The Unfortunate, but Avoidable, World of Detention and Demurrage Penalties
Importers and exporters sometimes get an unexpected surprise when they receive their bill for shipping containers. This comes in the form of detention and demurrage fees which can be a substantial financial loss. What are these charges, and why is it that they can sometimes come as a surprise to shippers?
Although it is common to combine detention and demurrage, it is important to know the difference between the two. Demurrage fees “are charged when import containers are still full and under the control of the shipping line” (pnglc.com). The container will have a determined amount of free days to “occupy” the space at the terminal, and if not picked up within the allowed free time, the shipper will have to pay the charges resulting from the extended use of the space at the terminal. For example, if a container is discharged off a ship on October 20th and the consignee approaches the shipping line to take delivery of the cargo on October 30th and there were 5 free days offered by the shipping line, then the consignee is responsible for 5 days of demurrage charges.
Detention “occurs when the consignee holds onto the carrier’s container outside of the port, terminal, or depot beyond the free time that is allotted. Detention is charged when import containers have been picked up, but the container (regardless if it’s full or empty) is still in the possession of the consignee and has not been returned within the allotted time” (pnglc.com). For example, if 5 free days are provided to return an empty import container to the steamship line after pick-up but it takes the consignee 9 days to return the container, the steamship will likely charge the consignee for 4 days of detention.
The average detention and demurrage costs at U.S ports can surpass $200 per day. Detention and demurrage fees are more than just an unfortunate part of doing business, they also result in delayed deliveries and payments, lost sales, and lack of product availability. These fees negatively impact cash flow and profitability. Demurrage becomes a major problem when fees occur during periods when ports are congested.
These fees are preventable, however, through greater visibility, predictability and effective communication between trading partners.
Take demurrage, for example. Oftentimes, containers sit in port yards because the consignee isn’t even aware that they have arrived. Most consignees use their ocean carriers’ estimated time of arrival at the destination port as their guideline for notifying drayage carriers to pick up the container. Ocean carrier ETAs are known to be inaccurate, though. Actual vessel arrival time vs. carrier-provided ETAs can be off by a week. If the actual arrival time falls on the early side of the ETA, the container could be sitting in the yard for a week, waiting to be picked up.
To be fair, most shipping lines alert their shippers when their vessel arrives at port, but those updates are communicated to the shippers via EDI transmission which are processes in batch mode. The EDI alert itself could be late by days.
By providing a shipper real-time visibility of their ocean carriers, however, and very accurate predicted times of arrival, digital supply chain solutions take the guesswork out of dray scheduling. The shipper can provide the dray carrier with a very accurate predicted time of arrival and available to pick-up estimate, that eliminates the cases of containers sitting idle in the dockyard, waiting to be picked up.
Similarly, digital supply chain solutions can provide alerts when a container has been unloaded, and is sitting empty for longer than a user-defined period. Logistics managers can see a report of all their empty containers that violate that rule and orchestrate their return to the shipping line.