5 Reasons Billing Transparency Is a Game-Changer for BCOs After OSRA
On June 16, 2022, U.S. President Joe Biden signed the Ocean Shipping Reform Act (OSRA). One of its objectives was to reduce the costs associated with the demurrage and detention billing of beneficial cargo owners (BCOs). BCOs have previously complained about the lack of shipping billing transparency, noting they had to pay for costs outside their control and that the bills received were frequently unpredictable. Here’s why the OSRA should improve those issues and what BCOs can expect.
1. It Should Eliminate Questionable Demurrage and Detention Billing Practices
Many OSRA elements center on forbidding some demurrage and detention billings imposed on BCOs. For starters, beneficial cargo owners will no longer receive extra charges based solely on the size, weight, type or classification of the cargo.
OSRA also facilitates the Federal Maritime Commission (FMC) to investigate suspected unfair practices against U.S. shippers, including those associated with carriers’ discriminatory behaviors.
Relatedly, ocean carriers must prove their demurrage and detention billing decisions occurred on reasonable grounds. Improved shipping billing transparency provides a more concrete paper trail, helping BCOs trace and see the justification for specific charges. OSRA also allows the FMC to impose penalties on parties found to engage in retaliatory practices against U.S. shippers, including those that could make securing space on ocean vessels more difficult.
These changes should level the playing field for people who work with ocean carriers. They should also reduce the fear people may have for reporting entities that try to charge unwarranted fees.
2. It Removes the Recipient’s Obligation to Pay Non-Compliant Bills
OSRA specifics relieve recipients from paying demurrage and detention bills found non-compliant. Demurrage charges occur when too much time passes before full containers are moved outside of a terminal or port for unloading. Parties become liable for detention charges when it takes too long for shipping containers to return to the correct depot after unpacking finishes.
Both situations provide the relevant parties with a specific number of free days, and the fining begins outside that time frame. Now, BCOs and other shippers can challenge bills viewed as unfair, and the FMC has the authority to investigate such claims.
The FMC also confirmed there’s no grace period for complying with OSRA. It went into effect as soon as Biden signed it. Additionally, OSRA’s specifics at least temporarily remove a recipient’s responsibility to pay a non-compliant bill. However, the FMC stipulated that the recipient must still pay if the biller reissues a compliant invoice.
Recipients must not believe they never have to pay a carrier’s bill after receiving one that does not align with OSRA. That’s only true if the recipient never eventually gets one that complies.
3. The Shipping Billing Transparency Extends Beyond the U.S.
Although OSRA is U.S.-based, it applies to foreign carriers that are moving goods between ports in the U.S. and abroad or transporting goods between the U.S. and other countries. Additionally, carriers must follow OSRA even if the demurrage and detention billing occurs outside the U.S., resulting in paperwork originating from other countries.
These details should provide additional peace of mind for BCOs operating in an increasingly global market. Even if they primarily deal with companies based outside the U.S., those businesses must still provide the better billing transparency OSRA requires, as long as some of their journeys involve the U.S. and its ports.
4. It Will Bring More Consistency to Shipping Exchanges
Shipping exchanges have become essential for people who move goods via land, sea or air. They’re online services that allow companies to advertise their available capacity to people who need to transport goods. These websites help people see all the possibilities and get the best rates for their desired dates.
A part of the OSRA gives shipping exchanges three years to register with the FMC. However, the FMC has not yet provided the specifics for how that registration will occur, meaning that this stipulation may realistically take longer than three years to come into full effect.
People associated with shipping exchanges should start preparing now for the high likelihood of extra paperwork associated with registering. They must also realize that failure to comply could give the FMC the right to shut down a business.
However, the most likely positive effect for BCOs is that they will know the shipping exchanges with which they do business must fit within a specific framework associated with their FMC registrations. Moreover, if someone working for a BCO finds a seemingly non-compliant shipping exchange, they will have recourse for getting that conduct investigated.
5. The Effects Are Already Evident
Another aspect of OSRA requires the FMC to publish an annual public report showing the parties penalized for inappropriate demurrage and detention billing and the associated fines. That document will be on a website for anyone to read. The information will also help parties avoid the common carriers shown to be first-time or repeat offenders.
The good news for BCOs is that they can already see OSRA in action. In early June 2023, operator Hamburg Süd received a $9.8 million penalty under the Act. It was for “refusal to deal,” whereby the operator allegedly would not do business with a Florida-based furniture importer out of retaliatory action. Evidence uncovered about this situation showed Hamburg Süd stopped fulfilling its contractual agreements when representatives learned the furniture importer might take legal action against the company.
However, the FMC subsequently agreed to review the language in OSRA regarding other refusal-to-deal-like instances. Parties from the International Federation of Freight Forwarders Associations (FIATA) raised concerns that many of the things carriers do to manage capacity — such as schedule changes or canceled sailings — could get co-opted to prevent certain customers from doing business with a company.
Thus, the FMC noted evidence of a carrier changing schedules or canceling trips for reasons other than demand fluctuations would not be considered legitimate transportation factors. This may be one of many OSRA reviews people see. In any case, such instances strengthen the overall shipping billing transparency of the Act.
Notable Improvements to Anticipate
Better shipping billing transparency affects BCOs and everyone else doing business with ocean carriers. These five aspects are some of the most compelling reasons why OSRA should end, or greatly reduce, unfair billing and retaliatory practices shown by the respective entities.