Proactively Managing Demurrage and Detention with Increased Visibility
All you need to know about Demurrage and Detention
What you can find on this guide page:
Every day, there are multiple instances in which cargo becomes delayed. Aside from unplanned effort, these delays often cause unexpected additional fees. One of the most frequent extra costs are demurrage and detention charges that result from storage costs for cargo that remains at the port of discharge for too long or those that have not returned to the depot. But what does too long mean?
Before we venture to find that answer, let’s try and get clarity on the terms “demurrage” and “detention”. Because many people struggle with understanding the difference between demurrage and detention and even their meaning, it becomes very frustrating to receive their freight invoice and not understand all of the charges.
Definition: Demurrage and Detention
Demurrage: It is a charge raised when the full container is not moved out of the port/terminal for unpacking within the allowed free days offered by the shipping line. The charge is levied by the shipping line to the importer.
Detention: Also known as a per diem fee, is raised when the importer has picked up the container for unpacking, but the empty container has not returned to the nominated depot within the agreed free-time. It is normal for a port to offer 3-5 days of free storage. However, each terminal has slightly different rules which can change at any time.
Example of Demurrage Detention
For example, Hamburg’s Port officials may be very strict allowing only 3 free days of storage, whereas you can negotiate with the officials at Rotterdam’s Port for some additional container free time. They may offer 5 days of free storage. Regardless, each port sets its own rates which are normally charged per day and TEU. And of course, rates may increase very fast the longer the container remains. Therefore, demurrage and detention costs are one of the most frustrating aspects of working in trade and transportation. Nobody likes additional and unexpected fees!
We would like to share a few tips about reducing demurrage and detention costs – even if they seem inevitable.
Optimizing Your Free Time to Manage Demurrage and Detention Costs
Demurrage and detention can be a significant factor in doing business when moving freight between shipping ports. Not only can these charges be costly for a shipper, but they can also create delays.
Because of the time, efforts, and money involved, it is important to understand the impact these charges can have on a company’s global supply chain.
Of course, the wider spread your supply chain is, the higher the chance for your company to incur these charges throughout the various ports around the world. To add to the confusion, different locations, carriers, and ports have different rules and regulations, all of which translate to additional complexities and costs.
All in all, it can be a confusing and frustrating endeavor to deal with. To that end, we at Ocean Insights have created a white paper that will provide shipping professionals with tips on how to manage and avoid both demurrage and detention charges effectively.
Understand How it’s Calculated
Demurrage is charged by the shipping line per day per container from the date of discharge till the full container is moved out of the port or terminal for unpacking. Detention is charged per day per container from that time till the empty container is returned to the shipping line’s nominated depot.
We will explain how demurrage and detention are calculated, as well as what drives these costly hang-ups during your shipping operation.
Why are Demurrage and Detention Charges Important?
Not only is it important to understand how it’s calculated, but it’s important to understand why shipping lines charge for detention and demurrage. It’s just as important for shipping lines to charge these fees as it is for shippers to avoid them.
Port Congestion and How it Affects Your Business
Port congestion is a big problem when it comes to D&D charges and can have a tremendous impact on both the efficiency of your supply chain and how much you’ll have to pay in detention and demurrage fees. In our whitepaper, we’ll take a look at what causes port congestion and how it can affect your business.
Demurrage & Detention Are Definitely Avoidable
As anyone who works with ocean freight will tell you, detention and demurrage fees are a hassle at the best of times. Fortunately, there are steps you can take to help mitigate these expenses and help you to avoid costly delays. If you’d like to know how your company
- can save potentially hundreds of thousands of dollars every year in detention and demurrage fees,
- can see real-life examples using real-world data,
- or want to know more about how an OFTS can help you to get your business running in peak efficiency
“Depending on the volume of ocean freight, beneficial cargo owners may pay millions annually in demurrage and detention fees alone.“Josh Brazil, COO Ocean Insights
1. Advanced planning and negotiation
Advanced planning and streamlining the trading process are important in terms of minimizing the risks of demurrage and detention costs. This process should include:
- Dispatching your cargo as far in advance as you can.
- Schedule a little time buffer.
- Keep in mind loading and unloading times. Therefore, you should share your shipment delivery instructions with all involved parties in advance.
- Request the driver to keep an eye on the clock.
- Always try to request extended free time. This be tricky because in many cases this only works for large shippers who ship more than 800-1,000 containers per year.
2. Get an overview: Have real-time information on your container’s status
If you already have plenty of experience in shipping consignments, then you know that you cannot always rely on information provided by the carrier. Ocean Insights’ Container Track & Trace platform (CTT) is both data-driven and carrier-independent. Ocean Insights’ smart dashboards display your container dwell times in POD and out on Delivery/Return as well as historical performance trends at your shipment ports. With real-time data, you can make proactive decisions in the event of delays and mitigate demurrage & detention fees.
3. Plan your offloading schedule
It pays to stay organized. To not unnecessarily escalate port charges for a container, you can keep the following details up-to-date before your container(s) arrive:
- Pre-clear customs
- Coordinate with your inland trucking carrier: Having a backup trucking provider never hurts. It is always good to be prepared for unforeseen circumstances such as port congestion, bad weather or labour shortages.
- Inform everyone involved: As the logistics supply chain interlinks many processes, it is a good idea to keep everyone informed about a container’s whereabouts. With your tracking information in place, it is easy to disseminate the information to the appropriate channels. That could include your processing units, vendors and even end-customers. Having the right information can let the decision-makers take appropriate recourse.
- Keep a fallback option ready, which can be very useful in terms of port congestion. It should include alternative trucker and alternative routes.
4. Learn from the data
- Optimize your free time purchases based on historical trends.
- Analyse your past performance to identify trends and optimise your free-time allotment in the next purchasing round. After analysing your delay times, you may find you’re spending too much of your free time at one port while you should be focusing it at a different, much more congested port.
- You may also be able to negotiate with a Container Detention Waiver Request Letter. Even if you dispatch your cargo with the utmost degree of planning, there is always the probability of unforeseen circumstances in the operations chain. If you frequently struggle with detentions, you should really familiarise yourself with how to request additional free time from your carrier.
Our brand new white paper:
“How to effectively manage demurrage and detention costs through free time optimization”
Effectively manage demurrage and detention charges
A few years ago, shippers had to leave their penalty fees to fate, but with the advancement of big data, the technologies of today empower you to enjoy on-going visibility and make informed decisions.
With data compiled from the entire shipping industry at your disposal, you can integrate it into your business operations to make informed decisions. The longer you delay the decision to adopt sophisticated tracking measures, the more likely you are to end up paying for the resulting costs. Our most recent white paper highlights the benefits of investing in an Ocean Freight Tracking System.
Ocean Insights’ real-time container tracking software (CTT) helps dozens of shippers to reduce their demurrage and detention charges every year.
Note: The Federal Maritime Commission has issued new guidance about how it will assess the reasonableness of detention and demurrage regulations and practices of ocean carriers and marine terminal operators.