Basically, demurrage, the charge detention fees and per diem charges are some of the most vital features that may lead to a sharp increase in the total costs of shipping where they are not well controlled. The first move to avoiding these costs is to have excellent knowledge of what each of the fees is, how providers come up with each of the costs, and what factors usually lead to these charges.
Here is the first article that focuses on the differences between demurrage, detention and per diem rates and charges and to provide you with the tool to decrease their impact on your logistics. In essence, consider this as your quick reference manual on taming the container freight costs and charges—plus expert advice on guarding your bottom line against these costs.
What Are Detention, Demurrage, and Per Diem Fees? How Are They Calculated?
These fees include detention, demurrage, and per diem fees, which are very much related but are separate general costs associated with shipment. A typical touchpoint for these fees is that the BCOs and the air freight and forwarders are provided with a period of free time during which they can take advantage of a particular carrier’s equipments at no additional expense. After this window, fees start being incurred After this window, fees start being incurred. This guide demystifies these terms to enable you to get a grasp of the essence as well as calculation of these terms.
Understanding Free Time expires
Free time is the time that is allowed to BCOs and freight forwarders to move their consignments through a shipping line’s equipment without the incremental cost of the equipment. These are the three common fees they include detention, demurrage and per diem charges anytime equipment was not returned on time. Whether it is applicable depends on ranking shipping line average the area of shipment if the equipment is going to be shipped and the kind of equip.
What Is Demurrage?
These can be defined as the penalties charged on loaded containers that take more than one day exceeding free time at the port terminal. Once the cargo reaches the port of destination, then it is in the hand of the shipping line until the consignee takes it. Normally, carriers allow 4-5 free time days to the consignees who must clear their goods and load them on to the transport vehicle. In case the cargo has not been collected it attracts demurrage charges payable for each container per day when left at the port.
What Is Detention?
Detention charges are incurred when the carriers’ equipment is not returned within the free time allowed upon the collection of the goods from the port and transported to the intended destination. The BCOs and the freight forwarders are supposed to return the containers, chassis and any other equipment borrowed as soon as they can. Sofar if this is not done within allowed free time, then detention fees are levied on a daily basis on the per container basis.
The only major difference between demurrage and detention is in where the container is located. Detention refers to the charges made when equipment has been taken out of the port but not brought back within the agreed time. However, in some cases, there are detention charges which are also charged on containers which are not being moved around within the port by the carriers. This simply states that where cargo is not collected within the stipulated time, then the shippers will be on the receiving end of a double whammy of being incur demurrage fees and detention alike.
What Is Per Diem?
Per diem charge is an American legal Latin term which translates to ‘for each day’. In transportation, it refers to whereby a charge is levied for each container and is fixed per day. This fee can accrue in two scenarios: The former applies when it takes beyond the free time for which vessels recovery their cargo (as in case with demurrage) or equipment such as containers and Chassis are not returned in time (as in case with detention).
Key Drivers Behind Demurrage and Detention Fees
At first glance, avoiding demurrage and detention fees may seem straightforward: properly pick up your cargo as soon as possible and to return the equipment timely as required. Nevertheless, a myriad of problems usually make the process not as straight forward as it seems. Various factors contribute to these charges, including:
- Little discrepancies that may appear in the shipment documentation
- Failures in shipping documents either in receipt or loss of some crucial paper and/or electronic records
- Congestion at the port
- Problems when passing through customs or having the cargo inspected
- Shortages of workers absolutely crucial in the functioning of ports
- Freight charges’ not cleared or those that have been charged but not paid earlier.
- Failure or withdrawal of consignees at Depot
- Adverse weather conditions
- Mostly unknown whereabouts and conditions of containers
Unfortunately, many of these issues lie beyond the BCOs and freight forwarder purview. Shipping lines do not care if a delay is due to problems in the port or a natural disaster; they require the equipment back on time, and penalties are enforced for late returns.
Controlling the Controllable
Though demurrage and detention charges are in some ways unavoidable, the following considerations are largely preventable. That is why, for instance, increasing the container visibility is a significant move toward solving such issues as these fees. This is the heart of the Fourth-Party Logistics Solution, where through technology intervention and efficiency optimization, shippers get to be more in control of their cargo and hence better able to plan while achieving Lean with a view of eliminating wasteful delay.
The Rise of Demurrage and Detention Charges in Recent Years
In the past years, most of the shipping line holders reduced free time to its ships while at the same request extended free time and increasing their per diem tariffs. These changes are unkind to BCOs and freight Forwarders because they are struggling with congestion, port and shortages of workforce among others things that make the chances of avoiding these charges even harder.
It has, however, been autonomously accelerated by the COVID-19 pandemic. Increased world demand of transporting services has contributed to increased delays in ports and terminals; with carriers bearing additional costs such as for storage charges and container leasing. In response, shipping lines have hiked demurrage and detention charges making the situation even harder for BCOs and forwarders.
As these carriers may see these fees hikes as unavoidable, shippers’ costs have been heavily impacted with record high shipping prices. This goes to confirm that there is need to come up with effective operation strategies to avoid incidence of demurrage and detention charges.
How Can BCOs and Freight Forwarders Avoid Demurrage and Detention Charges?
These demurrage fees and detention costs can be hugely costly to BCOs and freight forwarders who allow themselves to be caught in this web unprepared. While external factors like adverse weather, port congestion, and labor shortages may make it impossible to eliminate these charges entirely, the following strategies can significantly reduce their occurrence:
1. Enhance Visibility Through Real-Time Container Tracking
A lack of visibility into container movement turns out to be one of the primary reasons for demurrage and detention charges. The moment you find yourself in a situation where you do not know the whereabouts of your cargo or when it is expected to arrive, it becomes incredibly challenging to organize and schedule operations well in advance. In many cases, there is no visibility of opportunities within the allotted free time to pull out containers which leads to demurrage charges. Same applies for timeline that are not very clear, the will lead to the delay of the return of the carrier equipment, and this attract detention charges.
Using such applications as VIZION API, BCOs and forwarders are also able to track a container status or its location in real time. Such high level of transparency equips the organizations with ability to manage the logistics in a way that minimizes their reinvention of these expensive costs.
2. Negotiate Favorable Terms With Carriers
Again, depending with the volumes that you as a shipper transport, you may be given some extra free time by the carrier. This can go a long way of minimizing your liability to demurrage and detention even if it is just a one or two day extension. Not all carriers want to discuss this aspect and often their approach depends on the amount of business one has. By engaging in discussions with a carrier, high volume shippers may hold more clout in negotiations compared to smaller shippers, however, it’s never a bad idea to open a conversation.
3. Maintain Clear Communication With Stakeholders
More often this is the cycle that cargo has to go over from the time it gets shipped from the port till it gets to its final place and due to misunderstanding from the many people involve with the transport say the cycle may take long. Has this role focused on keeping open communication between the company and customers, suppliers, and third-party logistics providers? By ensuring that correct and well-organized shipping container identifiers are shared to all parties and by applications like VIZION API, then respective operational harmonies are maintained and the probabilities of coming across operational holdups that attract further charges are lowered.
4. Prepare Thoroughly for Customs Clearance
Exorbitant customs clearance delays are still a major causative agent to demurrage as well as detention fees. To ensure this does not occur, ensure that all the paperwork is well done, and submitted on time. It will also help avoid the cases where you run into surprises such as customs processes and port regulations. Energy commitment concept is well illustrated when preparing for customs so that there can be a reduction in cost energy due to delays.
Detention and Demurrage Charges Across Major Shipping Lines
Detention and demurrage (D&D) charges differ significantly between carriers, with each line setting its own fee structures. Alongside the mitigation strategies discussed earlier, BCOs and freight forwarders can minimize their shipping costs by selecting carriers known for lower D&D charges. Below is a comparative analysis of average D&D fees for prominent shipping lines, calculated for a single standard container held for 14 days:
Rank | Shipping Line | Average D&D Charges (14 Days, Single Standard Container) |
1 | Yang Ming | $719 |
2 | Maersk | $595 |
3 | CMA CGM | $567 |
4 | HMM | $513 |
5 | ZIM | $503 |
6 | ONE (Ocean Network Express) | $501 |
7 | Hapag-Lloyd | $465 |
8 | COSCO Shipping | $322 |
This comparison shows that there are still wide fluctuations in charges that could serve as the basis for proper evaluation when choosing service providers by the shippers. To reduce the cost of the detention and demurrage fees, businesses may come up with the following tips focusing on fees and terms of negotiation.
The 10 Most Expensive Ports for Demurrage and Detention Fees
Most shipping lines have D&D clause and not only within the same shipping line but also D&D charges are different from port to port. Below is a ranking of the world’s most expensive ports for D&D fees, based on average costs for holding a single standard container for 14 days across all shipping lines:
Rank | Port Location | Average D&D Charges (14 Days, Single Standard Container) |
1 | New York, USA | $3,182 |
2 | Long Beach, USA | $2,730 |
3 | Los Angeles, USA | $2,673 |
4 | Oakland, USA | $2,325 |
5 | Savannah, USA | $2,210 |
6 | Taiwan | $1,349 |
7 | Hong Kong, S.A.R | $1,062 |
8 | Jakarta, Indonesia | $973 |
9 | Bremerhaven, Germany | $841 |
10 | Hamburg, Germany | $833 |
This data support the necessity of taking port specific D&D fees into consideration in shipping management. These costs are borne by the shipper, and choosing destinations with lower charges or employing sound operational strategies can assist lower down these kind of costs and increase shipper profitability.
The 10 Cheapest Ports for Demurrage and Detention Fees
As with the specific container usage shipping line and port of destination demurrage and detention (D&D) fees do differ but some global ports are widely known to be cheaper. Below is a list of the top 10 ports with the lowest average D&D charges for a single standard container held for 14 days:
Rank | Port Location | Average D&D Charges (14 Days, Single Standard Container) |
1 | Busan, South Korea | $114 |
2 | Zhenjiang, China | $119 |
3 | Yichang, China | $119 |
4 | Rugao, China | $119 |
5 | Quanzhou, China | $122 |
6 | Jeddah, Saudi Arabia | $149 |
7 | Piraeus, Greece | $151 |
8 | Colombo, Sri Lanka | $154 |
9 | Qingdao, China | $202 |
10 | Dalian, China | $211 |
These ports show that it is possible to considerably reduce D&D costs by choosing destination ports more wisely. Companies who are keen on reducing their costs should take a look at these low-cost places as they decide on their business strategies.
Who Bears Responsibility for Detention Charges?
The payment for detention fees often rests on who is at fault for a shipment and basics communicated in a shipping agreement. , but in most cases the shipper accepts the demurrage and can avoid detention fees and charges which may be occasioned while on the export side, whereas the consignee is held liable for the charges on the import side.
But these rules can be broken sometimes. For instance, any kind of time losses due to mistakes in shipping documents, including erroneous or inadequately completed paperwork may change responsibility. If such issues are at the instance and blameworthy of the shipper and if such causes landing delay in the destination port then shipper has to bear the detention fee and demurrage under even import side of the matter.
Stay Ahead of Detention and Demurrage With VIZION’s Advanced Tracking Solutions
In the past demurrage and detention fees were not as commonly charged as they are today. Today, they have turned to be a major cost factor to shippers, freight forwarders BCOs most of which do not have ways of avoiding delays. To cut such fees, you need to have visibility throughout your supply chain from one point to another.
VIZION’s advanced real-time container tracking API provides ocean freight tracking that helps shippers, BCOs, and freight forwarders to know the exact location of their shipping containers rapidly and surely. It improves the overall supply chain awareness and ceiling to an extent that organizations can properly schedule, coordinate and implement their processes. Operations delays are prevented by VIZION’s solution and the disruption they cause as well as the high costs of the fees involved.
Conclusion
Demurrage and detention fees are inevitable elements of supply chain management of the current generation as they form a major portion of globalization of shipping costs between shippers, freight forwarders and BCOs. The key to learning about these charges, their causes, how they are determined, and the differences among shipping lines and ports is the first step to dealing with their cost impact. Understanding these ideas, companies will be aware of what they can do to protect their revenues and ensure the continued, less troubled shipping process.
To reduce delay and avoid extra costs, it is possible to use such measures as use of container tracking information in real time, favorable contracts with the carriers and effective communication between the parties at each stage of realization of a logistic plan. Also, organizational objectives such as complete visibility of the supply chain using tools like the VIZION container tracking API creates a conducive environment for planning as well as executing supply chain management strategies to the later. Such preparedness is important in avoiding effects of operations interruptions and their consequent penalties.
As the environment for shipping and shipping companies continues to becomes even more complicated demurrage and detention charges whilst cannot be fully completely eradicated their occurrence and its resulting cost can greatly be minimized. Those organizations that are committed to being open and prepared and willing to collaborate in a complex global environment will be in a much better position to manage the difficulties of providing logistical support to the various functions while at the same ensuring that they do it in the most efficient and economic manner possible.