United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 20, 2023 Decided July 5, 2024

No. 23-1052

EVERGREEN SHIPPING AGENCY (AMERICA) CORP. AND 

EVERGREEN LINE JOINT SERVICE AGREEMENT,

PETITIONERS

v.

FEDERAL MARITIME COMMISSION AND UNITED STATES OF 

AMERICA,

RESPONDENTS

On Petition for Review of an Order 

of the Federal Maritime Commission

Robert K. Magovern argued the cause and filed the briefs 

for petitioners.

Catherine E. Stetson and Sean Marotta were on the brief 

for amici curiae World Shipping Council, et al. in support of 

petitioners.

Phillip AChris@ Hughey, General Counsel, Federal 

Maritime Commission, argued the cause for respondents. With 

him on the brief were Robert B. Nicholson and Robert J. 

Wiggers, Attorneys, U.S. Department of Justice, and Paul A. 
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Schofield and Kathryn C. Buettner, Attorney-Advisors, Federal 

Maritime Commission.

Before: HENDERSON and GARCIA, Circuit Judges, and 

GINSBURG, Senior Circuit Judge.

Opinion for the Court filed by Senior Circuit Judge

Ginsburg.

Ginsburg, Senior Circuit Judge: Under the Shipping Act 

of 1984, an ocean carrier must “establish, observe, and enforce 

just and reasonable regulations and practices relating to or connected with receiving, handling, storing, or delivering property.” 46 U.S.C. § 41102(c). One regulated practice is the 

assessment of detention charges — fees charged by an ocean 

carrier for the use of a shipping container outside a marine terminal. The Federal Maritime Commission, which enforces the 

Act, has promulgated an interpretive rule intended to clarify 

how the Commission assesses the reasonableness of a detention 

charge. 46 C.F.R. § 545.5. Applying that rule, the FMC held 

the detention charges that Evergreen Shipping Agency 

(America) Corp. and its affiliates collected from TCW, Inc., a 

trucking company, for the late return of a container were “unjust and unreasonable” insofar as the charges were for days 

when the relevant port was closed and could not have accepted 

a returned container. 

Evergreen petitioned this court for review, arguing the 

Commission’s application of the interpretive rule is arbitrary 

and capricious, in violation of the Administrative Procedure 

Act. Because the Commission failed to respond reasonably to 

Evergreen’s arguments, and adequately to analyze the incentive effect of the detention charges at issue here, we grant the 

petition, vacate the Commission’s order, and remand this matter to the agency for further proceedings.
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I. Factual and Legal Background

This case arises from the Federal Maritime Commission’s 

application of its “incentive principle” to hold Evergreen’s late 

fees did not provide an economic incentive for prompt return 

of a container. We begin with some background.

A. The Shipping Industry

Undergirding the shipping industry is a system for borrowing and returning equipment, particularly shipping containers 

and the chassis on which they are moved. For the trade route 

between Asia and North America, some containers must be 

shipped back to Asia empty because more goods are shipped to 

than from North America. The efficiency of the system, which 

the FMC terms its “freight fluidity,” depends upon prompt return to port of borrowed equipment for its shipment back to 

Asia. See, e.g., Impacts of Shipping Container Shortages, Delays, and Increased Demand on the North American Supply 

Chain: Hearing Before the Subcomm. on Coast Guard & Maritime Transport of the H. Comm. on Transp. & Infrastructure, 

117 Cong. 39 (2021) (written statement of John W. Butler, 

President & CEO, World Shipping Council). 

Any breakdown in the operation of this cycle can have 

costly ripple effects. When a carrier borrows a container and 

does not promptly return it, the lender has one fewer container 

to use or to lease out. If the number of unreturned containers 

builds up over time, then there will be a shortage in the supply 

of containers available to pick up shipments. In the 

Commission’s own words, “congestion begets further congestion, which in turn may result in higher costs for everyone in 

the supply chain.” Federal Maritime Commission, Report: 

Rules, Rates, and Practices Relating to Detention, Demurrage, 
4

and Free Time for Containerized Imports and Exports Moving 

Through Selected United States Ports, at 21 (2015).

*

B. Detention Charges Under the Shipping Act

In order to encourage the timely return of equipment, 

ocean carriers impose “detention” charges, defined by the 

Commission as “any charges, including ‘per diem,’ assessed by 

ocean common carriers . . . related to the use of . . . shipping 

containers, not including freight charges.” 46 C.F.R. 

§ 545.5(b). The practice in the shipping industry is that the 

party responsible for retrieving a loaded container from a port 

and delivering its cargo to the addressee is allotted a certain 

number of days to return the empty container and any related 

equipment before detention charges begin to accrue. The 

amount of this so-called “free time” is either set forth in the 

ocean carrier’s “tariff” of published terms and conditions for 

transportation or established by contract. Per diem detention 

charges provide an incentive for the timely return of equipment 

and compensate the ocean carrier for the opportunity cost of its 

late return.

The Shipping Act leaves to the Commission the determination whether a detention charge is “just and reasonable.” See 

46 U.S.C. § 41102(c); see also 46 C.F.R. § 545.4. In 2016, a 

group of trade associations representing a broad array of interests in the shipping industry petitioned the FMC for a rule “to 

clarify what constitutes ‘just and reasonable rules and practices’ with respect to the assessment of demurrage, detention, 

and per diem charges . . . when ports are congested or otherwise 

inaccessible.” Petition of the Coalition for Fair Port Practices 

* Demurrage refers to the charge the merchant pays for the use of the 

space a container occupies at the port when the merchant delays in 

picking it up after the expiration of its free time. Id. at 12 & n.8.
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for Rulemaking; Notice of Filing and Request for Comments, 

81 Fed. Reg. 95612, 95612. In response, the Commission 

opened a fact-finding investigation, published a report, and issued a Notice of Proposed Rule Making for the Interpretive 

Rule on Demurrage and Detention Under the Shipping Act. 84 

Fed. Reg. 48850, 48850–56 (2019) (to be codified at 46 C.F.R. 

§ 545). The Commission adopted the final rule in 2020. See

85 Fed. Reg. 29638, 29665–66 (publishing 46 C.F.R. § 545.5).

The aspect of the interpretive rule at issue here is the “incentive principle,” which provides the “reasonableness” of detention charges will be judged by “the extent to which . . . [they] 

are serving their intended primary purposes as financial incentives to promote freight fluidity.” § 545.5(c)(1). The interpretive rule also specifies that, “[a]bsent extenuating circumstances, practices and regulations that provide for imposition 

of detention when it does not serve its incentivizing purposes, 

such as when empty containers cannot be returned, are likely 

to be found unreasonable.” § 545.5(c)(2)(ii). At the same time, 

however, the FMC acknowledged that the rule, being interpretative, did not create any new “requirements,” “mandates,” or 

“dictates”; on the contrary, it specifically rejected some commenters’ requests for a “bright line rule.” 85 Fed. Reg. at 

29642, 29654 (explanation accompanying the final interpretive 

rule).

C. Evergreen’s Detention Charges

This case involves the application of the interpretive rule 

to the detention charges for which Evergreen invoiced TCW, 

Inc. for the late return of a container and vehicle chassis. 

Yamaha Motor Company, Ltd., the shipper, had entered into an 

agreement for Evergreen to transport motorcycles from the Port 

of Shimizu, Japan to its warehouse in Newnan, Georgia, via the 

Port of Savannah. Evergreen handled the ocean portion of the 
6

journey; for ground transportation (from the Port of Savannah 

to Newnan), Yamaha designated TCW as its “Preferred 

Trucker.” Under the governing contract, TCW had 21 days of 

free time for Evergreen’s container and four days of free time 

for its chassis; thereafter, detention charges of $150 and $20 

would accrue for the container and the chassis respectively 

every calendar day, including weekends and holidays.

TCW picked up the container and chassis from the port on 

April 28, 2020. Due to a COVID-related closure at the Yamaha 

warehouse in Newnan, TCW did not return the chassis and container to the port until May 26, which was seven days late† for 

the container and 22 days late for the chassis.

Evergreen invoiced TCW $1,490 in detention charges. 

TCW objected to the $510 charged for May 23–25, when TCW 

was unable to return the equipment because the Port of 

Savannah was closed. Evergreen refused to waive the charges.

TCW paid the invoice in full and then filed a complaint 

against Evergreen with the FMC small claims program. TCW 

argued the $510 charge was unjust and unreasonable because 

it could not have returned an empty container when the port 

was closed and therefore the charge could not have been a “motivating factor for increasing cargo fluidity.” The small claims 

officer issued an initial decision in favor of TCW. The 

Commission then sua sponte gave notice that it intended to review that decision, saying it was “particularly interested in arguments regarding application of the interpretive rule on demurrage and detention.”

† Because the four days of free time for the chassis would have 

expired on a weekend, per the governing contract, free time for the 

chassis did not expire until the following Monday, May 4 (six days 

after TCW took possession).
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D. The Commission’s Order

In December 2022, the Commission issued its Order 

Affirming the Initial Decision, over a dissent by Commissioner 

Bentzel. TCW, Inc. v. Evergreen Shipping Agency (Am.) Corp., 

No. 1966(I), 2022 WL 18068977 (Dec. 29, 2022). Regarding 

the propriety of Evergreen’s assessed detention charges, the 

FMC underscored that “during the rulemaking the Commission 

was clear that no amount of detention can incentivize the return 

of a container when the terminal cannot accept the container.” 

Id. at *5. The FMC also rejected the argument that failing to 

impose detention charges during the May 23–25 port closure 

“would have disincentivized the return of the container before 

the closure,” noting that “[t]hese arguments were previously 

raised and similarly dismissed during the rulemaking process” 

and that the “disincentivizing argument neglects the commercial incentives to returning empty containers.” Id. at *6. 

Without explaining what those commercial incentives might 

be, the FMC then dismissed Evergreen’s argument that TCW 

“could have returned the container prior to May 23–25.” Id.

Dissenting Commissioner Bentzel reasoned that the “incentive principle” in the interpretive rule did not displace the 

“reasonableness” standard in the Shipping Act. Id. at *10. In 

his view, the Commission was “at risk of overstating the manufactured [incentive] principle at the peril of usurping reasonableness.” Id. at *11. He thought the Commission was “overly 

concerned with the methodology of assessing detention”

charges rather than asking whether the charges “reasonably 

achieved the objective of providing fluidity of movement of 

cargo.” Id.

In any event, Commissioner Bentzel would have held 

Evergreen’s detention charges were consistent with the incen-
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tive principle: TCW had notice of the weekend closure before 

it picked up the container bound for Newnan; it had “a reasonable amount of time” in which to return the equipment; and 

“there were no issues that were beyond or outside of the control 

of [TCW] justifying the denial of detention penalties.” Id. at 

*11–12. “In essence, [TCW] knew when the [Port] was closed 

and failed to timely re-deliver [Evergreen’s equipment] before 

the stipulated time.” Id. at *11. 

II. Analysis

Our review under the “arbitrary and capricious” standard 

is deferential, 5 U.S.C. § 706(2)(A), but we nonetheless require 

the Commission to articulate “a satisfactory explanation for its 

action including a rational connection between the facts found 

and the choice made.” Motor Vehicle Mfrs. Ass’n of U.S. v. 

State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983) 

(cleaned up). An agency action is arbitrary and capricious if 

the agency has:

entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible 

that it could not be ascribed to a difference in view or the 

product of agency expertise.

Id.

Evergreen faults the FMC’s Order on all fronts: It argues 

the Commission failed to consider relevant factors owing to its 

myopic focus on the incentive principle, did not give a reasoned explanation for several aspects of its decision, and applied the incentive principle in defiance of common sense to 

reach an illogical result. We agree. Indeed, the FMC’s failure 

to respond in any meaningful way to most of Evergreen’s ar-
9

guments is itself arbitrary and capricious. See PPL Wallingford 

Energy LLC v. FERC, 419 F.3d 1194, 1198 (D.C. Cir. 2005).

A. Failure to Consider Relevant Facts

Evergreen argues the Commission failed to take account 

of “several critical facts and extenuating circumstances” in determining whether the detention charges for May 23–25 were 

just and reasonable, including: (1) Evergreen’s allotment of 21 

days of free time for the container and four days of free time 

for the chassis, which TCW does not claim was unreasonable; 

(2) TCW’s contractual obligation to pay detention charges after 

the expiration of free time; (3) the Port of Savannah had announced, before TCW took the container, the days on which it 

would be closed; and (4) free time on both the chassis and container had expired before the May 23–25 closures. 

Although the Commission acknowledged these points in 

passing, TCW, Inc., 2022 WL 18068977 at *5–6, it did not explain why they either were not relevant to whether the detention 

charges were just and reasonable or were outweighed by countervailing considerations. Instead, the Commission merely 

noted that “[t]hese arguments were previously raised and similarly dismissed during the rulemaking process,” and that “during the rulemaking the Commission was clear that no amount 

of detention can incentivize the return of a container when the 

terminal cannot accept the container.” Id.

In effect, the Commission treated the incentive principle

as just the sort of “bright line” rule it had denied creating when 

adopting the rule. Yet, as the Commission itself noted when it 

published the rule, and as Commissioner Bentzel explained in 

his dissent, an interpretive rule does not create any legal obligations; “terms such as ‘incentive principle’ do not replace 
10

‘reasonableness’ which is the underpinning of the Shipping 

Act.” Id. at *10; 85 Fed. Reg. at 29642. 

Accordingly, the Commission, in adopting the interpretive 

rule, had said it “would consider any additional or countervailing arguments or evidence raised by the parties in a particular 

case,” and that each “case would continue to be decided on [its] 

particular facts.” 85 Fed. Reg. at 29641. The interpretive rule 

reflects this commitment by expressly opening the door to unanticipated circumstances, such as those Evergreen presented 

in this case: “Nothing in this rule precludes the Commission 

from considering factors, arguments, and evidence in addition 

to those specifically listed in this rule.” 46 C.F.R. § 545.5(f);

see also id. § 545.5(c)(2)(ii) (noting that “extenuating circumstances” would be considered). In fact, the Commission explained in the rule that detention fees may be unreasonable in 

certain situations, including “uncommunicated or untimely 

communicated notice of terminal closures,” 85 Fed. Reg. at 

29655, which suggests that whether the Port of Savannah had 

communicated its closure to TCW is relevant to the reasonableness of the fees. It was arbitrary and capricious for the FMC 

to commit to making a circumstantial, fact-bound inquiry in the 

interpretive rule and then, when it came time to apply the rule, 

to jettison all but its favorite factor. 

B. Illogical Application of the Incentive Principle

For those of Evergreen’s arguments to which the FMC did 

respond, its reasoning is, charitably put, implausible. Bright 

line rule or not, the Commission errs insofar as it maintains a 

detention charge necessarily lacks any incentivizing effect because it is levied for a day on which a container cannot be returned to a marine terminal. On the contrary, being charged for 

detention during a port closing announced before the carrier 
11

picks up the equipment heightens the incentive to return equipment on time.

The illogic of the FMC’s position is illustrated by the very 

reason it offered in its support, to wit, the need to “consider the 

broader context of freight fluidity throughout the supply chain 

— such as potential logjams if there is a rush to get equipment 

in before a weekend closure.” Br. of Resp’t 16. If the 

Commission is right that there is no incentivizing effect from 

charging detention fees on a weekend when a port is closed, 

then why would there be a logjam to avoid the detention 

charge? This logical inconsistency alone renders the 

Commission’s Order arbitrary and capricious. See Am. Fed’n 

of Gov’t Emps. v. FLRA, 470 F.3d 375, 380 (D.C. Cir. 2006) 

(“Certainly, if the result reached is illogical on its own terms, 

the [agency’s] order is arbitrary and capricious.” (cleaned up)). 

Under the APA, the Commission cannot rest upon a bare 

assertion that a detention charge assessed for a day when a port 

is closed has no incentivizing effect. It must, at a minimum, 

provide a logical explanation for its view. Perhaps it can do so 

on remand, but so far it has done the very opposite.

III. Conclusion

For the foregoing reasons, we grant the petition for review,

vacate the Commission’s order, and remand this matter to the 

agency for further proceedings.

So ordered.