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. Once at the PoD, these containers are given a certain grace period, referred to as “free days,” and they are negotiated with the carriers as being included in the shipping price. During these free days, the carrier absorbs any costs related to the storage of the containers at the port. But, if for any reason the consignee or their representative does not collect these containers within the allotted free days, they become liable for what’s called demurrage charges. These charges can accumulate daily, making it imperative for shippers to ensure timely clearance and collection of their cargo to avoid hefty expenses.
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. They act as an incentive for shippers to promptly return containers so they can be prepped and dispatched for another shipment. 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.
While both demurrage and detention charges serve to optimize the flow of containers in and out of ports and container yards, they apply to different stages of the container’s journey. Understanding the distinction is crucial for shippers to manage their operations efficiently and avoid unnecessary costs.
Why Do Detention and Demurrage Charges Exist?
Here are a few reasons demurrage and detention charges exist:
- Supply chain discipline: detention and demurrage charges encourage shippers to stick to the agreed free days, and to return containers as soon as possible.
- Compensation: 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.
- Efficient utilization of resources: ports and container terminals have limited space. Demurrage charges ensure that importers clear their cargo promptly, preventing congestion at these facilities. Similarly, detention charges motivate shippers to return empty containers for reuse, ensuring that carriers have an ongoing supply of containers for new shipments.
- Operational efficiency: the shipping and logistics industry relies heavily on scheduling and timing. Delays in one segment can have a cascading effect, disrupting other operations. By imposing these detention and demurrage charges, stakeholders are incentivized to stick to schedules, ensuring smooth operations throughout the supply chain.
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.
3 Ways Maritime AI™ Can Help Reduce Detention & Demurrage Charges
Maritime AI™ offers a transformative approach to the shipping industry by integrating AI with maritime operations. Here’s how it can help reduce detention and demurrage charges:
- Predictive analytics: with the help of AI, shipping operators can anticipate potential delays or bottlenecks in ports, allowing them to make informed decisions about routing or scheduling. Early warnings can provide businesses with enough time to adjust their operations and avoid demurrage charges.
- Real-time monitoring: Maritime AI™ solutions offer real-time tracking of ships, containers, and even specific cargo. By constantly monitoring container locations and statuses, these systems can alert operators if containers are nearing the end of their free days at the port or if they’re overdue for return, helping avoid detention charges.
- Optimized route planning: by analyzing vast amounts of data on weather patterns, port congestion, and other relevant factors, AI can recommend optimal shipping routes and schedules, reducing the chances of unexpected delays leading to extra charges.
In today’s shipping industry, marked by various challenges, understanding demurrage and detention charges is essential. These fees play a significant role in the logistics and supply chain, ensuring smooth operations. For shippers, being informed about detention and demurrage charges, their implications, and ways to mitigate them can result in cost savings and efficient operations. By using technology, planning ahead, monitoring in real-time, and being prepared for customs procedures, businesses can navigate these charges more effectively. Knowledge and preparation are key to managing shipping costs and keeping operations on track.