A delay in the shipment of containers translates to considerable payment on the shipper’s part in the form of demurrage and detention charges. They are added to your shipment as soon as it surpasses the number of free days. These charges will keep accumulating until the shipment reaches the consignee’s destination. Although independent freight forwarders specializing in container shipping might find these charges unreasonable, they are very profitable for the shipping lines. It goes without saying that demurrage and detention fees add to the already existing problems in the container shipping industry. Moreover, these days, these charges are very common and often exceed $100 per container per day. In today’s post, we are going to explain the demurrage and detention fees in container shipping and what forwarders can do to minimize them.
Defining demurrage and detention charges
Demurrage is the charge a freight forwarder pays for using a container within the terminal exceeding the free time period. Detention, on the other hand, is the charge paid for the container outside the terminal and beyond the free time period. The purpose of these charges is to compensate the shipping company for the use of their boxes. Moreover, it also encourages the forwarder to return the empty boxes on time. The high price of the containers coupled with the container shortage makes it essential for the shipping lines to ensure a quick turnaround time for their containers.
The demurrage and detention charges are calculated on a per day basis. In other words, if your container is not unloaded inside or outside the terminal within the free days, then, you’d need to pay the demurrage/detention fees.
Demurrage and detention charges during import
Usually, the sea freight forwarders get a free time of 3-5 days after the container gets discharged. Mostly, the forwarders need to pay the demurrage in order to collect the cargo from the port. As already mentioned before, the detention charge refers to the time outside the terminal. You have to pay a detention charge in case the consignee fails to return the container on time. Simply put, detention is applied when the cargo is picked up from the port but is not returned to the shipping line within the stipulated time.
Demurrage and detention during export
You might have to pay demurrage/detention charges even while exporting containers. For example, you have to pay the demurrage when the cargo is with the carrier but cannot be loaded due to some reason unrelated to the carrier. For instance, you might not be able to load the cargo because of a problem with documentation. Therefore, whenever you fail to load the container to the scheduled vessel, it has to remain in the terminal until the next departure. In this scenario, you’d need to pay demurrage charges for every extra day.
Freight forwarders also need to pay detention charges when the empty box gets picked up but is not returned within the scheduled time frame. Usually, the shipping companies get a maximum free time of 5 days to pick up, load, and return the box to the terminal. Occupying the container after this free time inevitably leads to detention charges.
Factors leading to demurrage and detention charges
- Situations beyond your control such as bad weather, labour issues, port congestion, shortage of trucks or equipment
- Delays due to customs clearance. This could involve a situation where the boxes are held up by customs for inspection
- Delay in documentation, or loss of documentation. For instance, in cases where the exporter takes a long time in sending the documents to the importer
- Error in documents or incomplete documents. Amending the faulty document involves several days and this often leads to demurrage or detention.
- The late release of containers at the destination. There are times when the carriers do not release the shipment because of payment related issues.
- There are also delays in situations when the consignee cannot be contacted.
Calculating demurrage/detention charges
Let us now take a look at how freight forwarders can calculate the demurrage/detention fees. If you are using a 20 feet container then you’d need to know the following:
To begin with, let’s assume that your container reaches the port on the 10th of August and will be picked up on the 4th of September. Therefore, your container will be staying in the terminal for 25 days. Out of these 25 days, you have 5 free days. So you will be charged with demurrage for 20 days. Now, the rate on the 20 ft container for the first ten days will be 60,00. The charges on your container after the first ten days will be 12,000. That means in total, you would need to pay 1800,00. A look at the Demurrage and Detention Report will help you understand how the blank sailings and container shortage have affected the demurrage/detention charges.
Tips to negotiate demurrage and detention charges
Demurrage and detention fees are usually not in the hands of the shippers. Nevertheless, there are several ways in which independent freight forwarders can lower the chances of paying the fees. To begin with, you need to negotiate with the port officers or carriers, rather than paying the fees being demanded. For example, you can request additional free days on your shipment. This will give you some extra time when you can think of a way to avoid the charges. Usually, you get more free time when you’re shipping a greater shipment volume.
In addition, you need to be well versed with the customs regulations plus the port regulations at the shipment’s destination. Dispatching the cargo as early as possible is a good way to avoid paying detention charges. Moreover, it gives you additional flexibility to deal with unprecedented challenges like port backlogs or bad weather. Time buffers are a very important factor that can save you the hassle of paying a hefty demurrage charge.
Keep in mind that in some ports the container is available as soon as it is unloaded from the vessel. On the other hand, in some ports, the containers have to be accessible so as to be available. Although this might sound confusing, all you need to do is be mindful while signing the contract. If there are any points of conflict make sure to clearly explain your view before signing the contract.
SOC containers can help you avoid high demurrage/detention charges
SOC containers can help independent freight forwarders avoid paying high demurrage and detention fees. This entails renting the equipment from the container owner, use it one way, and then return it at the destination port. More often than not, this process is free since the container owner prefers a quick turnaround time. In other words, by timely repositioning their equipment you can greatly reduce the chances of payment of per-diem fees.
This post is created in collaboration with Container Xchange. Check out their article on Demurrage and Detention fees for more details.
