In an industry as fast-paced as shipping and freight, it’s no surprise that containers left in a port or rail yard longer than expected incur charges for their owners. Sometimes, those charges are collectively referred to as demurrage.
Today, let’s break down what demurrage is and how you can avoid it.
What Is Demurrage?
Put simply, demurrage in a shipping context is a late charge that is applied to any containers left at a railyard, port, or shipping storage facility for longer than their scheduled time. Any time a shipping container is left in a storage facility past the “last free day,” the container’s shipper or owner will incur demurrage fees.
Normally, any shipments that arrive via rail or aircraft are given 48 hours of free storage time on the part of the storage facility or container yard. Note that many ports offer free time ranging from between four and seven days. This will be included with the demurrage rate on the delivery instructions.
That said, every port and storage facility has its own free time policies. Thus, shippers have to be very careful about how long their containers remain at storage facilities to avoid demurrage fees.
On top of that, a full container — in addition to incurring storage charges and contributing to port congestion, will have its cargo vulnerable to decay or wear and tear. Demurrage fees are charged on a per-container and per-day basis until the container is picked up.
Generally, demurrage fees range from anywhere between $75 to several hundred dollars per container per day. Truckers don’t foot these bills. Instead, businesses are responsible for these storage fees for whatever amount of time. They appear on the bill of lading from your freight forwarder.
What’s an Example of Demurrage Fees?
Let’s take a look at an example. Say that you want to ship 10 containers. However, you are late picking up those containers for seven days. The storage facility you use has a demurrage charge policy of $100 per container per day.
With this policy, your demurrage fees would be:
- 10 x $100 x 7 = $7000
As you can see, it’s best to try to avoid demurrage fees whenever possible! They can quickly skyrocket to become quite costly if you aren’t careful/
5 Ways To Avoid Demurrage Fees
Luckily, there are ways in which to avoid demurrage fees being added to your shipping bill. Let’s take a look at some of these strategies now.
1. Know Your Cargo, Port, and Routes
For starters, you’ll benefit from knowing your cargo, port, and routes very well. If you do all this information, you’ll be able to minimize delays and downtime, particularly when it comes to shipping internationally.
Customs offices can cause delays and slow downs. If these delays pile up, your containers may be repeatedly delayed at each checkpoint of their journey. Understanding the ports and routes your cargo will go through will help you avoid these pitfalls.
2. Ask for Extra Free Time
If push comes to shove, you can always ask the port or storage facility for some extra free time. If the facility isn’t strapped for space, they may agree, particularly if you have a good working relationship with the storage facility in question.
3. Pre-Clear Cargo
It may be beneficial to pre-clear your cargo for customs at various international ports. By doing this, you’ll sometimes be able to skip the time-consuming customs clearance process and ensure that your containers move from port to port on time.
4. Communicate With Drivers in Advance
Don't forget to communicate regularly with your shipping company drivers and carriers well in advance. By telling them where they need to pick up cargo and being specific about the time and paperwork they need, you'll give them the support they need to pick up cargo quickly without any delays.
5. Establish Contingency Plans for Drivers
Don’t forget to plan for the worst-case scenario. To that end, you should establish contingency plans for your drivers. If one driver gets sick, for instance, have a backup driver ready to go pick up the cargo so it doesn’t incur demurrage fees.
This is easier if you work with a shipping company like RPM, which can connect you to knowledgeable, fully licensed drivers and carriers if you need replacements ASAP.
Demurrage FAQs
What’s the Difference Between Demurrage and Detention?
Demurrage and detention fees are similar yet distinct as well. Demurrage charges, as described above, are fees added to your freight bill because of storing or holding containers for longer than expected or beyond their free time. They are charged because shipping containers are taking up space that should be available for other shippers.
Detention fees, on the other hand, are charges applied by the shipping line for not returning an empty container back to its designated storage depot. For example, if you rent a storage container from a shipping line and it's supposed to be back in three days, yet it actually returns in five days, you'll be charged detention fees for the two extra days.
Despite these differences, some countries combined detention and demurrage fees. This can be a bit confusing if you plan on shipping internationally.
What Are the Reasons for Demurrage Charges?
Shippers and businesses can be charged demurrage fees for a variety of reasons, including:
- The consignee, or the person responsible for receiving the shipped goods, wasn’t aware of the arrival date or time of the cargo. They couldn’t arrange for customs clearances or pick up the cargo in time
- The consignee did receive the right documents in time to pick up the cargo
- The documents that the consignee received were incomplete or incorrect
- The cargo that was received didn’t match the sales order
- The container was delayed because of a hold or customs exam
- There was some other dispute between the shipper and consignee
Bottom Line
Ultimately, demurrage charges are certainly avoidable with the right scheduling and supply chain organization. The best way to do that is oftentimes to work with a knowledgeable, specialized shipping partner like RPM.
At RPM, we'll commit ourselves to ensuring that your shipping needs are met through and through. We'll work with you to provide you with the logistics support your business needs to thrive and connect you to reliable carriers that will get your cargo to its final destination on time and on budget.
Contact us today to learn more.
Sources:
Demurrage Definition | Investopedia
Demurrage and detention charges in container shipping | UNCTAD
What is Demurrage and Detention in Shipping? | Marine Insight
Consignee Definition | UPS Supply Chain Solutions - United States
