What is Demurrage?
Demurrage is a fee charged to the consignee when the organization fails to retrieve their containers or cargo from the port within the allotted free time period. This free time, typically ranging from two to seven days, is an agreed-upon time period during which the containers can remain at the port without incurring any charges. If there are delays in picking up the cargo, demurrage fees begin to accumulate daily. The importer or exporter typically pays the demurrage fees, depending on when the fees were incurred, to the shipping line or container owners.
Demurrage vs. Detention – What’s the Difference?
Many people incorrectly assume that demurrage and detention fees are the same thing.
- Demurrage: the fee is based on how long the cargo sits in the container at the port
- Detention: the fee is based on returning the container late to the port
If importers don’t plan ahead, they can be charged both demurrage and detention fees.
The Leading Causes of Demurrage Fees
The typical supply chain includes many moving parts and is affected by various factors. This can lead to different scenarios in which there are delays, resulting in demurrage fees. Sometimes it’s the fault of the consignee, while at other times, it can be due to delays at customs or compliance issues.
Some of the leading causes of demurrage charges are:
- Poor planning and logistics: inefficient planning and coordination between consignees, shipping lines, and transport providers can lead to delays in cargo pickup. For example, failure to arrange timely transportation or poor communication between the relevant stakeholders can result in containers remaining in the port beyond the free days.
- Unexpected events: oftentimes, demurrage fees are not anyone’s fault. Unforeseen circumstances – such as extreme weather conditions, labor strikes, or port congestion –can disrupt the normal flow of operations and cause delays in cargo retrieval.
- Limited port infrastructure or congestion: some ports have limited storage capacity or workforce, which can result in slower handling and processing of cargo. Other ports are so busy that the consignee can’t get the container released. Both of these scenarios can lead to delays in cargo pickup and subsequent demurrage fees.
- Customs clearance delays: lengthy customs clearance procedures can cause significant delays in cargo pickup. This may be due to incomplete or inaccurate documentation, additional inspections, or other regulatory requirements that must be fulfilled before cargo can be released.
- Regulatory compliance issues: non-compliance with import or export regulations, such as failure to obtain the necessary permits or licenses, can result in cargo being held at the port until the appropriate documentation is provided. This can cause delays in cargo pickup and result in demurrage fees.
How to Avoid Demurrage Fees
While in some cases demurrage fees are unavoidable, proper planning can prepare you for most scenarios to avoid any unnecessary delays.
One of the most important things to have is an updated, real-time ETA. This will let you know exactly when the ship will arrive at the port, and you’ll be prepared in cases of delays, or even early arrivals. A precise ETA helps all relevant stakeholders to execute the necessary steps for cargo pick-up, such as arranging customs clearance, transportation, and storage.
Here are some tips for avoiding demurrage fees:
- Invest in technology: using advanced technology gives you the data you need to track the shipment and be prepared for any unexpected delays. There are Maritime AI™ solutions that provide accurate ETAs and reasons for delay (if applicable). With this information available, you will be able to communicate with the entire supply chain and release the containers on time.
- Prepare documentation:ensure that all required documentation is accurate and complete well before the cargo arrives at the port. This can help expedite the customs clearance process and reduce the risk of delays.
- Plan for contingencies: develop a contingency plan to address potential issues that could lead to delays, such as strikes, extreme weather, or equipment shortages at the port.
- Coordinate transportation: arrange transportation for the cargo pick-up well in advance and make sure the transportation company is aware of the free time and potential demurrage fees.
- Consolidate shipments: If you have multiple shipments arriving at the same port, try to consolidate them into a single shipment. This can simplify the clearance process and reduce the chances of delays.
- Choose reliable shipping partners: work with reliable carriers, freight forwarders, and customs brokers who have a proven track record of on-time performance and efficient communication.
Calculating Demurrage Fees
Demurrage fees vary based on numerous factors, such as the shipping line, port, and the terminal involved in the shipment. The fees are typically calculated per container and based on the size of the container (e.g., 20-ft, 40-ft). Some carriers or ports may have a tiered pricing structure, with fees increasing the longer the cargo stays at the port.
To calculate demurrage fees, you need to consider the following:
- Free time: the number of days allowed for cargo pick-up before fees apply.
- Demurrage rate: the fee per container per day, which changes based on the container size.
- Days exceeding free time: the number of days the cargo remains at the port beyond the allowed free time.
- Demurrage fee = (Demurrage rate) x (Days exceeding free time)
There is no standard fee accepted by all ports. According to a report by xChange that looked at demurrage charges from 2020-2022, U.S. ports have the highest average demurrage fee for a 20-foot container. It’s followed by ports in Europe, the Middle East, Asia, and China.
Demurrage Fees Do Not Apply to Less-than-Container Loads (LCL)
An LCL combines the cargo from multiple customers into a single container or TEU. Because it’s a shared container between multiple parties, there are no demurrage charges. However, these containers are typically stored in a separate loading dock, and the carrier can charge each consignor a fee if containers are not cleared within a specified number of days.