Seatrade-Maritime: Flexport defeats Peloton’s $33.7m demurrage claim at FMC

Published by Seatrade-Maritime

A ruling by a US Federal Maritime Commission (FMC) Administrative Law Judge (ALJ) delivered a victory to digital freight forwarder Flexport by turning back a $33.7 million reparations claim brought by fitness equipment maker Peloton. The decision establishes a potential legal boundary for demurrage and detention disputes.

The 70-page initial decision, released on Wednesday, dismisses Peloton’s allegations that Flexport, which is also a registered Non-Vessel Operating Common Carrier (NVOCC), violated the Shipping Act by assessing unreasonable demurrage, detention, and drayage fees on more than 7,000 shipments during the height of global supply chain disruptions between 2020 and 2023.

In its initial complaint brought to the agency in May 2024, Peloton asserted that Flexport operated under “store door” terms – taking responsibility for all aspects of the inland movement of the Peloton’s containers – and was therefore liable for millions of dollars in demurrage and detention fees that occurred during severe port congestion.

However, “Peloton’s argument that an ocean common carrier is responsible for detention and demurrage on store door moves is not supported by the applicable guidance,” ALJ Mary Hervey wrote in her decision.

Hervey pointed out that the FMC’s Demurrage and Detention Final Rule, issued in 2024, does not contain a provision preventing shippers from being charged demurrage and detention on store door moves. “Thus, it is clear that the Commission has not determined that demurrage and detention cannot be charged on store door moves, but rather may be closely scrutinized when appropriate to do so,” she stated.

The ruling also reinforces the legal application of the FMC’s “Incentive Principle,” which requires demurrage and detention to act as incentives to promote freight fluidity rather than used as a revenue generator. Peloton argued that Flexport failed to apply the incentive principle in its operations by assessing detention and demurrage charges under its own tariff to maximize revenue.

But the ALJ’s decision noted that the charges imposed against Peloton by Flexport “is more likely than not” consistent with the incentive principle. “This is why specificity as to the events resulting in the imposition of charges is necessary in order to determine whether they are consistent with the incentive principle,” Hervey stated. “Although no particular form of proof is required, logic dictates that there must be evidence linking particular events to the imposition of charges on the dates assessed.

“In the absence of a container-by-container analysis, there is insufficient evidence in the record to show that Flexport’s assessment of [demurrage and detention] in accordance with its tariff was per se unreasonable.”

While only the full FMC or federal appeals courts can set binding precedent, ALJs deciding cases frequently cite previous initial decisions as persuasive authority when ruling in complaints.