Understanding demurrage & detention charges
The past few years have been challenging for supply chain professionals. With huge levels of port congestion plaguing ports and terminals globally due to the aftermath of the coronavirus, the ongoing Russia-Ukraine war, and other factors, the maritime industry has seen how quickly the supply chain can be impacted.
The industry is dynamic and constantly changing, with events like these having a huge effect on delays and the supply chain as a whole. If not managed properly, delays can lead to a variety of consequences, one of them being extra charges, such as demurrage and detention. Let’s take a look at these costs in more detail, what they mean for your business, and how you can avoid them.
Demurrage vs. detention
Demurrage and detention may have various definitions according to different stakeholders, but we believe these are the most widely accepted definitions.
When shipping cargo, the containers arrive at the port of destination (PoD) and have to be moved off quay within a specific number of days. Known as free days, they are negotiated with the carriers as being included in the shipping price. The carrier will cover the demurrage charge from the port for these days. After these “free” days, if there is a further delay in collecting the containers from port, then the shipper will need to begin paying demurrage charges.
What is detention?
Similar to demurrage, detention charges are levied when an empty container is not returned to the container yard or port within the allotted time – a specific number of days that the carrier has given the shipper to use the container. Detention charges are there to motivate shippers to return containers in a timely manner for reuse. For example, a shipper may have five days to return containers to port. If there is a delay, the shipper will be charged a detention fee.
Why do these charges exist?
There are two main reasons demurrage and detention charges exist:
- To encourage shippers to stick to the agreed free days, and to return containers as soon as possible.
- To compensate the carrier for the delay in returning its containers. Since the delayed return of containers means the carrier cannot utilize these containers for other shipments.
How are demurrage and detention charges calculated?
- Demurrage is usually calculated on a per-day basis. This charge will keep on accruing until the container is removed from the port. The longer the container remains, the more the charge is per day.
- Detention is also usually calculated on a per-day basis. The charge begins when the container leaves the port and will continue until the empty container is returned to the carrier’s fleet. The charge can also increase the longer the container is not returned.
Tips to avoid detention and demurrage
- Invest in tech – invest in technology and solutions that will help provide more visibility to your supply chain and help keep track of what’s going on to prepare for any potential delays. Enhanced track and trace with full visualization of the exact container location and details of the entire route, as well as an in-depth analysis of port congestion, are both must-have features for any ocean freight visibility solution.
- Plan in advance – planning out your shipment so that you have an idea of when everything is supposed to happen is valuable and can minimize the risk of paying demurrage and detention fees. The carrier ETAs are often inaccurate, which can make it complicated, but trying to include buffer days in case of delays is a helpful strategy.
- Operate in real time – get real-time updates on actual times of arrival and departure, and reassess these timestamps whenever detention and demurrage invoices arrive to support invoice reconciliation and raise any discrepancies.
- Automating your systems – save time and reduce the need for manual work. Help lower costs and reallocate resources so that your team can focus on delivery planning.
- Be well prepared for customs – keep all your documentation prepared and organized for customs clearance. Ensure you have the basics ready to go – this includes commercial paperwork, bill of lading, and commodity codes.
Both demurrage and detention charges can have a significant impact on the overall cost of shipping goods. It’s important that cargo owners and shippers understand these charges and how they are calculated, as they can add up quickly. Investing in technology may seem cost-prohibitive, but the right ocean freight visibility solution will actually reduce costs in the long term.