Did you know that according to recent reports, demurrage and detention fees have increased by 104% over the years 2020 and 2021?
Both importers and exporters get confronted with the issue of demurrage. However, it frequently comes as a surprise to them, both in terms of the suddenness of the event and the financial loss.
Demurrage is an unanticipated expense that occurs when cargo is delayed at the discharge port for some time. Alternatively, the cargo does not return to the depot within the allotted time.
What do you know about demurrage and how it works? Learn more about it in this handy guide, which also includes information on preventing demurrage charges.
The transporter, port, or railway operator pays for containers or rail freight cars held longer than the loading and unloading time allowed. As soon as the free time period has elapsed, the shipper gets billed a daily demurrage cost until the cargo has been removed from the port facility.
Charges vary depending on the port or carrier and typically range from $70 to $150 per container, per day, for the first five days of storage. After that, the charges increase even more if the container is kept for a more extended period of time.
Officials cannot expect shippers to load and unload containers immediately after the transporters come into the dock. Therefore, it’s unreasonable for carriers to expect this.
In this case, the shipper and the carriers must agree on a reasonable amount of days to unload or load the cargo. These days given to arrange for loading and unloading of their cargo before demurrage fees kick in are called free days.
Free days vary from port to port and shipping lines. However, they remain a vital element for shippers because they can negotiate these with the transportation firm.
Even if the shipper does everything possible to arrange loading and unloading and has the necessary documents in order, other external circumstances can alter timelines and result in demurrage.
Demurrage fees can be levied to a shipper for various reasons, including late freight release or customs release of cargo containers, damaged containers, and overweight containers, among others.
Some of the most typical reasons for demurrage expenses are as follows:
The responsibility for demurrage and payment of the same falls on the consignee. These causes cannot be assigned to a single entity, whether it be the consignee or the shipper.
Demurrage is a preventable expense, but if it is not appropriately managed, costs can quickly outpace the value of the goods. Unfortunately, this leaves many consignees with little choice but to forsake the shipment.
When shipping freight between ports, demurrage can be a significant factor. These fees add to a shipper’s costs and cause delays. These costs might negatively impact a company’s worldwide supply chain due to time, effort, and money at stake.
Naturally, the more global your distribution network is, the more likely your company may incur these costs at numerous ports throughout the world. To further complicate matters, different places, operators, and ports operate under a variety of policies and regulations. All of these may result in increased challenges and expenses.
In many cases, the demurrage fee isn’t known until after the completion of the shipment. This is due to either inadequate communication between the shipping company and the client or poor supply chain management.
The shipping line charges a fee for demurrage on each container for each day it’s held in port. It begins on the discharge date and continues until the full container is taken out of the port or terminal for unpacking and transportation.
In many cases, the demurrage fee isn’t known until after the completion of the shipment. This is due to either inadequate communication between the shipping company and the client or inadequate supply chain management.
It is easier to explain how to calculate demurrage through an example. Let’s say you have a container that arrives on the 10th of August, and you can collect it on the 4th of September. That means that you will have 25 days to collect the container. If it’s stipulated in your contract that you have five free days, then you will have 20 days of demurrage costs.
Let’s say the rate for a 20ft container is $60 per day for the first ten days. And, after the first ten days, the cost increases to $120 per day. That would mean that the first ten days will cost you $600 and the following ten days $1200. So, in total, you will have demurrage charges of $1800.
Of course, this is just an example; as stated before, charges vary from port to port.
In addition to knowing how it’s calculated, you need to understand why it’s important to have demurrage charges. As they say in the classics, ‘what’s good for the goose is also good for the gander!’ So, these demurrage charges are as critical for ports to impose them just as much as it’s for shippers to minimize them.
Port traffic and congestion is a significant issue when it comes to demurrage costs.
Shipping lines own or lease containers and give them to their shippers for secure and efficient door-to-door transit. However, shipping lines must quickly turn over their containers since the cost of using the container during door-to-door travel is included in the freight. As a result, shipping lines penalize shippers that exceed the free days period by incurring demurrage fees.
Anyone who works with sea transport will tell you that demurrage charges are inconvenient even in the best of circumstances. Fortunately, there are measures you can take to reduce these costs and avoid costly delays. If you’d like to know how to save potentially thousands of dollars every year in demurrage fees, keep reading below.
A better communication flow between shippers and carriers ensures that if demurrage charges need to be applied, they’re as fair as possible.
Check for special documentation requirements before importing or exporting cargo into a specific country. Make sure your company is ready to make international sales, choose a carrier, and check customs procedures.
Ensure that you evaluate and verify that the cargo meets the destination country’s health, safety, technological, and marketing criteria. There are very specific requirements, for example, with the transportation of food items.
Making sure you are aware of these special requirements can save time, and prevent any delays down the line.
As a shipper, you can effectively control demurrage costs by negotiating with carriers during the request for the quote process.
High-volume exporters can choose operators that offer additional free days based on quantity. Even if you are a minor exporter, you can still look out for carriers that charge lower demurrage charges, as long as you specify this in your documentation.
Request for quote strategy can help shippers avoid demurrage charges or at the very least minimize them. However, manually managing this procedure can be tricky. Instead, find software tools at your disposal that can help you speed your quote creation and apply the criteria you need to discover cheaper carriers. With these tools, you may also find better deals on freight rates.
There is nobody who can afford to have their cargo stand idle. Therefore, quality, streamlined data is essential for accurately estimating arrival time and identifying potential demurrage fees.
The transparency of real-time visibility assists shippers in aligning dray schedules with the arrival of a vessel in port. This prevents full containers from sitting inactive. Full containers that sit idle at the dock or terminal start and keep the clock ticking for demurrage charges.
Having the right technology to help you with the freight process from the beginning to the end of your cargo’s voyage will help you get peace of mind.
As freight moves, so do transportation options and equipment. Send a notification to your shipper ahead of time regarding your cargo. This will ensure they have access to the necessary equipment and plan ahead.
The choice of the port and routing to be used becomes significant depending on the terms of the sale and delivery terms. As discussed earlier, some ports have cheaper demurrage rates. Choosing a port with cheaper rates will reduce your demurrage costs considerably.
Pre-clearing goods is one of the best ways to avoid demurrage charges. Sending a copy of your documentation ahead of time can help ensure faster clearance at a port and avoid demurrage charges.
Other, less congested port choices for import and export commodities should be considered in the case of terminals that are routinely imposing penalty costs on your distribution chain. When mega-vessels deliver cargo, it may take longer to reach its destination. This can cause delays and congestion, which ultimately lead to increased demurrage charges.
You can improve your planning and efficiencies by recording, monitoring, and assessing vessel activities. By keeping track of your cargo, you can anticipate the carrier’s arrival and plan for unloading perhaps within the free days, thereby avoiding or minimizing your demurrage costs.
Shippers can avoid demurrage fees by preparing for the timely pickup of cargo and dispatching cargo as far in advance as possible. This allows shippers to load containers faster, reducing the shipment time outside the port.
Shippers can discuss delivery instructions in advance; this is a great way to ensure smooth flow at the port terminal. Make sure to find a carrier familiar with the ins and outs of the local port and who can advise if delays are expected.
A professional freight forwarder can keep an eye on the shipment for you and ensure that your cargo arrives in time without any additional costs such as demurrage.
As previously stated, it is critical to plan ahead of time. While demurrage is imposed by the shipping lines in late container clearing and return, the ports and terminals will charge the client port storage charges.
Due to the high level of uncertainty, it is always preferable to engage with a freight company that understands your difficulty in this area. They will actively work on techniques to help you reduce or even avoid demurrage charges.
Do you need a professional to manage your cargo end to end? Then, contact us. We are a crew of supply chain management, transportation, and logistics experts you can rely on to control your transportation service needs effectively.
Onsite Global Logistics is a third party logistics provider 3PL helping companies with innovative global logistics and supply chain solutions
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