Remove Unfair Disadvantages

While D&D charges can be detrimental to shippers, carriers generate profit from excessive D&D charges. As many shippers have called the resulting practices by carriers unfair, the Federal Maritime Commission has created a new audit program and put together an audit team dedicated to assessing carrier compliance with the Agency’s rule on detention and demurrage. Additionally, the audit team will provide information for regularly monitoring the ocean freight marketplace.

The “Vessel-Operating Common Carrier Audit Program” was established in July 2021, under the direction of FMC Chairman Daniel B. Maffei, and was launched immediately. This audit program will analyze the top nine carriers by market share for compliance with Commission rule interpreting 46 USC 41102(c) as it applies to detention and demurrage practices in the United States. The Commission will work with organizations to address their interpretation and application of the rules and regulations and clarify any questions or gray areas.

“The Federal Maritime Commission is committed to making certain the law is followed and that shippers do not suffer from unfair disadvantages. The work of the audit team will enable the Commission to monitor trends in demurrage and detention practices and revenue, as well as to establish an ongoing dialog between staff and carriers on challenges facing the supply chain. Of course, if the audit team uncovers prohibited activities, the Commission will take appropriate action. Furthermore, the information gathered by the audit process might lead to changes in FMC regulations and industry guidance if warranted,” said Chairman Maffei.

Aside from detention and demurrage, the audit may include carrier practices related to billing, appeals procedures, penalties assessed, and any other restrictive practices, according to the FMC.

The Impact of the Audit Program

While the new audit program aims to protect shippers from absurd D&D charges, this could ultimately prove to be a double-edged sword. Due to the circumstances of the global shipping industry, shippers and carriers are paying more in transportation costs and struggling to track end-to-end visibility. Considering that containers are consistently getting stuck in ports due to supply chain issues, carriers can profit from D&D charges without purposely bending any rules.

Carriers and shippers should also be concerned with the FMC guidelines that shippers and shipping lines must comply with and adhere to for auditing purposes. Many organizations are operating with legacy software platforms, or worse yet, paper logs. Legacy freight audit vendors deliver low-quality audits that fail to identify discrepancies and require post and second audits to recover wasted spend, which can take anywhere from 30 days to six months to correct mistakes. These dated systems lack the visibility and data management capabilities to simplify and streamline the auditing process. With the current turmoil throughout the global supply chain, it is fair to anticipate hyper-vigilance from FMC when it comes to compliance checks.

The Growing Need for Accurate Auditing

Without operational visibility, managing the procure-to-pay logistics cycle and maintaining records for audit compliance is difficult. Many businesses end up leaving money on the table or losing it to unforeseen fees. Shippers and shipping lines should leverage the latest real-time freight audit technology to match their invoices and monitor their spending. Furthermore, with the right freight audit tool shippers can leverage spending insights to track billing performance in terms of contract compliance, amount of fees charged, and the frequency fees occur. With the insights provided by freight auditing, shippers and shipping lines can eliminate wasted spending and enhance data quality to improve compliance posture.

Shippers and carriers will need to be more diligent than ever in their record-keeping and prioritize end-to-end supply chain visibility. One of the first, and most crucial steps a shipper can take, is making sure they never overpay a shipping invoice again.

OpenEnvoy is the first and only freight audit solution that supports detention and demurrage audit compliance for shipping lines and shippers. Shippers can eliminate wasted spending and maintain pristine records with a complete forensic audit in any currency, language, or vendor across all industries in hours, not days or months. To learn more, schedule a demo with an OpenEnvoy expert today by visiting https://openenvoy.com/contact-us/.