Demurrage: Causes and How to Avoid It

Importers and exporters alike try to avoid any additional costs associated with transporting a package. Demurrage, detention, and storage fees are frequently unplanned costs that might add up to various charges.

You may even find that some of these fees are charged in addition to another fee, based on the country and firm. If your goods remain in a terminal, the fees will rise.

It's critical to cross-check terminal logs and delivery verification. There are ways to prevent demurrage or bargain with a carrier, and that is something to be grateful for.

What is Demurrage?

Demurrage is a price charged to cargo that has remained at a terminal for an extended period of time. Port officials have the authority to enforce these fees. Fees and policies differ depending on the contractor, terminal, storehouse, or container station.

The length of time you have to pick up your cargo before you are charged varies by seller. Cargo arriving by water usually has four to seven days before being charged. Special containers, on the other hand, are given less time.

A failure to follow the rules agreed to in a charter agreement results in demurrage. It occurs when a fee is due to the owner of a chartered ship for failing to load or unload the ship within a certain time frame.

Demurrage is also a fee levied on containers that are kept at the port or rail yard for longer than their permitted free period or after the last free day.

This fee is charged per container, each day until the container is picked up, and it begins the day following the last free day.

Importers and exporters have a fixed number of free days to work with, in order to get products into and out of ports and handle the logistics.

The fees will be calculated every day, paid to the shipping business and indicated in the agreement with your shipping company.

These additional charges, in addition to increased freight prices, might have an impact on the profitability of your business. As a result, it's critical to understand demurrage in order to keep your trade transaction profitable.

Causes of Demurrage

Demurrage fees can be incurred by a shipper for a variety of reasons, some of which are within their control and others that are not.

Some common causes include:

• Due to a Customs inspection or detention, the shipment was delayed.

• The paperwork received by the consignee was erroneous or incomplete.

• The consignee, who is the person in charge of receiving the goods, was unaware of the cargo's arrival time and date and was unable to organize Customs clearance and pick-up in a timely manner.

• The shipper and the consignee had a disagreement.

• The consignee did not obtain the documentation in time for Customs clearance, and pickup was delayed.

• The shipment received did not correspond to the sales order.

• A delay may be caused by an inaccessible receiver.

• Delays caused by document loss.

Difference Between  Demurrage and Detention

Demurrage and detention are combined in certain nations, whereas they are categorized separately in others.

Demurrage is frequently mixed up with detention.

Detention is a charge for failing to return an empty container to the designated port or container park after the free days when it is being transported beyond the container terminals.

The container is outside the port and useless by the shipper at this point.

Detention fees are applied to containers stored or held outside of a port, rail terminal, feeder terminal, inland depot, or container yard by a customer. After a set amount of free time, detention is imposed.

This differs from demurrage, which is a cost charged to a port, rail terminal, feeder terminal, inland depot, or container yard for storing laden containers. This price is levied when a set amount of free time is surpassed.

Demurrage also refers to the amount of time the container spends within the port terminal.

How to avoid Demurrage

• Understanding the customs clearance process and port laws, as well as providing the proper papers, will help to speed up the process.

• Examine the costs and dependability of your land couriers, taking into account loading and unloading times as well as that of competitors.

• Make a backup plan. For the transportation of goods and containers, have a backup land courier. If demurrage is a concern, see if alternate ports with less congestion are available. Alternatively, if the detention is an issue, confirm if spaces are available at cargo drop-off locations.

• Understand the buyer's and seller's contracts. You should know what tasks and obligations you have in the shipment of goods from your contract with the importer or exporter. 

• Understand and bargain with the shipper on contracts. Examine the fees to ensure that you will be able to satisfy the terms. If you anticipate delays, request additional free days.

• Instead of COCs, consider utilizing SOCs. Using carrier-owned containers (COC) to carry goods around the world is a convenient option. They do, however, expose you to further charges if the rules are not followed precisely. Shipper-owned containers (SOC) can cut long-term additional expenses and make financing easier while demanding an upfront cost in the container itself. When you buy the book, you don't have to bother about late penalties.

• Verify the status of shipping paperwork and the shipment with your shipper and the shipping line on a regular basis. Most shipping lines do not assume responsibility for cargo arriving without being notified.

• If your shipment is covered by a letter of credit, you must contact your bank. It may also be advantageous to request the release of documents.

• If your consignment does not come under a letter of credit or does not have an original bill of lading, an express release may be more useful in minimizing delays. In terms of approval, an original bill of lading usually takes longer.

• You should request a Telex Release if a shipper demands an original bill of lading to protect his payment. This will save time while waiting for an authentic bill of lading.

• All parties should be given cargo and shipment delivery instructions. For a smooth loading and unloading operation, vendors and third-party suppliers should be informed in advance.