A shipping company imposes both demurrage and detention fees when a shipper uses cargo containers longer than agreed in a free-time contract. For this reason, the terms are often used interchangeably. However, they are different, and each is charged in a specific circumstance.
What are the key differences between demurrage and detention? And under what circumstances does each apply? In this demurrage vs. detention blog post, you will learn:
- A clear definition and application of each shipping charge.
- Factors influencing demurrage and detention charges to help you manage shipping costs more effectively.
- Simple (yet effective) strategies that can help you completely avoid detention and demurrage fees.
Differences Between Demurrage and Detention Charges
How are demurrage and detention charges different? Let’s find out.
Definition and Application of Demurrage Charges
Shipping lines charge demurrage fees when containers remain inside the port beyond the agreed free time. For instance, say your shipping partner allows a container with your cargo to remain at the port only for five free days after discharge from a ship.
But for some reason, you can only pick up the imported cargo seven days after discharge. In that case, the shipping line will charge you a demurrage fee for the extra two days. Your shipping company determines the demurrage rate.
Demurrage charges can also apply when exporting goods. For example, you may pack and transport a cargo container to the port but fail to ship it on the scheduled day, maybe because of inadequate customs clearance documentation. As a result, the cargo ends up in the container yard. In that scenario, your shipping company will charge you demurrage fees till you ship out the container.
Definition and Application of Detention Charges
Shipping companies charge detention fees when you keep their cargo containers outside the port beyond a specified free time. Detention charges are also called per diem fees. Here’s how they work:
Assume you’ve picked up a container from the port. Your shipping partner allows you only seven days to pick up a loaded container, take it to a warehouse for offloading, and return the empty container to the port. The shipping company will charge you a detention fee if you return the empty container after the free seven days have lapsed. For instance, you will be charged a two-day detention fee if you are late by two days.
Here’s another scenario where detention applies:
When you want to export cargo, a shipping line gives you a standard free time to pick up an empty container from a port, load it with your products, and bring it back to the port for shipping. The shipping line charges a detention fee if you take longer than the allotted free time to return the loaded container to the port.
Essentially, shipping lines charge detention fees when a cargo container is outside the port for longer than the agreed free period. On the other hand, demurrage is charged when a container stays insidethe port for longer than the agreed free period.
Factors Influencing Demurrage and Detention
Several factors influence demurrage and detention charges, and it’s essential to understand these variables to manage costs effectively. These include:
- The number of days after free time: Typically, demurrage and detention fees are charged daily and per container. That means the longer a container stays inside or outside the port beyond the allowed free days, the higher the total detention or demurrage will cost.
- Your shipping company’s policies: Different shipping lines have varying free time policies, which can significantly impact charges. For instance, if you foresee needing to use a container longer than the allotted free time, shipping companies like Maersk and CM CGM allow you to buy a Free Time Extension package. According to Maersk, this can be up to 80% less than letting the daily detention and demurrage charges accrue.
- Port congestion: Congested ports can lead to delays, especially if their storage facilities lack a robust warehouse management system that’s essential for efficient cargo handling. Delays can skyrocket demurrage charges.
- Custom clearance issues: Exports and imports often need extensive custom clearance documentation to show compliance with a country’s customs laws and regulations. If you don’t have the necessary documentation, yet your cargo has already arrived at the port, you may delay picking it up. This leads to demurrage charges.
Implications and Management of Demurrage and Detention Charges
Demurrage and detention charges have positive and negative implications. Here’s how they may impact your shipment.
Impact of Demurrage and Detention on Supply Chain Efficiency
By charging demurrage and detention, shipping lines encourage shippers to pick up and return containers as quickly as possible to avoid extra fees. This can help reduce delays by making the supply chain more efficient, as goods will flow smoothly with minimal disruptions.
Demurrage and detention are a win for companies in the shipping industry that benefit from the charges but are a nightmare to shippers. Both fees typically accumulate daily and can quickly become very expensive. The good news is you can avoid them completely or at least reduce them to the minimum.
Strategies to Avoid and Manage Demurrage and Detention Charges
Effective strategies to avoid and manage the cost of demurrage and detention include:
- Complete custom clearance before your cargo arrives. Pre-arrival customs processing allows you to clear your goods, normally days before they arrive at the point of entry. This ensures your cargo will not be stuck at the port because of customs clearance issues, helping to avoid demurrage charges.
- Negotiate for extra free days. If an issue may occur that’s outside of your control and will cause delays with container handling, you can request your shipping company to extend the free time for returning or picking up a container. Some, such as Maersk and CM CGM, allow you to buy a free-time extension package that costs less than leaving detention charges to accumulate.
- Plan efficient transportation. Coordinate transportation schedules to ensure that cargo is picked up from the port or terminal promptly upon arrival and returned within the agreed free time. Efficient transportation planning helps minimize delays.
- Leverage tracking technologies like Surgere’s INTERIUS. The software keeps you on top of the location and status of products and improves your returnable container management. This real-time visibility into your supply chain helps prevent cargo from getting stuck in transit or storage, eliminating delays that can increase detention costs.
Optimize Supply Chain Performance Through Efficient Charge Management
To effectively manage demurrage and detention fees in your supply chain, plan logistics meticulously and leverage technology like Surgere’s INTERIUS for warehouse optimization. This helps eliminate delays when you want to load a cargo container and quickly send it back to the port before the free detention time elapses.
Contact Surgere today to learn how our software helps you cut down shipping costs and improve supply chain efficiency.
