demurrage and detention costs explained

 

Demurrage and detention are costs that arise because of poor planning, unforeseen circumstances or bad communication and can often result in thousands of dollars in per diem charges. Even though Demurrage charges play such a huge role in the final costs of shipments, terms are often not understood.

Demurrage & Detention are a matter of allowed free-days, determining the number of days a shipper can use the container for free. If this free time is exceeded, the user has to pay a demurrage & detention charge, usually calculated per day.

The difference between Demurrage and Detention is that Demurrage always relates to the cargo and describes the time while cargo is in the container. Detention relates only to the time a container is empty after unpacking or before loading.

demurrage charge at maersk

Shipping lines such as Maersk charge up to $400 after free-days have expired. They charge high fees because shipping lines are interested in a quick turnaround of their equipment. With this article we show you how to avoid high demurrage & detention charges as a NVOCC/ Freight Forwarder.

Difference between Demurrage & Detention 

demurrage detention cost maersk

Imports: Referring to the time in port after arrival, demurrage is the charge levied when the full container has not been picked up and moved out of the port for unpacking within the set free-days. For conventional shipping, the free-days are often somewhere between 3-5 days.

Detention refers to the time outside the port, where the shipper holds on to the carrier’s container beyond the allowed free-days. Thus, a detention charge is applied when the container has been picked up, but not returned to the carrier. That is done in an attempt to decrease the container’s turnaround time and make shipping more efficient.

 

Exports: Demurrage charges occur when the container is with the carrier but cannot be shipped due to lack of documentation or other non-carrier related errors. In this case, the carrier will be unable to load the container to the scheduled vessel, and hence the container will have to stay in the port until the next departure. Demurrage charges are then applied to the storage period until the next scheduled vessel.

Detention in exports happen when the empty container has been picked up for loading and is not returned within the set free-days. Typically, carriers allow for 5 free-days, and detention charges are applied to the extra days before the container returns to the port.

How Demurrage & Detention charges arise

Such charges arise because of poor planning, unforeseen circumstances or bad communication. Common examples include

(1) Consignee did not receive documents on time

(2) Documents are incorrect or inadequate

(3) Equipment/ Cargo has been stopped by police or other authorities for inspection

(4) Consignee was not aware of the arrival time of the container

(5) Bad communication between shipper and consignee

An example: A container is discharged on 9-March and a consignee approaches the carrier to take delivery of the cargo at 16-March. With a standard of 3 free-days from date of discharge, the port free days expires on 12- March. The consignee gets charged a Demurrage fee for 4 days. After the full container has been picked up by the cargo owner, the time until they return the empty container is known as Detention.

How you can avoid demurrage and detention 

how to avoid per diem costs

Demurrage and detention are in most cases out of your hands and hard to control, however, there are multiple ways to mitigate the risk of the unpleasant additional charges:

Negotiate terms

Try to negotiate instead of accepting a quote as it. Negotiate with port officials or carriers, for instance, request more free-days for your cargo and thereby save demurrage and detention. This will buy you some more time and might work as a strategy to avoid unexpected charges. Often, port officials grant shippers with large volume of cargo some more time.

Plan B

If everything goes wrong with the initial plan, it is a good idea to have a plan B to avoid the large costs of demurrage or detention fees. This could imply assessing alternative truck rates, other truck services or even look for availability in nearby terminals in case your cargo needs to be rerouted.

Efficient time management

Most importantly, dispatch your cargo as far in advance as you can! This gives you more flexibility to unforeseen challenges, such as bad weather or backlogs at the port. The same is applicable to loading/unloading times, where just small-time buffers can do the trick.

Be well-prepared

Always be informed by reading your contract with carriers carefully, as the terms of demurrage and detention charges are ultimately determined in your contract.

Further, ensure that you are aware of the customs process and port regulations in the respective location your goods are headed. Geography also plays a huge role, as different countries have different definitions and leave more or less room for negotiation when it comes to demurrage and detention.

Bring your own box

It was always a pain in the arse to find shipper owned containers (SOC containers) as you had to reach out to your network, get lucky, and organize everything on your own. Container xChange now made it easy to use or supply containers for SOC for one-way use on their neutral online marketplace. Using their online platform, you save up to $200 to $400 or completely avoid Demurrage and Detention as their per-diem fees are below $5 per container.

xchange demurrage detention fees

Why can we offer low demurrage and detention charges on xChange? 

We offer per-diem fees between $1 and $3 per container, how is that possible? We neither get special deals with carriers nor we found a secret sauce to solve the problem.

What we do on our platform is simple: We do not only have carriers who supply containers on xChange but also container traders and leasing companies. Traders, for example, are not interested in a quick turn-around, they find partners on xChange who reposition their containers from buying to selling location and therefore don’t charge demurrage and detention fees.

And even carriers don’t charge high demurrage and detention fees on xChange, they use xChange to reposition their containers to ports where they have a deficit. That means they have no interest to charge high demurrage and detention as they are happy to find partners to reposition their containers.