What are Container Detention Charges?
Detention charges are container-related charges that consignees may be responsible for paying once a container has been offloaded from a vessel. After the container is removed from the port, the consignee is granted a specified number of “free days” to transport, unload, and return the container to the port. If the container is not returned within the allotted time, detention charges start to accumulate on a daily basis.
Understanding the Difference Between Detention and Demurrage Charges
Demurrage and detention charges are two related but distinct terms in the maritime industry. While they both refer to fees incurred due to delays at the end of the shipping process, they each focus on different aspects of the supply chain. In fact, without proper planning, one could be charged both detention and demurrage.
- Detention charges: when a container has been picked up, taken off-port for unloading, and not returned within the agreed-upon time frame.
- Demurrage charges: this is applied when a container remains at the port, terminal, or depot beyond the allowed free days.
Leading Causes of Freight Detention Charges
Detention charges are assessed daily, so any delay can quickly result in significant unexpected charges. By understanding some of the most common causes of detention charges, you’ll be able to take the proper precautions to limit or avoid these added fees.
- Inefficient logistics planning: poor coordination among the relevant stakeholders, such as port personnel, warehouse operators, and customs brokers, can lead to delays in picking up, unloading, and returning containers within the free time allowance.
- Customs clearance issues: delays in customs clearance due to incomplete or inaccurate documentation, misdeclaration, or other regulatory issues can prolong the time a container is held by the consignee, resulting in detention fees.
- Supply chain disruptions: unforeseen events – such as labor strikes, port congestion, equipment breakdowns, or severe weather – can disrupt the supply chain and delay the return of containers.
- Poor communication: when the people and companies involved in the supply chain – including shippers, consignees, freight forwarders, and carriers – don’t communicate, it can result in misunderstandings or delays in decision-making, which ultimately leads to extended container holding times.
- Prioritize container returns: instruct your logistics team and trucking providers to prioritize the return of containers as soon as they have been unloaded to minimize the risk of exceeding the free time allowance.
- Be prepared for emergencies: have a contingency plan in place for unforeseen events – such as traffic, equipment breakdowns, or labor shortages – to minimize their impact on container return times.
Calculating Container Detention Charges
The detention fee is determined by counting the total days from when the container leaves the port or terminal for unpacking until its return. The number of free days is subtracted, and the remaining days are multiplied by the “per diem” rate. Detention fees are often somewhat lower than demurrage fees.
- Detention Fee = (Total Days – Free Days) x Per Diem Rate
Why Detention and Demurrage Charges are Rising
According to the latest global trends, the average “free days” grace period has been reduced, while demurrage and detention charges have risen significantly. Since 2021, there has been a nearly 40% increase for a standard 20-foot container, and some distribution centers went as far as to double their fees.
There are several reasons cited for the rise in demurrage and detention fees. It began due to the COVID-19 pandemic, which led to congested supply chains and shortages of drivers and vehicles, contributing to mounting charges.
Currently, the largest problem is that congested supply chains are making it more difficult to remove containers and return the empty ones on time. Meanwhile, the carriers continue to maintain strict control over their equipment, due to high freight costs and to keep up with the limited supply and rising demand. This has resulted in increased detention and demurrage fees, compensating carriers for the use of their containers.
While these fees have always existed, they were considered minor. But, according to George Griffiths, editor at S&P Global Commodity Insights, “many carriers and operators have introduced strict free time parameters…They’ve become a significant cost center for shippers…now it has become a cause of concern.” Griffiths went on to predict that there will be some latent capacity in the coming years, which should help balance the supply and demand and lessen port congestion, all of which should help reduce demurrage and detention fees.