When it comes to logistics and transportation, demurrage and storage charges are often used interchangeably, but they refer to two distinct types of fees. Understanding the difference between them can help businesses avoid unnecessary costs and improve supply chain efficiency.
Demurrage fees are typically charged when containers are not picked up from a port or terminal within the allotted free time. On the other hand, storage charges apply when goods are held in a warehouse or terminal storage facility beyond the free period.
In this article, we’ll break down the key differences between these two charges, explore their impact on your operations, and provide practical strategies for managing them to keep your logistics costs under control.
What is demurrage?
Demurrage is a fee charged to shippers when their cargo or containers remain at a port or terminal beyond the allotted free time set by the shipping line or port authority. This charge is designed to encourage efficient cargo movement and ensure the timely use of port facilities and equipment, helping to reduce congestion. Demurrage is typically assessed on a daily or hourly basis, with rates varying depending on the carrier, port, and type of cargo being transported. Common pricing structures include flat daily rates or tiered rates that increase over time. These fees often result from issues such as delays in customs clearance, incomplete or inaccurate documentation, port congestion, inefficient inland transportation, or late payment of associated charges.
What are storage charges?
Storage charges are fees applied when containers or cargo stay at a port, terminal, or warehouse beyond the allowed free time. These fees cover the use of physical space and apply to import containers waiting for clearance, export containers not yet loaded, and empty containers stored at the port.
The charges are typically calculated daily, with rates varying based on the port, container size, cargo type (e.g., hazardous or refrigerated goods often incur higher costs), and duration of warehouse storage.
Demurrage vs. Storage Charges: What’s the Difference?
Demurrage and storage charges are additional fees incurred when goods stay at a port or terminal beyond the allowed free time. While often confused, these charges are issued by different parties and apply to other types of “occupancy.” Understanding the difference is crucial for effectively managing supply chain costs.
Demurrage
- Charged by: The shipping line
- Charged for: Extended use of the shipping company’s container
- Nature: Demurrage is essentially a penalty or “overtime rent” charged when a container—whether full or empty—is not picked up or returned within the free time granted by the shipping line. It typically applies before customs clearance for imports or before loading for exports. The purpose is to compensate the carrier for delays in turning over their container equipment.
Example:
Your cargo arrives at the Port of Los Angeles, and the shipping line offers a 5-day free container usage period. If the container is not cleared and removed by the 6th day, demurrage charges will begin to accrue from that day forward.
Storage Charges
- Charged by: Port authorities or terminal operators
- Charged for: Use of port or terminal space and facilities by cargo or containers
- Nature: Storage charges can be thought of as a port’s “site rental” or “parking fee.” When goods—whether in containers or as bulk cargo—remain in port storage areas (such as yards or warehouses) beyond the free time allowed, the port begins charging for the space occupied. These fees help offset the cost of maintaining storage infrastructure and ensure efficient turnover at the terminal.
Example:
Your container arrives at the Port of Los Angeles, which offers 7 days of free storage. If the container remains in the terminal for 9 days, the port will charge storage fees for the additional 2 days beyond the free period.
Tips to Avoid Demurrage and Storage Charges
- Accurate Document Preparation: Ensure that all customs documentation is complete, accurate, and submitted on time to prevent clearance delays caused by paperwork issues.
- Efficient Customs Clearance Management: Work with experienced customs brokers to submit pre-declarations and closely monitor the clearance process to ensure your goods are released on time.
- Pre-Arranged Inland Transportation: Schedule trucks and coordinate pickup times in advance so cargo can be moved immediately once it clears customs.
- Negotiate Longer Free Time: Whenever possible, negotiate extended free time with your shipping line to provide flexibility in case of unexpected delays.
- Proactive Cargo Monitoring: Use online tracking tools to monitor your shipment’s status daily and address any issues promptly to avoid disruptions.
