It has been a trying year for those organizations involved in international shipping. There have been massive delays with port congestion, increased container shortages and external disruptions, like the Suez Canal blockage. According to FourKites data for Q1 2021, there has been a surge in ocean freight and the associated dwell times across North America, Europe and Asia.
Combined, these factors create a perfect storm of increased demurrage fees and transportation costs to these global organizations. Here’s what to know and how to avoid these costs for your own organization.
What are demurrage fees?
If you have worked in supply chain, you have most likely heard the terms detention and demurrage fees.
Demurrage fees are monetary charges to organizations for utilizing containers beyond what is allowed. These are usually fees that are charged per container and per day. Organizations are usually allotted a specific timeframe — called last free day — and then are charged for going beyond that timeframe.
Specifically for ocean shipping, demurrage and detention fees can cost up to 20 times the price of the container.
What is the difference between demurrage and detention fees?
Both detention and demurrage fees are levied by the shipping company, but also allow a certain amount of time as part of last free day.
Demurrage charges are brought on containers inside a port beyond demurrage free days, while detention charges come into play after an importer has picked up and unpacked a shipment.
Detention fees are also assessed on containers outside the port. Last free days for detention are typically a longer timeframe than the last free days for demurrage.
Therefore, both demurrage and detention involve fees for extended time utilizing your container beyond last free day, and can be very costly to your organization.
4 ways to prevent demurrage and detention fees in international shipping
With external factors, such as delays and congestion, how can organizations avoid accumulating demurrage fees when they are shipping internationally?
Here are four best practices for minimizing your demurrage costs and achieving a better ROI for your global freight shipping.
1. Know the Challenges: Port congestion in California has been all over the headlines of late. If you are shipping internationally and your lane includes one of these ports, consider choosing another lane that will be less congested.
Another trend has been increasing costs for containers, which will affect your transportation costs and bottom line. Staying on top of current events and industry trends will help you budget for these anticipated challenges.
In addition, organizations can leverage visibility solutions to streamline the booking process. In doing so, they can gain greater insight into port congestion and achieve predictive ETAs to make better booking decisions.
2. Master exception management: If there’s one certainty in supply chain, it’s that there will always be disruptions, and these are often outside of your control. This may be your container missing the vessel, transshipment issues or delays in travel, among many others. It goes without saying that these delays can accumulate high costs.
Maintaining open lines of communication with your carriers and having key contacts for your accounts helps to ensure that you are able to be agile and quickly shift course when delays or disruptions do occur. International visibility solutions can allow you to lower transportation costs by improving performance and proactively mitigating risk when exceptions arise.
3. Document Visibility: A crucial aspect of international shipping is documents management. On average, an international ocean journey requires between 9 and 18 documents, and in many cases requires upwards of 200 emails between parties to complete.
The documents required for your shipment can vary greatly and depend on a number of factors, including country of origin, country of destination and the product shipped. If you don’t have these required documents completed accurately and submitted on time, it can delay your shipment, leading to high demurrage charges and impacting both customer satisfaction and profits.
Organizations that digitize their document process were shown to significantly improve document KPIs and reduce time completing documents and document errors. Establishing clear processes for document management also helps you ensure that you are working with the correct parties to complete these documents correctly, on time and accurately.
4. Invest in an international visibility solution: Perhaps most important of all, if your organization is shipping freight internationally, it is critical to invest in a supply chain visibility software. It is very challenging to manage shipments through spreadsheets, back and forth emails and phone calls, especially with external factors disrupting the international supply chain.
The premier visibility solutions can track your international shipments in a number of different ways, allow you to make changes quickly when delays arise and even manage your documents in one platform. The leading solutions can even give you visibility into not just track-and-trace, but also rates, bookings and document management. This results in reduced transportation costs (including demurrage fees), increased customer satisfaction, reduction of safety stock and more.
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These are truly unprecedented times for international shipping. Port congestion, increased container costs and delays surely will not slow down in the coming months. To best cope with these ongoing disruptions, organizations should plan ahead in order to mitigate those risks and limit the unnecessary demurrage and detention fees to buffer their bottom line.