No importer wants to leave their product sitting in a port longer than they have to, especially when doing so can rack up thousands of dollars in demurrage and detention fees.
In certain cases, terminal congestion, bad weather, chassis shortages, closer shipment scrutiny by Customs, and other unforeseen circumstances can prevent goods from leaving a port in a timely manner, and in turn, containers are delayed from returning on time. Amid a shipping climate fraught with shortened grace periods and higher-than-ever demurrage and detention charges, importers must do what they can to avoid unnecessary fees.
Importers can minimize their risk by heightening their understanding of demurrage and detention and adjusting their shipping practices based on their knowledge.
Defining Demurrage and Detention
Demurrage and detention may both start with the letter “D”, but that’s where their similarity ends. These two words, which importers often use interchangeably, have very different definitions.
Ports will issue demurrage fines when a container moves from a ship to the terminal but is not picked up within a timeframe that is determined by the port. Most ports allow importers to store shipments for three to five days before levying fines. The clock starts ticking the minute a container is taken off the vessel and is set on a pier in the shipping yard.
Once the grace period ends, ports charge fees per container for every working day they sit there. Daily demurrage costs typically range from $75 to $250 per shipping container per day. If an importer has ten containers awaiting pickup, the charge maybe $750-$2,500 a day. Do not forget, the fees only increase the longer the containers sit there.
Ports and vessels --depending on who owns the containers-- also place a limit on the amount of time an importer has to return containers. Detention fees are charged for not returning an empty container after a grace period, usually three to five days.
Detention charges tend to vary significantly. In most cases, the per-day rate averages between $50 to $100 per container on working days. For example, a shipper using ten containers; if not returned on time, would see a fee ranging between $500 to $1,000 per day.
Steamship lines and ports benefit financially from demurrage and detention charges. Although the money they collect is excellent for the steamship lines and ports, the goal is to get their equipment back quicker to free it up for other customers to use.
A Closer Look at Demurrage and Detention
Relationships in the shipping industry can span multiple generations, while some only last from Point A to Point B.
A company can end up paying detention or demurrage fees—or both—on a single shipment. Carriers and ports may try to leverage these fees for exports and imports. Thus, a port or steamship might charge demurrage and detention fees at the port of export and the port of import.
Let’s say Company A plans to send four containers of widgets from a supplier in China to a Georgia port via Steamship Line B, the carrier. The carrier allows a five-day grace period for Company A to pick up, fill, and return their containers for shipping. If the containers arrive late, the carrier levies $100 per unit, per day, in detention fees.
One day after Company A collects the containers, the supplier reports that their product will be five days late. The shipping containers are two days late by the time Company A fills them, resulting in Steamship Line B charging the shippers a $100 detention fee per container for two days of detention, adding up to $800.
Steamship Line B, in the example, lets filled containers sit at its port terminal for five free days, after which time it charges demurrage fees of $100 per shipping container, per day. However, after Company A’s containers sit there for four days, Customs requires Company A to fix its shipping paperwork. The shipment cannot leave until the company files new documentation, which takes another four days.
The delays prevent the containers from shipping on the intended vessel. Company A’s shipment waits six days for a new ship. Steamship Line B now charges $100 a day per container for six days of demurrage, adding up to $2,400 in demurrage fees.
Demurrage and detention costs can continue to add up once the containers arrive at their intended port. In our example, let’s say Steamship B allows a three-day grace period for the containers once they arrive in Georgia. It then charges $100 per container, per day for every working day the containers sit at its terminal.
Additionally, in our example, the logistics company contracted to deliver the products to Company A’s warehouse is five days late in picking up the shipment. Steamship Liner B assesses another a two-day demurrage charge. That fee is $800.
Steamship Line B also allows five days to transport and unload the goods and return the containers. If the importer does not return containers on time, the carrier charges a detention fee.
In our example, the trucking company picks up the containers and takes them to Company A’s warehouse, but transport takes longer than expected. The trucking company returns the containers two days after they are due. Steamship Line B charges Company A $100 per container, per working day for $800.
Company A receives a final invoice for $4,800 from Steamship Line B for its demurrage and detention fees with the widget shipment.
Though this is an extreme example, it’s easy to see how demurrage and detention fees can add up during export and import.
Tips to Avoid Unnecessary Fees
There are a few best practices importers can institute to avoid demurrage and detention fees:
- Negotiate your terms. Sometimes importers can negotiate extra free time in port to avoid demurrage and detention fees. A freight quote is an estimate. You can negotiate for extended grace periods. Carriers may approve your request if there is a compelling reason for it.
- Know the rules. Every port and carrier follows a different set of rules. Ask about their grace periods and their demurrage and detention charges in advance.
- Plan ahead. Dispatch cargo early to build in a buffer for unexpected delays, such as inclement weather, backlogs at the port, or tardy transporters.
- Develop a Plan B. Line up alternative routes or alternative terminals for your transport company in case the port is congested.
- Clear your cargo in advance. Your brokerage firm can help you clear cargo before its arrival and pre-plan your delivery options.
Though importers can dispute demurrage and detention fees, they must pay the fines up front—even if the delays were not their fault. Though the port or steamship may return the money once the dispute is solved, it’s best to avoid the charges when possible.
When it comes to demurrage and detention, planning is everything. Following daily best practices, when importing and exporting helps prevent delays, avoids disputes, and saves you money.