Detention and demurrage charges – some of the most common late fees for shipping containers – are one of the biggest headaches for professionals throughout the global supply chain industry.
In 2018, 78% of truckload carriers within the United States reported losing the opportunity of at least one load per month due to detention time, while nearly half (49%) reported losing more than one load per month.
These lost revenues for the carrier then show up at the shipper’s doorstep in the form of detention and demurrage fees, and strain relationships across the board. On the ocean shipping side, demurrage and detention charges can cost more than 20 times the value of the container.
While this number is enough to keep any supply chain leader up at night, it also motivates the most proactive among them to take steps to avoid late fees. This article will help you understand the differences between demurrage and detention, how companies can avoid them and more.
Both detention and demurrage fees are levied by the shipping company. Both also allow for a certain period of free time. The shipping quote should clearly define these time frames and associated late fees.
This means that even after you’ve moved your cargo out of the port, you need to be prompt in returning the empty containers back to the designated container yard or port.
There are some exceptions to this rule, however:
The same concept goes for moving loads by rail, where you can incur both rail storage charges at the ramp and detention charges for equipment usage past the last free day.
When cargo arrives in a port or terminal, it can remain there – unpacked – for a set period of time. Demurrage charges result when a container remains unpacked in the terminal beyond these free days, known as “laytime”.
In general, air and rail shipments receive 48 hours of laytime. Shipments arriving by ocean generally receive four days. However, open-top and other special containers can face shorter time frames.
Demurrage charges accrue when a shipment exceeds these time frames. Demurrage charges depend on two variables:
To calculate standard demurrage charges at most major ports, simply multiply these two variables.
Take the following example:
The demurrage for a given shipment is $60,000 PDPR. The shipment has exceeded the allowable laytime by two and a half days.
The total demurrage charges equal $60,000 x 2.5, or $150,000.
If a shipment accrues demurrage charges, the importer will likely need to pay them before picking up the goods. Because of this, delays in dealing with late fees can compound and cause additional delays further downstream.
The causes of demurrage can vary, but typical causes include:
Some of these causes are unavoidable. Even the most proactive supply chain leaders experience at least occasional difficulty with the above factors. However, there are steps they can take to avoid demurrage charges.
The best way to avoid demurrage charges is to be prepared.
Proactive supply chain leaders secure customs clearance prior to the shipment’s arrival. They also have proper documentation readily accessible and pay duties in advance.
Additionally, proactive importers communicate with their inland carriers. Sharing delivery instructions in advance can save valuable time. Many importers also have a backup carrier on standby, especially in busy ports.
“Port storage charges” are similar to demurrage, but with one important distinction.
While both terms refer to fees charged when an unpacked shipment exceeds the allowable free time, demurrage charges are levied by the shipping company and storage charges are levied by the port.
Ports charge storage fees to discourage delays and reduce congestion at busy terminals.
Importantly, the port and the shipping company can establish different periods of free time. For example, a shipping company might allow seven demurrage-free laytime days. However, the port might only offer three free days before assessing a port storage charge.
Detention can have different meanings depending on the mode in question. For truckload and less-than-truckload shipments, detention typically refers to the amount of time that a driver spends waiting at a customer facility before they can load or unload their trailer – as well as to the fee carriers levy against shippers for making their drivers wait.
In the world of maritime freight, detention charges are typically levied against a shipper for taking too long to return their shipping container. For example, if an importer unpacks a container but fails to return it to the nominated empty depot within this time frame, detention charges result. Most shipping companies grant a free period of 3-5 days before charging detention fees. At some terminals, the phrase “per diem” is used interchangeably with detention.
Carriers need to keep their equipment in circulation. When a consignee holds onto equipment for longer than the agreed-upon time, it prevents it from being used by other customers. The per diem charge exists to offset losses from those delays, such as costs from the injection of additional equipment into the carrier’s fleet or chassis pool, and to discourage importers from storing containers for long periods of time.
As with demurrage fees, detention fees vary across shipping companies, carriers and ports. However, most detention fees range from $50 to $100 per day.
Detention is charged by carriers to compensate for time their assets or drivers are unable to be on the road. Delays can cause a driver to run out of legal driving hours and therefore be unable to complete their delivery. Missing or showing up late to their next scheduled appointment can result in drivers getting fined or even put out of service. Holdups can also cause the driver to potentially lose their next load and the income that comes with it.
It is important to understand that once a driver’s on-duty clock starts, they can work for the next 14 hours (with 11 driving hours). Once the clock stops for the day, drivers, by law, need to take a full 10 hours off between shifts.
With drivers who are paid by the mile, detention time means losing hours that would have otherwise produced income. The U.S. DOT released a report showing that time spent detained at shipper or receiver facilities reduces truck driver pay by between $1.1 billion and $1.3 billion annually across the truckload sector.
Because detention time reduces the total number of driveable hours the driver can bill for in a given day, it diminishes revenue potential within the carrier’s operation as a whole, and also cuts into the personal earnings of the driver. To help offset this, carriers will charge shippers detention a detention fee.
Avoiding detention charges, like avoiding demurrage charges, begins with preparation and coordination. Once again, it is essential to remain aware of the period of allowable free days, as well as to plan in advance for contingencies. Communicating with the trucking company well in advance, and keeping close tabs on the real-time locations and delays of your shipments can help significantly eliminate last-minute surprises.