Are you a buyer wondering what demurrage and detention are all about? This article is just what you need to read. In this paper, we explain what these terms entail, how they are related, and why they are crucial to understand.
While both can come with the cost, the concept does not have to be seen as a brute force to accomplish. However, when managed efficiently they translate into assemblage constituents of your cargo and are pivotal elements in smoothly, efficiently managed global supply chains.
What distinguishes demurrage from detention?
Two terms are often used interchangeably in logistics, but are in fact are different activities related to the handling of containers.
Demurrage
Is the time period within which loaded containers are kept within the container shipping terminal premises. This time starts immediately the containers get off a vessel or train and ends at the time they are removed from the port.
Detention
In other words, a time that the containers take outside the terminal. This is defined from the time FCLs are collected from the port to the time when they are delivered back to the port or a receival depot, empty. For importers this would normally refer to the time that takes to off load the cargo.
What is Free Time?
Free time, also known as standard free time is the additional time the carrier grants customers within which they perform demurrage and/or avoid detention fees without attracting extra charges.
What Are Demurrage and Detention Charges in Shipping?
As soon as a full container arrives and gets to the destination it is supposed to be delivered the process does not end there. It is your custody as the customer to return the container to a particular place such as port, container terminal or depot for further reuse. A key driver of the enormous number of containers that revolves across the global supply chain depends on the capacity retention of carriers’ equipment.
Demurrage and detention charges are penalties charged to shippers once free time given by the carrier is exceeded. For example, in demurrage, when a loaded container stayed too long at the destination terminal before being picked up and passed through the gate. Respectively, we charge detention fees to contemplate the situation that an empty container is not returned to its specified port or depot on time.
Container Detention & Demurrage: Key Insights
- Free Time: This is generally the number of days a supplier is allowed to use the container free of charge. Failure to complete these steps within this duration attracts extra expenses.
- Demurrage and Detention: All of these terms, while being different from each other, are interrelated stakeholders of your cargo’s transit cycle.
- Demurrage Charges: These apply particularly to what is called ‘site dwell time’ – the amount of time that the container will spend within a terminal. The related costs are intended to dissuade owners and users from keeping their containers in the port for very long.
- Detention Charges: These concern the time a container is stored outside the terminal. There are detention charges if the consignee uses the carrier’s container for more time than the agreed free time. In other words, detention fee is charged every time the container is not drop back to the carrier on time as required.
How Are Demurrage Fees Determined?
Normally, the ocean and air and railway shipments are free from any detention and demurrage charges for 48 hours and 4 days respectively. Nevertheless, there could be other types of containers where a free time is restricted, for instance open top containers.
Any shipments that take longer than these time lapses are charged demurrage fees. These fees are calculated based on two primary factors:
- The Demurrage Rate: PDPR stands for per day pro-rata, and it’s generally thought of as the number of pages submitted by a person to a journal per day on average.
- Duration Beyond Free Time: The extent, as expressed in the equation of days and fractions thereof that the laytime allowance has been exceeded.
For example, to estimate demurrage charges at most of the world’s ports, just multiply these two factors.
Example of Demurrage Fee Calculation:
Let the demurrage rate be $ 60000 per PDPR and let the shipment has incurred 2.5 days over the free time.
The total demurrage cost would be:
$60,000 x 2.5 = $150,000
Demurrage charges have to be paid by the importer before he is able to take his cargo. Such charges late fees when not addressed on time may compound the hurt much further down in the supply chain, and with it, costs.
What Leads to Demurrage Fees?
Various factors can cause demurrage charges, including:
- Port congestion
- Delays in customs clearance
- Shortages of truck drivers
- Contractual disputes
- Stations which are affected by unfavorable conditions including hurricanes
Of course, some of these problems are inevitable, but even the most fastidious supply chain managers may stumble on them from time to time. Nonetheless, it is possible to prevent such from happening by practicing other preventive measures which reduce the risks of being charged detention and demurrage fees.
Strategies to Prevent Demurrage Charges in Shipping line
The best ways of preventing the occurrence of the detention and demurrage charges and fees are thus some level of preparation and much communication.
Consequently, proactive supply chain managers always make arrangements to ensure that clearance is secured long before the shipment arrives. Records: They keep all necessary records in order and pay all types of duties in advance.
Moreover, successful importers have to cooperate with inland carriers informing them about delivery conditions in advance to improve work efficiency. Some also contract for a second carrier, but as a contingency measure especially in busy terminals.
Difference Between Demurrage and Port Storage Charges
As much as minimize demurrage fees and port storage charges may sound alike they are quite distinct in terms of root and utilization.
Both charge fees when a shipment spends time in transit beyond a free period allowed for the shipment. However:
- Demurrage charges are levied by the shipping company.
- Storage charges are made by the port authority in regard to the storage of goods in the port store.
Ports apply storage charges to reduce the concentration of terminal dwell time, and encourage the faster handling of the containers.
The amount of free time it takes can be either standard between the port and the shipping company. For instance, a carrier may have a legislation of seven demurrage-free days same with another port however the port could only entitle the party to three allotted free time days before imposing storage charges.
Tips for Avoiding Detention Fees in Shipping lines
Prevention of ramp and detention charges and fees is even more a similar concept as with demurrage charges where it is about planning optimally and cooperating with the partners. One can stay aware of the limited free time available and make a schedule anticipating interruptions in this process. Strong communication before the beginning of shipment together with constant tracking and identification of anydelay-prone locations can considerably minimize risks.
Actually one of the most crucial approaches of decreasing detention costs is increasing the supply chain transparency. Industry supply chain leaders employ sophisticated applications to track and track their shipments including FourKites. Here’s why these tools are invaluable:
- Identifying Hidden Inefficiencies: In complex planning, technology ensures that blind spots are highlighted and may be deemed by planners as non-existent even when they actually exist.
- Optimizing Operations: It is imperative to identify these gaps for clearing detention, demurrage, and storage charges as well as promoting productivity, inter-org communication, and flow efficiencies, in the supply chain.
When adopting these frameworks and techniques, companies can reduce the potential impact of risks, manage the flow of materials and products better and maintain smooth running.
Conclusion
An efficient management of the logistic is crucial for companies in an effort to reduce the amount of money used while at the same time achieving the best operational results for the supply chain. But to accomplish these there are important features that have to be dealt with and among them are demurrage and detention fees. Thus, informing about free time allowances, planning and using free time expires and communication with all the interested parties makes it possible to minimize the risk to meet such fees and manage better the cargo delivery process in business.
Another strategy of mitigating for costly penalties is the use of technology. Commodity tracking and management technologies not only improve the tools that can be used to predict lead time variability, and the accuracy of such predictions, but also enhance supply chain transparency and efficiency by addressing the appropriate lead time. They enable companies to manage and reduce risks, become more efficient and create higher value in relationships with supply chain members.
In conclusion, remaining as active and as ready as possible means that businesses can move through the challenges of shipping with confidence. Through effective planning, proper communication as well as proper management of technology, shipping companies can construct agile and adaptable supply chain networks that are hard to disrupt and at the same time, companies can avoid avoidable costs such as demurrage and detention charges.