In the world of logistics and transportation, the terms “demurrage” and “storage” are often used interchangeably, but they actually refer to two distinct types of fees. Businesses can save money and improve their supply chains by understanding the differences between them.
If you don’t pick up your containers from a port or terminal within the free time, you usually have to pay demurrage fees. On the other hand, storage fees apply when goods are stored in a warehouse or terminal after the free period has ended.
In this article, we’ll discuss the primary differences between these two charges, their impact on your business, and provide some valuable tips for reducing logistics costs by effectively managing them.
What is demurrage?
When shippers keep their cargo or containers at a port or terminal longer than the time set by the shipping company or port authority for their use, they must pay a fee, known as a demurrage charge. This fee is intended to encourage the timely movement of cargo and to ensure that port facilities and equipment are utilized efficiently, thereby reducing traffic congestion. In most cases, demurrage is charged on a daily or hourly basis. The rate depends on the carrier, the port and the type of cargo being transported. Fixed daily rates or tiered rates that increase over time are two common methods of pricing. Factors contributing to these charges usually include delays in customs clearance, missing or incorrect documentation, port congestion, slow inland transportation or late payment of related 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.
How storage and demurrage works
All ports offer a certain free period (Example: Felixstowe 5 free days, Hamburg 3 free days, New York 4 free days) to allow the customers time to process import requirements and take delivery of the containers from the port..
These free days, let’s call them “port free days” are the number of days allowed by the port/terminal to keep the containers in the port/terminal area without any charge, after which storage charges (also known as port storage) as published in the port/terminal tariff will apply.
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.
