In the world of supply chain and logistics, one of the most common yet misunderstood areas involves fees that arise due to delays at various stages of cargo transportation. Among these fees, demurrage and detention are the most common extra charges that cause confusion and frustration to shippers along the supply chain.
By understanding what triggers demurrage and detention fees, shippers can take proactive steps to minimize the chances of incurring extra fees. In this article we explain the differences in extra fees and charges, and how shippers can minimize the risk of facing these extra costs.
What is Demurrage?
Demurrage refers to the charges that are applied when containers or cargo remain in a terminal or port for longer than the free time permitted (the period allowed without incurring fees). Free time is provided to allow the consignee or shipper sufficient time to unload and collect the cargo.
If cargo sits idle at the port after the free time expires, the shipping line will start charging for every extra day that the container remains at the port. This encourages quick collection of goods to keep the flow of containers moving through the port.
The importer or consignee is the party that is responsible for paying demurrage fees.
What is Detention?
Detention charges, on the other hand, are applied when a container is outside the port or terminal but hasn’t been returned to the shipping line within the agreed free time frame. Detention occurs after the container has been picked up for unloading but is kept beyond the allowed free time before being returned. Essentially, while demurrage focuses on delays within the terminal, detention fees are charged for delays once the container has left the port.
For example, if a consignee takes delivery of a container but takes more time than allowed to unload the container and return it to the shipping line or carrier’s designated depot, detention fees will be applied for each extra day the container remains in importer or consignee’s possession. These fees compensate the shipping line or carrier for the delayed return of their equipment, which could have been used for other shipments.
The importer or consignee is the party that is responsible for paying detention fees.
The Difference Between Demurrage and Detention Fees
The main difference between demurrage and detention is when and where the charges apply. Demurrage fees are charged when a container is still at the port and hasn’t been picked up within the allowed free days. Detention fees start once the containers have been collected, but have not yet been returned to the shipping line or carrier’s designated depot.
Both demurrage and detention are designed to keep the shipping process moving along without unnecessary delays. Delays in collecting or returning containers can disrupt the flow of goods and create bottlenecks at ports. By charging these fees, shipping lines aim to prevent containers from sitting idle, which ensures a steady supply of containers for other shippers.
Example of how Demurrage and Detention Fees Work
As an example, a container of furniture arrives at the Port of Longbeach. The port allows 5 free days for the importer to pick up the container. However, due to customs clearance delays, the importer is unable to collect the container until day 8. This results in 3 days of demurrage fees.
The container has been delivered through to the importer, the importer now has 4 free days to return the empty container. Due to a trucking shortage and a delay in unloading the container, the empty container is returned on day 6, triggering 2 days of detention fees.
In this example:
- Demurrage fees were charged while the cargo stayed at the port beyond the free days.
- Detention fees were charged because the empty container was not returned on time.
Common Causes of Demurrage and Detention Charges
Demurrage and detention fees often come from shipping delays. Some of these delays are within the control of the importer or consignee, while others are outside of their control. Knowing what causes these fees can help avoid them. Some common causes of these fees include:
- Customs delays: Cargo may be held up for inspection, delaying clearance.
- Documentation issues: Missing or incorrect shipping documentation can prevent cargo from being cleared by customs on time.
- Port congestion: High port traffic may slow down operations, leading to demurrage.
- Lack of transport: Trucking or equipment shortages can delay the pickup of the container from the port, or the return of the empty container back to the port or depot.
- Unforeseen events: Strikes, weather events, or natural disasters may create delays outside of an importer’s control.
What Triggers Demurrage and Detention Fees?
Several factors lead to demurrage and detention fees. Some are the consignee’s responsibility, while others are beyond their control. Demurrage and detention fees are triggered when the free time allowance expires. This period is usually determined by the shipping contract, carrier, or port regulations.
For demurrage, the clock starts once the container is unloaded from the vessel and available for collection.
For detention, it starts from the time the container is picked up from the port and continues until it is returned to the shipping line.
Laytime in Shipping
Laytime refers to the amount of time allowed for loading or unloading cargo at the port without incurring additional charges. This period is typically covered by the free days provided by the port.
If cargo is not moved within the laytime, demurrage fees start to apply. Laytime is negotiated in contracts, and it varies depending on the shipping agreement. Efficient management of laytime is crucial to avoiding delays and extra costs, as exceeding this period can lead to heavy fees that disrupt the supply chain.
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Causes Outside the Consignee’s Control
In some cases, charges can be triggered by factors outside of the consignee’s control, such as:
- Customs inspections or holds due to government regulations.
- Port or terminal congestion, causing delays in offloading or availability.
- Strikes by port or customs workers that slow down operations.
- Natural disasters or severe weather conditions that affect port or transportation infrastructure.
In these cases, carriers may offer flexibility, but often these charges still apply unless negotiated otherwise.
The Role of the Consignee
The consignee, usually the importer, is responsible for picking up cargo on time and returning the empty container. Failing to do so leads directly to demurrage or detention fees. Being prepared, having alternative transport options, and staying aware of potential delays are key to avoiding these extra charges.
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The Impact on the Supply Chain
Demurrage and detention fees can significantly disrupt the supply chain by increasing costs and delaying the movement of goods. For companies operating with tight profit margins, these unexpected costs can eat into profits or even make shipments unviable. Additionally, such delays can negatively impact customer relationships due to late deliveries or stock shortages.
These charges also harm relationships between shippers, freight forwarders, and carriers. Delays and extra costs can lead to frustration, damaging trust and cooperation.
How to Avoid Demurrage Charges
There are a few key practices to follow to minimize the risk of demurrage and detention fees.
- Plan Head:Â Always ensure that all necessary documentation is provided to the customs broker as early as possible before the shipment arrives into the port of discharge. Delays in customs clearance can easily lead to demurrage. Having accurate paperwork helps speed up the process and prevents extra charges.
- Experienced Customs Brokers:Â Working with experienced customs brokers will dramatically reduce the risk of unnecessary customs clearance delays, their experience is vital.
- Track Your Shipments:Â Keep on top of the freight forwarder, shipping line or agent that is handling the cargo. Use tracking systems to stay updated on the shipment’s status.
- Choose the Right Port of Discharge:Â Choose ports that are known for efficient operations to avoid delays.
- Have Multiple Transport Options: When the shipment arrives, make sure that you communicate with the trucking company in advance to arrange swift pickup and return. Having multiple trucking company options is always a good idea, should one trucking company be completely booked out or provide an unreliable service.
Other Charges: Per Diem, Driver Detention, and Storage Charges
Per diem, driver detention, and storage charges are additional fees that add to shipping costs. While they differ from demurrage and detention, they can arise in similar situations.
Per Diem
Per diem charges are incurred when an empty container is not returned to the container yard or port within the allowed free days. Most carriers allow 3-5 free days for returning the container. If it is kept beyond this period, per diem fees are charged daily until the container is returned. These fees aim to encourage faster container turnover and prevent shortages.
Driver Detention
Driver detention happens when a truck driver is delayed at the facility for too long. Drivers are typically allowed one to two hours for loading or unloading. If they are held beyond that time, detention fees are charged by the hour. Truck drivers are required by law to work within strict time limits. They can work up to 14 hours in a shift, but only 11 of those hours can be spent driving. Delays beyond the allowable window can disrupt their schedules, causing them to miss their next jobs, which leads to extra fees.
Storage Charges
Storage charges are levied when containers remain in the port or container yard beyond the free days allocated for storage. While similar to demurrage, these charges come from the port itself, not the carrier. The port charges for the physical space occupied by the container. These fees continue to grow daily until the cargo is moved out.
Differences in Demurrage and Detention Practices Globally
Demurrage and detention charges differ significantly across regions, especially between the USA, European and Asian ports. These differences affect how shippers handle their logistics in the maritime industry.
In the USA, free time allowances tend to be shorter. Ports may allow 3-5 free days before demurrage starts. Detention is also charged after the Last Free Day if the container is not returned in a timely manner.
In Europe, free time varies more depending on the port and country. Some ports offer more flexibility with free days, allowing 7-10 days for both demurrage and detention. However, European customs processes can be more complex, adding delays that shippers need to account for.
Asian ports, especially in countries like China, often offer shorter free time allowances. Many ports only provide 3-5 days of free time before fees are applied. The customs clearance process in Asia can be quick but strict. If any documentation is missing, delays can cause shippers to quickly incur both demurrage and detention fees.
Negotiating and Managing Fees
Negotiating demurrage and detention fees with shipping lines and ports is not likely for small volume shippers. At times, it is possible for shippers that are handling high volumes to request extended free days as part of their contracts.
For example, instead of the standard 3-5 free days, they may secure up to 10 days to avoid incurring fees. Additionally, fee waivers may be able to be negotiated in case of uncontrollable delays, such as port congestion or customs issues.
