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Force Majeure is a Challenging Defense to Per Diem Charges

We've written twice recently, here and here about per diem disputes between motor carriers and equipment providers. This issue heated up over the fall and winter of 2014-2015 when many disputes were submitted to arbitration by the motor carriers. According to a report from the Journal of Commerce this past May 2015, as of May 11, 2015, the Intermodal Association Of North America (IANA) had received 109 arbitration requests from motor carriers on the West Coast challenging per diem fees. This was about ten times the normal rate.

Some of the arbitration decisions have been issued. IANA posts these at its UIIA website, stripped of information that might identify the equipment provider, motor carrier, or amount in controversy. In all of the reported decisions so far, the equipment provider has prevailed. In all of the 14 decisions, the motor carrier representative and ocean carrier arbitrators have split and the deciding vote has been cast by the third panel member, representing the rail carriers.

According to those decisions, the third panel member found that the port worker slowdown was properly characterized as a strike and did establish a force majeure condition within Section G.12 of the Uniform Intermodal Interchange and Facilities Access Agreement (UIIA). However, that alone did not meet the requirements for invoking relief available in this section. Force Majeure as defined in the UIIA requires conditions to exist that prevent the Motor Carrier from interchanging the equipment. Section G.12 states: "In the event the Motor Carrier is unable to Interchange Equipment to Provider within the free time as specified in Provider's Addendum, or Provider's applicable Tariff, as a result of Acts of God, war, insurrections, strikes, fire, flood or any like causes beyond the Motor Carrier's control, the Motor Carrier shall be exempted from the per diem charges to the extent of, and for the duration of, the condition that prevented the redelivery of the Equipment." (Emphasis added.) Some of the motor carriers also sought relief under SB 45, a California state law that bars per diem charges under certain conditions. SB 45 states among other things that in order to qualify for relief, the planned or unplanned action (i.e. labor disruption) would need to close the truck gate or an intermodal marine terminal would need to turn away a motor carrier due to congestion.

As the rail carrier representative stated in one typical decision: "Both provision G.12 of the UIIA and SB 45 contemplate the inability to interchange equipment. In this case, the Motor Carrier failed to provide evidence that supported its contention that the port congestion prevented it from returning the equipment within the specified free time. Therefore, the third panel member finds in favor of the Equipment Provider." It should be noted that in some decisions, the third panel member did find in favor of the motor carrier where the motor carrier had specific evidence of gate closures.

While this general conclusion does follow the language of the UIIA and SB 45, it fails to recognize the cascading effect on motor carriers that port congestion causes. Congestion at the port flows back through the whole dispatch cycle and may sometimes result in containers not being dispatched to the ports at all simply because the dispatcher knows it would be pointless. In the extremely complex port drayage environment, asking a motor carrier to document why a particular container was not returned on a particular day, months after the fact, may simply be asking too much.

Nevertheless, based on these decisions, the defense of force majeure for events occurring in the ports over the past 12 months is viable. Its use requires a careful presentation of evidence to tie the force majeure condition to the failure to return the equipment on time. This will certainly require more detailed record keeping by motor carriers, particularly of notices from equipment providers of gate closures or equipment diversion. Motor carriers should also document those events where trucks and containers were turned away without a formal notice from the terminal or equipment providers and even where trucks were not dispatched because doing so would have been futile. Obviously, this level of documentation has a cost which must be balanced against the per diem charges.

Though port congestion has improved and the conditions that led to the "per diem crisis" have subsided, the lesson is clear that should these conditions start to arise again, motor carriers need to carefully document each time they are unable to return containers if they wish to successfully dispute the per diem charges. 

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