When it comes to having your goods shipped, it is useful to know what you should expect to face in case of a delay. Reading through the following article, you will have the opportunity to learn more about Demurrage and Detention.
It is key to the merchant to be specific to the shipping line about the expectancy of any potential delay. Because if there is one, they can decide which way they prefer to be charged: Demurrage or Detention? Clear communication and planning will allow the shipping line to ensure a continuous flow of goods.
Besides, the Demurrage and Detention fees might slightly vary between different shipping lines. So make sure to carefully examine the differences and what they will mean to you in case of a delay.
Explaining the Basics – What is Free Time at Couriers?
Free time means that for a given period of time, the courier does not charge the buyer. During this time, of course, both detention and demurrage fees are covered as well. After the Free Time period is over though, the port will charge all extra costs. These will include detention and demurrage fees but there could be additional fees as well.
A Beginner’s Guide – What is Demurrage?
Demurrage is basically a fine to the merchant from the service provider. This fine is issued when the buyer fails to fulfill the requirements laid down in the agreement the two parties have made. Most commonly this fee occurs when the owner of the rental ship does not fill or send out the ship. It can also happen when the goods are not removed from the port terminal within the timeframe they previously agreed upon. Generally, a few days are provided for the importers to have their goods or containers by the ports. These are the above mentioned freedays. After this time, they will add extra charges.
About the Charges – Why is Demurrage Charged?
In short, Demurrage fees are charged in order to discourage buyers from leaving their shipments at the ports for too long and thereby to ensure a continuous flow of trade.
When buyers are, for instance, too late with removing their containers that can easily result in various issues, such as the port being overcrowded. Therefore, in order to avoid such blockages, the parties have to turnover their equipment and storage units as fast as possible
The One in Charge – Who Enforces Demurrage Fees?
The entity enforcing demurrage fees can vary depending on the means of transport that is used during the trade. Typically it can be airports, ship lines, terminal operators or railroads among others.
How Much Time do You Have to Move Your Cargo Before You Incur Demurrage Fees?
In most cases, the typical shipping lines will authorize 7 days of storage at the ports. This means that the buyer has one week free of charge to pick up their goods. After this Free Time period, each additional day will be charged based on fixed daily rates, excluding the initial week of storage of course.
More about the Prices – How Much Does Demurrage Cost?
Demurrage is charged on a daily basis. Approximately it is $75 to $150 per day per container. Although this fee might increase. It all depends on the length of the space occupied by the container at the port. For example, we could assume that you have 5 days of free time. After this, you have to pay a fee of $150 per day up to an extra 5 days. However, from 6 to 12 days, the fee increases to $300. Then again up to $450 after the next limit of 12 days has been reached. So, if you are late with picking up your shipment for 18 days for example, the fee would be the following:
18 days – 5 free = 13 days of demurrage
($150 x 5 = $750) + ($300 x 7 = $2100) + ($450 x 1 = $450) = $3,300 per container
You will have to pay these fines right there and then in order to be able to retrieve your containers. As you can see from the above example these fees could add up rather quickly. If you happen to have 10 containers, this would mean $33,000! For that reason, it is safe to conclude that the faster you are, the more money you will save by avoiding these added costs.
What are Typical Situations That Lead to Demurrage?
Below are a few points that are very useful to keep in mind, if you want to avoid Demurrage and have a smooth flow of transport:
- Should there be a delay in payment, the freight will remain at the port.
- If the distributor only paid partially for the order, the ship could decline the release of the cargo until all finances are settled.
- This also entails paying for the items or approving the terms of payment from the supplier.
- The payment of fees, or at least an agreement of such has to happen in order for the courier’s loading to be released in case that an initial fee of loading was provided.
- Inaccurate or incomplete information and even small grammatical errors on the export or import documents could also lead to slowing down processing your information. This can also lead to a delayed release date of cargo.
- Improper organization:
- Receiver is not aware of the time of arrival of the shipment and therefore it cannot do the necessary paperwork in time.
- The shipment is delivered to the port by the deliverer but the other party cannot pick it up on time.
- The load misses its agreed upon ship of transport and is therefore placed into the next ship. That will consequently delay the time of arrival.
- There are no more available slots before the LFD (Last Free Day)
- The right vehicle or driver are not accessible before the LFD
- Authorities could also randomly inspect shipments. This too could delay times of arrival.
- Other physical conditions could make it difficult or significantly slower to operate by the port. These could be: weather conditions, an overfull port or employee strikes.
How Can You Avoid or Minimize Demurrage Fees?
Below you can find a list of useful tips we came up with in order to help you decrease your chances of getting Demurrage fees:
- Planning well in advance is always key. This will help you avoid many potential errors.
- Make sure that every necessary paperwork is ready so that the shipping can go as smoothly as possible.
- If possible, clear your freight with customs in advance.
- Be sure of constant and clear communication amongst all parties involved.
- Check if your truck driver can take the freight within the approved time frame.
- If necessary, ask for extra free time in advance.
- Your containers could be pre-pulled as well in order to save time.
Let’s Move on – What is Detention?
Besides the common usage of the phrase referring to a student misbehaving in school, Detention is also used in shipping and logistics. In this case, it refers to a shipping transport provider issuing a fine. After failure to return the empty container to its place within the agreed timeframe, the merchant has to pay a fee to the transport provider. For instance, if the shipping port allows 5 days for the return of containers, but the buyer takes them away for unpacking for 8 days, then the shipping port will issue Detention for 3 days
There are Two Main Types of Detention Fees: Per Diem and Driver Detention
Distributors tend to mix Demurrage with Detention. Probably the simplest way to differentiate one from the other is to keep in mind that Demurrage is basically fees issued after loaded containers inside a port.
Detention, on the other hand, is fees issued on containers placed outside a port (regardless of them being full or not). With the latter, the important part is that no matter if you were on time with the removal of your cargo from the port. You must return the empty containers on time as well.
Although, there are some exceptions as well. A few steamship lines can ask for Detention fees for usage of equipment after the agreed upon amount of free time. So you can experience having to pay both Demurrage (for port usage) and Detention (for usage of equipment) simultaneously.
Another aspect worthy of mentioning is that Detention could appear in different contexts. The simplest way to understand the difference is, to split them into 2 categories: Per Diem (for equipment usage) and Driver Detention (for waiting time of the driver)
Let’s Dive into it – What Is Per Diem?
Per Diem is a fixed rated Detention fee issued after each container at the port. This fee is calculated after each day and each container until the borrowed apparatus is brought back to the yard. Still, some terminals use the terms Diem and Detention both for this system. In each case, the fees are coming from a late return of containers when exporting or importing goods. Similar to Demurrage, they too have a period of Free Days, where you can return the borrowed equipment. Therefore also in a similar way, if you keep the equipment over the Free Time period, you need to pay an extra fee. This one is also called a Per Diem fee.
Why is Per Diem Detention Charged?
Couriers have to be sure to maintain a continuous motion when it comes to their apparatus. Therefore when one client takes too long to return the borrowed equipment, other customers cannot use these services. Consequently, the Per Diem fee’s purpose is to compensate for the losses coming from one client’s delay of returning equipment.
On the Other Hand – What is Driver Detention?
Driver Detention is a fee charged by the hour. They will base this on the courier’s assessment regarding the wait time of the driver. The time charged will be after exceeding the free time given for loading or unloading the truck. This applies for both pickup and delivery. Driver Detention fee aims to compensate the drivers if they are late.
Why is Driver Detention Charged?
Due to delays, drivers may be unable to conclude their delivery. This happens usually because they will run out of legal driving hours. Missing an important appointment like this can lead to them getting fined or even removed from their service. These setbacks can cause a driver to lose their next load as well as the corresponding income. The reason is because oftentimes this is paid by the freight. Loading and unloading promptly therefore affects everyone. So, being clear and prepared with your scheduling can help you reduce unnecessary costs.
Who is Responsible for it – Who Enforces Detention Fees?
Per Diem has to be paid to the courier who is in ownership of the apparatus. On the other hand, one needs to pay Driver Detention fees to the company responsible for the tracking of containers.
How Much Free Time Do You Get Before You Have to Pay Detention Fees?
The Free Time for Per Diem is usually between 7-10 days. For Driver Detentions, the free time is much shorter. Mostly it is 1-2 hours at both the pickup and drop off points of the transport. Naturally, these times might differ between couriers. If you, at any time, exceed the Free Time, that act will result in extra fees.
Extra Prices You didn’t Know about – How Much Does Detention Cost?
Detention fees issued for Per Diem are normally calculated after the weight of the containers at pickup. The cost is somewhere between $50-$100 per container per day until it is returned. Driver Detention fees are more varying. It could be based on the exact type of gear borrowed, the company and even geographical factors. The rates though similarly are between $50-$100 per hour.
What are Typical Situations That Lead to Detention?
Similar to Demurrage, Driver Detention also affects both exports and imports. At imports, drivers have to wait for the loading of freight. For exports, they have to wait for the loaded containers to be brought to the terminal ready to board the right ship.
Both at exports and imports, detention fees can occur. Here are a few scenarios where these could happen:
- It can happen that the courier won’t deliver at import if the recipient of goods is not reachable.
- Too much time is used for loading or unloading the recipient’s means. Consequently, the driver is delayed with returning the container within the Free Time period
- The lack of the presence of Verified Gross Mass can lead to refusal of loading of shipment.
- VGM or Verified Gross Mass is the estimated total weight loaded onto one container. This requires approval from an official party. The rule is in accordance with SOLAS (Safety of Life at Sea). The shipper here is always the one responsible for weight accura
Reduce the Cost – How Can You Avoid or Minimize Detention Fees?
The best way to avoid and / or minimize detention fees is to be as exact and clear with your planning, and do it as far in advance as possible. Because quite a few factors can lead to detention fees. These could include but are not limited to:
- Shortage of drivers
- Shortage of framework
- Restricted hours of service by ELD (Electronic Logging Devices)
- Overcrowded ports
What is Storage Rent?
Storage or ground rent is an extra charge experienced by a client for obtaining physical space at a port, storage unit, depot or any type of land container space. As opposed to Per Diem and Driver Detention fees, Ground Rent is after using the physical space at a given port.
Why is Storage Charged?
Storage is charged to compensate the yard, or other facility for the occupancy of their physical spaces. Besides, in order to discourage transporters from using the space as their storage unit for too long. If the space is very limited at these ports, the fees can go very high at times. Some of the reasons storage will be charged are the following:
- Filled containers upon import while they are in the shipping line’s care, before they are allowed to be taken by the importer.
- Filled containers upon import while they are in a warehouse where customs have acquired them for examination.
- Filled containers upon export at a terminal while in custody of the shipping line, before loading onboard.
- Containers that are withheld by the local government authorities. This could be Border Protection, Police or Health authorities among others.
Storage or ground rent is invoiced by the establishment providing the storage of the containers for the importer, exporter or shipping lines. Ports can charge a single container by demurrage and storage at the same time on one load.