Demurrage and detention are prevalent fees in international shipping and logistics that frequently prove perplexing. If not meticulously managed, these fees can rapidly become a substantial financial encumbrance, impacting business entities and consumers. Despite their apparent similarity, these two fees are distinguished by their distinct definitions, calculation methodologies, and applicable contexts. This article aims to elucidate the distinctions between demurrage and detention, their calculation methodologies, their ramifications, and strategies for their avoidance, thereby facilitating enhanced management of international logistics costs.
What is demurrage?
Demurrage refers to the costs incurred when goods remain in a port, terminal, or container yard beyond the free period. Usually, demurrage is charged because the goods have not been loaded, unloaded, or collected within the specified period, resulting in occupied storage space. The port, terminal, or container yard operator mainly charges demurrage.
Here are some common causes of demurrage charges:
- Delayed pickup: The owner fails to pick up the goods within the specified time, resulting in the container or goods being stranded.
- Customs clearance or documentation issues: Delays in customs clearance or incomplete documentation prevent the goods from being picked up in time.
- Loading and unloading delays: Efficiency issues during loading and unloading, such as equipment failure or insufficient personnel.
- Poor logistics coordination: Factors such as unreasonable transportation arrangements and traffic jams result in goods being stranded.
- Insufficient storage space: Insufficient storage space at the destination results in goods not being unloaded or stored in time.
- Inappropriate inventory management: Inappropriate inventory management results in goods being stranded at ports or storage yards.
What is Detention?
Detentionoccurs when a customer fails to return a container to a designated location within a specified period. Shipping companies or container leasing companies usually charge Detentionto encourage customers to pick up their cargo as soon as possible, thereby freeing up space for other cargo. This speeds up the turnaround time of the container.
Exceeding the agreed free time will result in detention charges being levied by the shipping company. Some common reasons for detention charges may be:
- Inefficient inland transportation: Delays in transporting containers from the terminal to the destination and back.
- Warehouse operation delays: If containers are held up in warehouses due to slow unloading or other problems.
- Unforeseen events: Unexpected events such as bad weather, strikes, or natural disasters may delay the return of containers.
- Lack of planning or communication: Poor planning and communication between the parties involved (shipper, consignee, carrier).
Why are demurrage and detention charges levied?
The primary purpose of demurrage and detention charges is to encourage cargo owners to complete the loading, unloading, and collecting of goods within a specified period. Through these charges, ports, terminals, and shipping companies hope to avoid cargo detention and efficiently use transport and storage facilities. In addition, this also increases the income of shipping companies or ports and compensates for the inconvenience and costs caused by cargo detention.
How are demurrage and detention charges calculated?
Demurrage
Demurrage refers to the charges incurred when a container is not picked up or returned after the free time has expired at the port terminal or within the yard. The calculation is as follows:
Calculation formula:
Demurrage = daily rate × number of days overdue × number of containers
- Rate: Varies by port and shipping company. It is usually calculated daily and may increase with the number of days overdue (tiered charges).
- Starting time: Calculated from the day after the end of the free storage period.
Example:
Assume that the free period at a specific port is 5 days, and the demurrage fee is $50/day/container. If a container is overdue for 3 days, the fee is calculated as follows:
50×3=150 USD
Detention
Detention charges are incurred when a container is not returned within the specified time after it has been picked up at the port or yard.
Calculation formula:
Detention fee = daily rate × number of days overdue × number of containers
- Rate: Rates vary by shipping company, and there may also be incremental fees.
- Starting time: The calculation starts from the day after the container is picked up from the terminal until the empty container is returned.
Example:
A shipping company allows 7 days of free use; the detention fee is $60/day/container. If a container is overdue for 4 days, the fee is calculated as follows:
60×4=240 USD
Detention and Demurrage: Main Differences
The main differences between Demurrage and Detention are as follows:
| Difference | Demurrage | Detention |
| Applicable Stage | Storage phase at the port or container yard | Usage phase after the container is picked up |
| Reason for Charges | Cargo exceeds the free storage period and is not picked up on time | Container is taken but not returned within the allowed free period |
| Start Time | After the free storage period ends | After the container is picked up, exceeding the free usage period |
| Calculation Method | Charged per day based on overdue days and the number of containers | Charged per day based on overdue days and the number of containers |
| Paying Party | Paid by the cargo owner or consignee to the port or shipping company | Paid by the cargo owner or consignee to the shipping company |
| How to Avoid | Pick up cargo and complete customs clearance as soon as possible | Return the empty container on time to avoid overdue use |
6 tips to avoid Demurrage and Detention
To avoid high Demurrage and Detention charges, you can take the following measures:
- Planning: Ensure the pick-up and transportation plan is arranged before the goods arrive.
- Timely customs clearance: Prepare all customs clearance documents in advance to avoid delays in customs clearance that result in containers being held.
- Communicate with logistics companies: Maintain close communication with freight forwarders or logistics companies to ensure that you are informed of your containers’ status.
- Monitor free time: Know the free time offered by the shipping company and try to complete the pick-up and return of the container within the specified time.
- Use technical tools: A transport management system (TMS) or container tracking tool can monitor the container’s status in real-time.
- Choose flexible transport options: Where possible, choose shipping companies or transport options that offer longer free times.
Related FAQ
How long is the free time for Demurrage and Detention?
- Free time (Free Time) depends on the port, shipping company, and the specific contract.
- Generally:
- The free time for Demurrage is usually 3-7 days (some ports may be longer or shorter).
- The free time for Detention is usually 5-14 days, and the shipping company determines the specific duration.
If the free time is exceeded, the corresponding fee will be calculated at the daily rate.
Who pays the detention and demurrage?
- The shipper, consignee or their agent usually pays the charges.
- The specific party responsible for payment depends on the transport contract (e.g., CIF, FOB terms) and the freight forwarder’s arrangements.
What causes Demurrage?
Demurrage is mainly caused by containers left at the port or yard for too long without being picked up. Common causes include
- Delays in customs clearance include incomplete documents, customs inspections, problems with import permits, etc.
- Port congestion: queues at the terminal are too long due to busy docks.
- Inappropriate logistics arrangements: failure to arrange a transport vehicle in advance results in stranded containers.
- Payment issues: The owner of the goods fails to pay the freight or taxes on time, affecting the pick-up of the goods.
- Force majeure: For example, bad weather, strikes, political factors, etc., prevent the goods from being picked up on time.
The key to avoiding Demurrage is planning fast customs clearance and making reasonable arrangements for picking up the container to reduce unnecessary additional costs.
