Some hidden costs in the supply chain can slowly drain your profits if not taken care of. Demurrage costs, for example, might seem small at first but can add up to significant amounts if you fail to address the issue on time. Understanding demurrage costs, common causes, and what you can do to minimize these charges can help you optimize performance and increase the profit margin.
Understanding Demurrage
Demurrage is a supply chain term that refers to fees charged by a shipping company when a container remains at the port beyond the agreed period. Most ports or shipping companies give importers limited free time to pick up their containers. If the container stays beyond this time, they incur extra costs. These charges are put in place to prevent congestion at the ports.
While both demurrage and detention charges involve penalties for container delays, they apply in different scenarios. For example, companies attract demurrage fees when they fail to collect their container within the allocated time frame. On the other hand, a company attracts detention charges when it fails to return the container within the set period.
Common Cause of Demurrage
Understanding the root causes of demurrage will help you improve operational efficiency and avoid unnecessary expenses. Below are common reasons why demurrage occurs.
Payment Delays
Some importers make partial payments and only clear the remaining amount once they receive their containers. Sometimes, the shipping company refuses to release the container until it receives the full amount. Payment delays from the importer’s end can lead to the detention of the container at the port.
Custom Clearance Delays
There is plenty of paperwork one needs to complete when importing goods. The customs authorities can withhold a container if you submit incomplete or inaccurate documents. This can attract extra charges when a company fails to clear the container within the set period.
Miscommunication
A company can attract demurrage fees if the coordination between supply chain partners is poor. This especially happens when the importer notifies the trucking company late and finds it unprepared to pick up the container.
Port Congestion
Some ports have limited space, which can be problematic, especially during peak seasons. The ports can face backlogs, and your cargo can get stuck in line waiting for it to be offloaded or cleared.
Bad Weather
Severe weather conditions such as heavy rains, high winds, fog, or storms can make port authorities suspend operations. Suspending the operations can cause backlogs that might take time to clear. As a result, containers may remain at the port for extended periods before being collected.
Poor Tracking of the Container
Many companies attract demurrage fees if they lose visibility of their container’s status. When companies don’t know where their containers are or what step they’re at, they can’t respond quickly or stop delays from happening.
Understanding Demurrage Charges
Since some ports have limited space and resources, keeping many containers can disrupt operations. Shipping companies implement demurrage charges to prevent backlogs and ensure the cargo flows efficiently. In most cases, the importer or the person picking up the container is responsible for paying demurrage fees.
Frequent demurrage charges can affect your company in many ways, including:
- Increasing Operating Costs: Demurrage charges can affect a company’s profit margins, especially when the charges accumulate across multiple shipments.
- Disrupting Inventory Flow: Failing to collect a container on time can delay the arrival of goods at distribution centers, which can cause missed sales opportunities.
- Impacting Responsiveness and Agility: It gets harder for a company to react swiftly to demand changes, reroute shipments, or manage unforeseen disruptions.
- Affecting Carrier and Vendor Relationships: Frequent delays and fee disputes can lead to tension with logistics partners and service providers.
- Damaging Reputation: Persistent inefficiencies and late deliveries can impact on-time in-full (OTIF) performance metrics and damage the company’s reputation.
Strategies To Avoid Demurrage Fees
Avoiding demurrage fees requires proactive strategies and using the right yard management solutions. Here are proven strategies you can use.
Enhance Container Visibility
Many companies attract demurrage fees because they don’t know the importance of supply chain visibility. Supply chain visibility allows companies to track their containers’ location, status, and estimated arrival time.
Companies should invest in reliable container tracking technologies that support automated alerts to track and notify them when the customs offload and clear their container. They can also integrate the visibility platform with the transport management system (TMS) to streamline the process.
Negotiate Terms With Carriers
Negotiating with the shipping company for favorable terms can help a company minimize demurrage charges. If the container is still at the port or customs, one can request deadline extensions. If you’re a regular customer, you can request capped demurrage fees. You can also compare offers from different carriers and work with the most favorable terms.
Communicate With Stakeholders
One can minimize demurrage fees by efficiently communicating with all stakeholders. Poor communication can lead to delays, missed pickups, and unclaimed containers sitting at ports.
Use shared digital platforms to facilitate smoother communication and notify stakeholders about shipment status, documentation readiness, and scheduling. Efficient communication helps you reduce reaction times, prevent confusion, and respond quickly to challenges. It also minimizes human errors that could delay pickup times.
Implement Advanced Planning & Scheduling
Most companies attract demurrage fees because of human errors. Adopting a more structured and predictive planning model allows your company to avoid potential delays and reduce risk. Use predictive estimated arrival times (ETA) and carrier schedules to prepare clearance documents and book inland transport in advance. Additionally, establish pre-clearance procedures with customs so they can review and approve your documents before the container arrives.
Avoid Demurrage Costs With Surgere’s Yard Management Solutions
High demurrage costs are a sign of inefficiencies across the entire supply chain. Surgere’s yard management solutions allow you to act before delays turn into charges. From real-time tracking to automated alerts, we offer solutions that keep your business moving. Don’t let demurrage be the hidden leak in your supply chain. Partner with us today and turn what was once a recurring cost into a competitive advantage.
