First things first – What is demurrage?
The basic definition of demurrage is simple – a fee leveraged on cargo that stays at a terminal too long.
Port officials (as well as railroad and airport authorities) all have the ability to enforce demurrage charges. But this definition is deceptively straightforward. In practice, it can be difficult to understand when you should actually expect to see demurrage charges show up on your bill. So if you’re confused about the term and when it applies to you, don’t worry! Plenty of other shippers are in the same boat and we’ll do our best to clearly explain everything there is to know.
As we saw, the definition of demurrage states, “cargo that stays at a terminal too long.”
But how long is too long?
In other words, how much time do you have to move your cargo before demurrage kicks in? Generally, a port will offer 4-7 free days of storage, but this figure is by no means set in stone. Each terminal has slightly different rules, and they could change at any time.
It’s also worth noting that you’re at risk of incurring fees on both imports and exports. For example, let’s say your cargo has arrived at its destination on time, but mistakes in your paperwork cause delays in the unloading process. Those full containers may end up stuck in processing for several days, which means – you guessed it – demurrage. On the other hand, maybe you’ve coordinated with a truck driver to deliver goods to a terminal for export. But then what do you find? The vessel that is supposed to pick up the cargo is running behind schedule. Four, five, six days go by, and before you know it demurrage is in full effect.
How much might I owe?
Figuring out whether or not you’ll owe demurrage is just the first step. It can be an equally uncertain process to determine just how much you’ll have to pay.
Each terminal and carrier sets their own rates, and they almost always charge on a per day, per container basis. The key takeaway here is that these fees can add up – and FAST. Whether the port charges $75 or $200 per container, just a few days of late charges for 10 containers could cost you upwards of $6,000. If for some reason your cargo gets held up at the terminal for more than a week, chances are the daily fees will increase. The longer your cargo sits in a port, the more you’ll end up paying per day. You don’t want your bill to spiral out of control so it’s important to do whatever you can to ensure the shipment goes smoothly… but that’s not always easy.
What if the delay isn’t my fault?
Demurrage is without a doubt one of the most frustrating aspects of working in trade and transportation. At times, you may even feel like terminals are intentionally looking for ways to inflate your bill, but that’s not the case.
The intent behind the fee is understandable – facilities need to turnover storage space as quickly as possible in order to make room for new customers. Demurrage exists to incentivize shippers to stay on schedule.
Of course, there are plenty of instances when cargo delays are out of your control, but at the end of the day, shippers are (unfortunately) almost always responsible for the fees. Whether shipping by air or ocean carrier, storing goods in rail yards or bonded warehouses, demurrage is an inevitable possibility – even if the delay isn’t your fault. The good news is that shipping with an experienced freight forwarder will go a long way in ensuring your risk of additional fees is minimized.
Demurrage vs. detention
Detention may refer to multiple situations, and shippers often confuse detention with demurrage. Despite the similarities, they are still very different fees.
The best way to distinguish the two is to think of demurrage as fees assessed on containers insidea port, and detention as fees assessed on containers outside a port. In practice, this means that even after you’ve moved your cargo out of the terminal, you need to be prompt in returning the empty containers. If not, carriers may charge you a fixed rate per container per day until they are returned. While detention costs ($50-$100 per day on average) are typically less than demurrage fees, they’ll still put a dent in your bottom line over time.
The more commonly used definition of detention is specific to issues with your inland carrier. Charges are calculated based on driver wait time and can pop up regardless of whether you’re taking goods to the port for shipment or from the port to a warehouse.
When it comes to imports, drivers have to wait for cargo to be unloaded at a warehouse before they can return the empty containers to the port. Most carriers offer a few hours for free, but any additional time is subject to a detention fee. The same goes for exports – drivers will wait for a few hours to bring the cargo to the vessel for onboarding, but if the clock keeps ticking, detention kicks in.
With the numerous congestion issues at ports recently, there has been a substantial increase in the occurrence of both detention and demurrage. Remember, even though shippers aren’t always responsible for the delays that lead to fees, they are often responsible for footing the bill.
What is per diem?
Many terminals use the terms detention and per diem interchangeably. In both cases, the fees are the result of a late container return and are applicable to both imports and exports.
How can I minimize my risk and avoid unwanted fees?
Nobody likes additional, unexpected, fees. And although by now you may be thinking demurrage and detention are inevitable, that’s not always the case. There are many effective ways to minimize your risk. As is true with most risk-mitigation strategies, preventative measures are essential.
1. Think Ahead
First of all, dispatch your cargo as far in advance as you can. There’s no use gambling with your delivery schedule – between inclement weather and backlogs at the port, there’s simply no way for you to guarantee that everything goes according to plan. A little time buffer can go a long way in keeping extraneous fees at bay. The same attitude applies when considering loading/unloading times. Never underestimate the delays that could derail the process and have your drivers eyeing the clock.
2. Have a Plan B
On that note, a contingency plan is always a solid investment. This could mean finding an alternate trucker in case port congestion is particularly bad or even assessing the rate options and traffic patterns at neighboring terminals in case you need to reroute cargo altogether.
3. Be Informed
Just as importantly, you’ll want to read your contract with carriers carefully and make sure you are up to speed on the port regulations and customs process wherever your goods are headed. Although all of the aforementioned information is fairly standard, demurrage and detention fees are officially determined by the terms of your individual contract. Not to mention, different countries could apply definitions differently and leave more or less room for negotiation, so be sure to read the fine print! In other words, being informed is your best defense.
4. Negotiate Wisely
And since we’re on the subject of negotiation, you can always try to request more free time for your cargo. This can work on both demurrage and detention. For example, if you know that your containers are going to take more than 2 hours to unload, you might try talking to the driver well in advance. They’re more likely to be flexible if you prepare them ahead of time rather than try to rush through the unloading process and then beg for forgiveness when you run behind schedule. For demurrage, negotiating extra time can be a little bit trickier. Typically, port officials only grant time extensions to large shippers who are dealing with a substantial volume of cargo. If you ship fewer than 800-1,000 containers a year, you might want to consider another cost-cutting strategy.
5. Be as Prepared as Possible
Preparation is key, and working with a trusted freight forwarder can do wonders for your stress level. Putting in the work to pre-clear your cargo, issue instructions to delivery drivers in advance, prepare the receiving facility to handle incoming containers, and communicate effectively with customs and terminal officials may seem time-consuming, but it will more likely be time-saving.
This article first appeared on LILLY + Associates
Author: ELI DOLGANSKY