05 November 2020 • 20 min read
How To Avoid Demurrage And Detention Charges
Know about what is demurrage and detention and who charges them, how does it affect you, how to calculate the charges and what you can do to avoid them.
If you are an exporter or importer, there are two words guaranteed to fill you with dread – demurrage and detention. These charges associated with the late return of containers to shipping lines can leave you with a huge bill you neither anticipated nor budgeted for. Demurrage and detention are also a lot more common than you might think and there is a high probability you might run into them. Hence, it is important to be aware of these charges and plan your shipment to avoid them as much as possible. As a first step, you may read this guide, which will tell you:
- What is demurrage and detention?
- What are their causes and impact?
- How can you calculate demurrage/detention?
- How can you avoid demurrage/detention?
- Why are they controversial?
- How are they different from port storage charges?
What is Demurrage?
Demurrage is what you pay for use of a container within a port or terminal beyond an allotted free time, which averages 4-5 days. Demurrage is charged per day per TEU (twenty-foot equivalent unit, which is the capacity of a 20-foot container). The fee increases in intervals of a few days. Charges vary across shipping lines and ports. But they can easily average $100 per container per day.
Demurrage time in export: The period from when a full container enters a terminal till it is loaded on a ship for export.
Demurrage time in import: The period from when a full container is discharged from the ship till it leaves the terminal.
What is Detention?
Detention is what you pay for use of a container outside a port or terminal beyond the allotted free time. It is also charged per day, per TEU. The free time averages 3-5 days. Detention is sometimes referred to as per diem (Latin for “per day”).
Note: Remember, if the container sits on a chassis (trailer), you will usually also be charged a per-day fee for the chassis, which can be higher than the daily detention rate.
Detention time in export: The period from when an empty container is picked up from the terminal/container yard/depot for loading till the full container enters the terminal for export.
Detention time in import: The period from when a full container leaves the terminal after import till the time the empty container is returned to the terminal/container yard/depot.
Who Charges it?
Containers are owned or leased by shipping lines, hence demurrage and detention are charged by them. There are two reasons why they do so:
- To encourage importers/exporters to ensure a quick turnaround of the containers
- As compensation for use of the containers
Before the charges kick in, shipping lines are required to provide a reasonable free time to allow:
- Loading of the container and delivery to the ship for export
- Pick-up of the full container after import, its unloading and return of the empty container to the nominated container yard
The free time typically depends on the trade, equipment/commodity type and, at times, the specific port-pair involved.
What Causes Demurrage and Detention?
- Circumstances beyond your control – bad weather, labour strikes, terminal congestion, shortage of trucks/trailers, the Covid-19 pandemic.
- Customs clearance delays. For example, your containers are held up by customs for inspection and examination.
- Delays due to incorrect or incomplete documentation. Such documents have to be amended, which requires time.
- Late receipt or loss of documents. For example, the exporter is late in sending the documents to the importer.
- Sailing delays. Shipping lines have closing dates for the delivery of export shipments at the terminal. In the event of a delay in vessel departure, your container could be held up at the terminal for longer than the allotted free time.
- Late release of shipment at destination. A common reason for this is shipping lines holding on to cargo because they haven’t received their payment in full.
- Delay because cargo receiver can’t be reached. There have been instances of cargo being abandoned.
How does it affect you?
- Demurrage and detention can prove very expensive. There have been instances where shippers have paid more than 20 times the value of a container in such fees.
- Demurrage and detention are the result of delays, and delays can create trouble all through your supply chain.
- They cause confusion. Charges vary across shipping lines and ports. If you ship across the world, these differences can be difficult to keep track of. For example, import detention charged by two shipping majors for a 20-foot container at ports in India ranges from Rs 2,970 to Rs 4,000 per day for the first seven days and six days, respectively, after the free time. Similarly, there are wide variations in charges across ports – from $196.88 a day per TEU at Los Angeles to $6.46 per day per TEU at Busan, South Korea.
How to Calculate Demurrage and Detention
Let’s say your 20-foot export container was at the terminal for 15 days before it was shipped. You are allowed five days of free time and the shipping line’s demurrage tariff increases every seven days. Here’s a simple formula to calculate how much you will pay:
Free time: 5 days
Time for which demurrage will be charged: 10 days
Day 6-12 demurrage per day: $50
Your total demurrage fee for days 6-12: $350
Day 13-19 demurrage per day: $75
Your total demurrage fee for days 13-15: $225
Total demurrage for 10 days: $575
The Demurrage/Detention Controversy
Demurrage and detention is a sensitive topic in international trade. Importers and exporters have long accused shipping lines of unfair practices, leading to institutions such as the International Federation of Freight Forwarders Associations (FIATA and the United States Federal Maritime Commission introducing best practices guides to ensure shippers are not subject to unfair, unreasonable charges. Demurrage and detention are sore points because:
- Fees have increased considerably in the last few years
- This has coincided with a reduction in free time
- The FIATA guide cites reports of shipping lines charging demurrage on containers transported by merchant haulage while waiving the charges for containers moved by carrier haulage during port congestion. (Merchant haulage is when the importer appoints a haulage provider while in carrier haulage, the carrier nominates the haulage provider)
On this backdrop, some of the recommendations of the FIATA include:
- A cap on demurrage and detention. Instead of charging delay fees for an indefinite period, FIATA suggests that shipping lines fix a maximum limit, which could ideally be the value of the purchase price of a brand new container.
- Extension of the free time period
- Encouraging a shift to more environment-friendly modes of inland transport (barge, rail) by extending detention free time
- A level-playing field for shippers who opt for merchant haulage. Many shippers prefer merchant haulage over carrier because it allows them to directly negotiate rates with the haulage provider as opposed to accepting carrier-quoted prices under carrier haulage.
How to avoid Demurrage and Detention
With the exception of bad weather, strikes and other unforeseen events, demurrage and detention are largely avoidable. All it takes is a little planning on your part. Some useful tips:
- Dispatch your cargo well in advance. Allow yourself some buffer time.
- Plan loading/unloading time with an eye on possible delays.
- Make sure your documents are in order.
- Perform customs pre-clearance and be aware of cut-offs. For example, shipments to the US require a cargo declaration on the Automated Manifest System (AMS), which must be completed 24 hours before departure from the port of origin.
- Inform your trading partners – inland transport service providers, customs agents, freight forwarders, banks and so on – about shipping schedules in advance.
- Be informed yourself. Read your carrier contract carefully, understand the regulations and customs procedures at your port of destination.
- Track your cargo in-transit. With Cogoport, you can track your shipment, check its status and get regular updates till delivery on the Cogoport Dashboard.
- Have a Plan B ready. If you’re dealing with a particularly congested port, this could mean finding an alternate port, having a back-up trucker if time schedules get tight, or making arrangements for off-dock storage of your cargo that would work out cheaper than demurrage and detention.
An interesting perspective
When you agree to a freight rate with a certain free time for demurrage and detention, payment for that time is actually included in the freight rate. Many shipments do not incur demurrage and detention as everything works out well. Yet, if you have 10 days combined of free time and use only five days in total, the shipping line does not refund you for the five unused days that you have already paid for. For some importers and exporters, it could therefore be interesting to get a discount up-front on the base freight rate for the days not used. Or, they could reach an agreement with the shipping line that demurrage and detention will apply only when the total number of used demurrage and detention free days for a period of time – say, 60 calendar days – exceeds the total free time purchased in the base freight rate. This means that if you save five days on one shipment and have an overrun of six days on the next shipment, you are liable for only one day of demurrage and/or detention, as the case may be.
Don’t forget to negotiate
Did you know you can negotiate for extended free time with shipping lines? So, the next time you make a booking with a shipping line, don’t just accept their freight quote. Work out a better deal for yourself with extra free time. That said, shipping lines are known to offer extended free time only to customers moving large volumes of cargo or to “large shippers” (800 containers or more in a year).
Try Cogoport’s Special Rate Request tool to negotiate for extra detention free days.
What is Port Storage Charge? How is it different from Demurrage?
Importers and exporters must be careful not to confuse demurrage and detention with port storage charges. A port storage charge is almost identical to demurrage in definition – it is what you pay to have your container stored at a port/terminal beyond an allotted free time, which average 3-7 days. It can apply on:
- Full containers waiting to be shipped
- Full containers waiting for import clearance
- Empty containers stacked at the port/terminal
However, unlike detention, which is charged by the shipping line, a port storage charge is collected by the port either directly from the customer or from the shipping line, which passes it on to you, usually with a margin. It is a set charge published in the port’s tariff list and is usually valid for a year. With the exception of a few countries (such as Japan) that treat port storage and demurrage as the same, the two charges are almost always separate. Hence, you can end up paying both on the same shipment.
Why do Ports Charge Port Storage?
Because containers stacked at the port for long periods of time:
- Create a shortage of yard space
- Adversely affect port productivity
- Contribute to port congestion
How can you avoid paying port storage?
- By planning ahead and following the tips on avoiding demurrage and detention listed above.
- By having your carrier move your containers to a private container depot, where rents may be cheaper. However, the depot has to be a custom bonded area, or an area under a customs bond where goods cannot be moved in or out without the permission of customs authorities.
Try Cogoport today for hassle-free shipping. Our services – transparent freight quotes, trusted and verified freight forwarders, easy cargo tracking – can help you avoid nasty surprises in the way of huge demurrage and detention bills..
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