How to eliminate your Detention & Demurrage hidden costs?

September 26, 2022

One of the most overlooked costs in international logistics and supply chain is not the fee for loading or unloading a container, or transportation, but the Detention & Demurrage fees. These charges are applied to shipments that are delayed or detained at some of the shipping stages.

It is vital to reduce Detention & Demurrage charges to save margins and increase profitability on a shipment. This article will tell you how.

What are Detention & Demurrage costs?

Detention costs

Detention applies when a container is used outside the terminal. The cost of Detention varies by location, shipping company, and container type, and is based on both the number of days a container is held and its size.

During export, Detention charges begin with the pickup of an empty container from the container yard and end with the arrival of a full container at the port terminal. During import, it begins when the full container is picked up from the terminal, continues during delivery, and ends when the empty container is returned to the container yard.

Demurrage costs

Demurrage costs are charged for using the container equipment while inside a terminal. It is charged per container and per day, and the amount varies depending on the location and the type of the container.

Demurrage begins during exports when the container enters a terminal and ends when it is put onto a ship or a freight plane. Depending on the container's type and location, ocean and air carriers decide when Demurrage ends.

During import, Demurrage begins when the ship or freight plane arrives at the terminale and the container is unloaded. Demurrage period start date depends on the carrier and the container's type, and it stops when the container is picked up from the terminal for delivery.

The method by which time is added to your total based on your consumption is the primary distinction between Detention and Demurrage. Detention is measured in time based on how long the container is used away from the terminal. Demurrage is calculated based on how long a container is held in a terminal.

For instance, a 7-day Detention charge may include 3 days of grace and 4 days of Detention penalties. Whereas, a 5-day Demurrage charge will include a 2-day grace period followed by 3 days of Demurrage charges.

Inverted definitions in some countries

The world of Supply Chain is complex and can be confusing, including about Detention & Demurrage. Indeed, in some countries like in South America, the use of those terms is inverted - Demurrage refers to the time containers spend outside the terminal while Detention to the time spent inside the terminal. The right meaning is defined by the vessel owner or airline according to the region.

Causes of Detention & Demurrage

Some of the major causes of Detention & Demurrage charges may include:

  • Customs clearance
  • Cargo inspection
  • Release of cargo at destination
  • Unreachable receiver

Including some linked to documentation:

  • Incorrect documents
  • Late reception of documents
  • Loss of documents

Consequences of Detention & Demurrage costs

Other than throwing your supply chain out of gear, these hidden costs can damage your business in a range of other ways.

Potential to hurt bottom lines in a big way

Detention & Demurrage costs are the hidden costs that companies have to pay for. It is often difficult to forecast these logistics charges, and companies have to deal with them when they happen. As a result, companies are reactive to penalties instead of being proactive in solving the situation in advance because of lack of this visibility. As these charges begin to pile up, they can take a big chunk out of annual profits.

Kills margins on products and projects

Export is not only complex, but risky too due to Detention & Demurrage fees. One occasional shipment with no experience in the preparation can lead to a seriously negative scenario, saying with high Detention & Demurrage fees. Some products and some projects have so little margin in their price, that those fees can bring it down to zero if not lead to a negative margin.

Can spoil growth aspirations

Large enterprises can afford to be frugal with their planning, as they can absorb Detention & Demurrage charges, but this is not an option for small and medium-sized enterprises. As a result, several small and medium companies tend to avoid exporting altogether in a bid to shield themselves from any potential risk.

How can businesses avoid Detention & Demurrage costs?

What are the measures small and medium-sized enterprises can take to avoid risks? There are a number of steps that can be taken to help mitigate risk, some of which include:

Tracking containers using a visibility platform

The costs of Detention & Demurrage can be reduced through the use of real-time visibility to locate and track the container at all times. With a platform with a real-time tracking feature, one can

  • Explore alternate lanes to keep the cargo moving and predict congestion at terminals.
  • Get the alerts in real-time to predict if and when shipment will get Detention & Demurrage charges.

Planning and preparing in advance

Dispatch your cargo in advance with a bit of buffer time. Have proper documentation readily accessible and pay duties in advance specific to the geography or the materials in the container. Inadequate or not submitting the documents on time will result in unnecessary Detention & Demurrage costs. Secure customs clearance before the shipment’s arrival. Share delivery instructions with all stakeholders in advance to save valuable time. For instance, communicating with the trucking company well in advance could save time, especially in busy terminals.

Use the data

There is a vast amount of data flowing through today’s global supply chain. With such an enormous amount of data at your disposal, one can make informed business decisions that could prevent any unnecessary expenses, including Detention & Demurrage. Understanding the performance of your carriers and identifying the best performing carriers lane-wise and identifying the best port congestion scenarios well in advance. Identify risky carriers or risky terminals that would delay your shipments.

Enhanced Detention & Demurrage trackers

Prioritise the containers that are at risk of incurring Detention & Demurrage fees. Receive real-time messages and alerts for dwell time. View and compare the lane-wise performance of other carriers to make an informed decision.

Maintain and manage essential shipping documents on a cloud-based repository, and effortlessly collaborate with other stakeholders with the help of customisable workflows. This timely communication and digital documentation will minimise unnecessary D&D expenses to a larger extent. Obtain detailed shipment reports, aiding data-driven decision-making.

Analysing the goods

Find the kind of goods you have, the terminal to which they will be delivered, and the routes they pass through. If you know your goods will take quite some time to pack or unload, let your driver know ahead of time, so they can prepare for any delays.

Implementation of Automation

Using the new technology to boost the flow of your processes, even when you are a freight forwarder. It may not only help you reduce time-consuming manual operations, but it will also assist you in ensuring conformity, efficiency, deliverability, and profitability.

Planning

Logistics are volatile, and delays in shipments are frequent. Companies often end up spending more money than they had budgeted for as a result. Ensure that the package arrives on schedule. Prepare carefully ahead of time. Give yourself some time. Consider probable delays while scheduling the loading and unloading times.

Preparing documents well in advance

Organise the paperwork for customs clearance. Make sure the information on all documents, including your invoice, bill of lading, and certificate of origin, is perfect. Inconsistent information will not only cause issues during the customs process, but will also prolong the shipping procedure.

Negotiate

Bargain the Detention & Demurrage fees before taking it as it is.

Ask for free days

Talking with port authorities or shipping companies for negotiation. For example, one might ask for extra free days for the goods and avoid paying for Detention & Demurrage. Officials frequently provide shippers with a lot of cargo extra time. Just need to have written in the contract.

Have a backup plan

Always be prepared for anything and always have a Plan B. One may reduce the cost of Detention & Demurrage if they have got a backup plan in place.

Communicating with efficiency

Make sure you stick with the communication protocol. Ensure that all of the collaborators, customs officers, and terminal authorities are in agreement. It will aid in avoiding any unneeded delays.

Using data to work

Use past data to identify Demurrage hotspots and learn more about their causes. Compare the actual time the cargo will spend at particular terminals to the reserved time slots. Stop spending too much and modify your plans depending on actual data.

Mitigate your Detention & Demurrage costs with Holocene

Holocene is developed using cutting-edge technology artificial intelligence to ease cross-border Supply Chain operations. This patent-pending technology eliminates errors and mitigates risks of delays and Detention & Demurrage.

With Holocene SaaS, you can:

  • Transform and make your trade lane SOPs actionable, while flagging them if any Trade & Customs policy has changed, making sure you make no error from the beginning;
  • Optimise, digitise, and automate document preparation, including automatic quality control of the documentation, making sure you make no error at this end;
  • Which in turn gives the data to the artificial intelligence to estimate the risks of delays and Detention & Demurrage due to other reasons than the documentation errors. If any, a simple alert will catch your attention and spark your proactivity.

If you want to learn more about how Holocene can assist you keep your Detention & Demurrage costs to a minimum, book a demo to find out why other businesses trust Holocene.

Romain Fayolle

Co Founder & Managing Director

Strong with 8 years of experience in different international industries, Romain wants to connect Logistics & Supply Chain leaders and professionals with the game-changing technology