Detention and demurrage charges are some of the most overlooked costs in international logistics and supply chain management. These charges are levied on shipments that are either delayed or held up at various stages of the shipping process. And despite their significant cost, these charges often go unnoticed until they begin to accumulate.
Detention and demurrage charges can significantly increase the total cost of shipping, often catching companies off guard. These are also unpredictable and expensive costs, making them a major concern for companies, which is why most companies have policies in place to reduce these charges and improve their shipping operations.
Their teams do this by understanding all charges and implementing strategies to minimize their impact. In this article, we'll provide practical methods for reducing these hidden costs.
What are Detention & Demurrage costs?
Demurrage and detention charges are incurred when cargo remains in a port beyond the designated "free time" period. The length of this period varies by port and shipping line but generally ranges from 3 to 7 days.
Detention costs
Detention charges are incurred when a container is used outside of its designated terminal. These costs can vary by location, shipping line, and container type, and typically depend on the number of days a container is held and its size.
During export
Detention charges begin when the empty container is picked up from the container yard and end when the full container arrives at the port terminal.
Example:
A company picks up an empty container from the container yard on June 1 and fills it with goods over the next 10 days. The full container is then delivered to the port terminal on June 11. If the free period for export containers is 5 days, the company would incur 5 days of detention charges for holding the container beyond the free period (from June 6 to June 11).
During import
Detention charges begin when the full container is picked up from the terminal, continue during delivery, and end when the empty container is returned to the container yard.
Example
A company picks up a full container at the terminal on July 1 and delivers the goods to its warehouse over the next 8 days. The empty container is then returned to the container yard on July 9. If the free period for import containers is 3 days, the company would incur 5 days of detention charges for holding the container beyond the free period (from July 4 to July 9).
Demurrage costs
Demurrage is the cost of using container equipment while it is in a terminal. These costs are charged per container per day, with the amount varying by location and container type.
During export
Demurrage charges begin when the container enters the terminal and end when it is loaded onto a ship or cargo plane. The exact end point of demurrage depends on the container type and location as determined by the ocean or air carrier.
For example:
If a container enters the terminal on August 1 and is loaded onto a vessel on August 10, with a free period of 5 days, demurrage is charged for the remaining 4 days (from August 6 to August 9).
During import
Demurrage begins when the ship or cargo plane arrives at the terminal and the container is unloaded. The start date of the demurrage period depends on the carrier and container type and ends when the container is picked up at the terminal for delivery.
For example:
If a ship arrives and unloads a container at the terminal on September 1st and the container is collected on September 8th, with a 3-day free period, demurrage charges will apply for the remaining 4 days (from September 4th to September 7th).
The difference between detention and demurrage:
The primary difference between detention and demurrage is the calculation of time-based on container usage. Detention is measured by the time a container is used away from the terminal, while demurrage is calculated based on the time a container is held within a terminal.
Examples:
- A 7-day detention charge might include a 3-day grace period followed by 4 days of detention charges.
- A 5-day demurrage charge might include a 2-day grace period followed by 3 days of demurrage charges.
Driver detention fees
When a driver arrives at a warehouse to deliver or pick up a shipment, they typically have a limited window of time (usually one to two hours) before they are expected to depart. If the shipper or receiver does not fully load or unload the shipment within this time frame, the carrier will charge the driver detention fees.
The situation can become even more complicated because shippers may incur multiple charges for the same shipment, or even simultaneously.
For example, consider an import container arriving at the Port of Los Angeles. If that container remains unloaded in the container yard for 3 days longer than allowed, the shipper could face demurrage charges from both the port authority and the shipping line that owns the container.
A similar scenario can occur with detention charges.
For example, the same container arrives at its destination, a warehouse in Denver, later than scheduled, and the warehouse is not ready to unload it immediately. In this case, the shipper or receiver could be responsible for both equipment detention charges and driver detention charges.
Inverted definitions in some countries
Detention and demurrage costs add additional confusion to an already complex supply chain. For example, in countries in South America, the terms have an inverted definition. So, demurrage refers there 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
While unpleasant, demurrage and detention charges serve an important purpose. They’re designed to encourage goods quickly through set channels and push shippers to meet their schedules. Demurrage charges also compensate carriers for the extra pay truckers receive when loading or unloading takes longer than expected.
To avoid these charges, it's important to understand the common causes. For example, delays in customs clearance can result in detention and demurrage charges; additional time required for cargo inspection can prevent timely loading or unloading; delays in releasing cargo at its destination can result in additional charges; and, if the consignee cannot be reached, the shipment cannot be processed on time, resulting in charges.
Documentation issues can also cause delays and incur additional charges. Documentation errors can prolong customs clearance, while delays in receiving required documents can stall the shipping process. Lost documents can also cause significant delays in obtaining replacements.
Other factors that contribute to these charges include
- Labor Shortages or Strikes: Strikes or labor shortages among dockworkers, truck drivers, or other transportation workers can stall movement.
- Lack of equipment: Lack of equipment, can cause backlogs. For example, the ongoing shortage of chassis has resulted in many containers sitting idle at ports, accumulating fees.
- Poor communication between shipper and receiver: Miscommunications about cargo arrival and departure times can result in detention and demurrage charges.
- Legal driving hours: Truck drivers must adhere to legal driving hours. A mismatch between legal driving hours and delivery schedules can delay the return of empty containers to the port.
- Severe weather and natural disasters: Weather-related events such as hurricanes, earthquakes, and floods can cause significant disruptions at ports, terminals, and warehouses, resulting in delays and additional charges.
Consequences of Detention & Demurrage costs
In addition to throwing your supply chain out of gear, these hidden costs can hurt your business in many other ways. They can significantly increase your operating expenses, impacting your overall profitability. In addition, these fees can strain relationships with customers and partners due to delays and unmet expectations.
Potential to hurt bottom lines in a big way
Exporting is not only complex, but also risky due to detention and demurrage fees. A single shipment with poor preparation can result in significant fees that can have a serious negative impact.
For raw materieals and projects, these fees can reduce profitability to zero or even result in a negative margin.
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 companies can afford to be less meticulous in their planning because they can absorb detention and demurrage charges. However, this isn’t a practical option for small and medium-sized enterprises (SMEs). As a result, many SMEs tend to avoid exporting altogether to protect themselves from potential risks.
How can businesses avoid Detention & Demurrage costs?
Several steps can help mitigate these costs and ensure smoother operations. By implementing proactive strategies and leveraging technology solutions, SMBs can effectively manage and reduce the risk of incurring detention and demurrage charges.
Tracking containers using a visibility platform
The costs of detention and demurrage can be significantly reduced through real-time visibility, which allows for constant tracking of containers. Using a platform with real-time tracking capabilities offers several advantages:
- Alternate Lanes: Explore different routes to keep cargo moving and avoid congestion at terminals.
- Real-Time Alerts: Receive notifications to predict if and when shipment might incur detention and demurrage charges.
When the exact arrival time of cargo is uncertain, avoiding these fees becomes challenging. Estimated times of arrival (ETAs) are often inaccurate, and unforeseen delays are common. Investing in supply chain visibility solutions can help provide a transparent view of the supply chain, enabling constant tracking of the location and status of ocean freight, thus helping to reduce overall detention and demurrage fees.
By leveraging the right technology, companies can optimize their supply chain in several ways:
- Track important documents: Ensure all necessary documentation is in order and up-to-date.
- Supply chain visibility: Achieve real-time tracking of containers to manage and mitigate potential delays.
Planning and preparing in advance
By planning and preparing in advance, shippers can avoid unnecessary fees and help move their logistics processes along faster. Below are some practical planning strategies to help avoid unnecessary detention and demurrage costs.
- Dispatch cargo in advance: Schedule shipments with a bit of buffer time to account for potential delays.
- Prepare documentation: Make sure all necessary documents are readily accessible and pay any required duties in advance, tailored to the specific geography or materials in the container. Missing or late documents can lead to unnecessary costs.
- Secure customs clearance: Obtain customs clearance before the shipment arrives to avoid delays.
- Communicate delivery instructions: Share detailed delivery instructions with all stakeholders well in advance to save valuable time. For instance, early communication with the trucking company can be especially beneficial in busy terminals.
Use the data
Today's global supply chain generates an enormous amount of data. By leveraging this data, companies can make informed decisions to avoid unnecessary expenses, including detention and demurrage charges.
Analyzing carrier performance and identifying the best-performing carriers for specific lanes can help optimize shipping routes. In addition, data can help anticipate port congestion scenarios and identify high-risk carriers or terminals that could delay shipments, which are critical steps in mitigating potential risks and ensuring on-time deliveries.
Enhanced Detention & Demurrage trackers
Trackers can receive real-time dwell notifications and alerts to prioritize containers at risk of incurring detention and demurrage charges. They can also be used to view and compare carrier performance across lanes to make informed decisions.
Tracking tools can also maintain and manage critical shipping documents in a cloud-based repository and collaborate seamlessly with stakeholders through customizable workflows. Communication and digital documentation can significantly minimize unnecessary detention and demurrage expenses. Plus, get detailed shipment reports to support data-driven decisions.
Analysing the goods
Beyond logistics and documentation, understanding the nature of your goods and their specific requirements can further streamline the shipping process and help avoid unnecessary charges. Here's how to analyze and prepare your goods for shipment.
- Identify your goods, terminal, and routes: Determine the type of goods you are shipping, the terminal to which they will be delivered, and the routes they will travel. If your goods require extra time for packing or unloading, let your driver know in advance so he can prepare for any delays.
- Palletize and shrink-wrap freight: For both imports and exports, it is important to palletize and shrink-wrap your freight.
For example, if a shipper plans to ship 600 cases in a container, it can take hours to load and unload each case individually. By contrast, securing those 600 cases on 18 pallets could reduce the loading and unloading time to as little as 30 minutes. Working with an experienced custom crating company can help determine the most efficient packaging methods for your goods.
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 is inherently volatile, and shipment delays are common. As a result, companies often spend more money than they budgeted. Careful preparation and time management are critical to mitigate these issues and ensure that packages arrive on time.
Here's how to better manage your logistics to avoid unexpected costs:
- Plan for delays: Recognize that delays are common and often unavoidable. Factor in potential delays when planning loading and unloading times to avoid unexpected costs.
- Allow extra time: When finalizing your shipping schedule, allow as much time as possible for delays and exceptions. Sending your freight as early as possible creates flexibility in your schedule to account for bad weather, backlogs, or other unforeseen delays.
- Schedule loading times wisely: Apply the same cautious approach to scheduling loading times for your freight. By allowing extra time for these activities, you can better manage unexpected disruptions.
Preparing documents well in advance
Organize paperwork for customs clearance to avoid delays and additional costs in the shipping process. Ensure that all documents, including invoices, bills of lading, and certificates of origin, are accurate and consistent. Inconsistent information can cause problems with customs clearance and prolong the shipping process.
Customs issues can also cause significant delays once your cargo arrives at the port if your documentation is not in perfect order. Start by thoroughly understanding the customs procedures and port regulations you need to follow, as they can vary significantly from country to country and port to port. Next, ensure that all required paperwork is complete, accurate, and error-free. While not the most challenging aspect of supply chain management, efficient customs management is essential to avoid delays that can result in high demurrage charges.
On average, international freight shipments require between 9 and 18 documents, with some shipments requiring even more. Keeping track of all these documents can be challenging, but even a simple error on a single document can cause delays that result in demurrage and detention charges.
Investing in a digitized documentation solution to ensure that all your documents are complete and accurate. Digital solutions can help maintain the accuracy and completeness of your paperwork, reducing the risk of delays and additional costs.
Negotiate
Before accepting detention and demurrage charges as they are, it's important to try to negotiate. Ports and shipping lines typically allow a window of time after cargo has been discharged from the vessel before these charges are assessed. However, it's possible to negotiate a longer "free time" window in advance. In addition to negotiating for a longer pickup window, you can sometimes negotiate for lower fees.
The adage "if you don't ask, you don't get" applies here. If you anticipate problems that could prevent the container from being picked up on time, you can ask the steamship line, terminal, or port for an extended free time.
Ask for free days
Negotiate with port authorities or shipping lines for better terms. You can request additional free days for your goods to avoid paying detention and demurrage charges.
Officials often grant additional time to shippers with significant cargo volumes, but it is important to have these terms documented in the contract.
Have a backup plan
Being prepared for every eventuality and having a Plan B can help reduce costs. The more options you have when your primary plan falls through, the better equipped you'll be to handle exceptions and delays that could result in significant charges. Having alternative trucking services and terminals in place can also give you more flexibility to respond to issues as they arise.
While the best way to minimize the impact of demurrage and detention charges is to avoid them altogether, this is not always possible. When selecting ports and shipping lines to work with, it's important to consider their detention and demurrage rates in case you need to pay these fees. While this may not be the most critical factor in choosing transportation partners, it is a consideration worth evaluating before signing a contract.
If your inland facility is not immediately ready to receive your cargo, consider moving it to an off-port facility to avoid demurrage charges. In some cases, paying for third-party storage is less expensive than paying for port demurrage.
Remember, however, that you will still be charged demurrage until the containers are returned to your shipping line. Based on these factors, evaluate whether out-of-port storage is a cost-effective solution.
Communicating with efficiency
Maintaining clear and consistent communication is critical to avoiding unnecessary delays. Make sure all employees, customs officials, and terminal authorities are on the same page. This alignment helps prevent avoidable delays.
Import shippers can submit entry documentation up to five days before their container arrives at the port. Pre-clearing your entries within this five-day window can eliminate a potential source of demurrage charges. However, during congested periods such as the height of the supply chain crisis, pinpointing this window can be challenging.
To eliminate the guesswork, consider using a customs broker to manage your customs clearance on your behalf. This professional assistance can help ensure timely and accurate processing of your shipments.
Using data to work
Use historical data to identify demurrage hotspots and understand their causes. Compare actual cargo time spent at specific terminals with reserved time slots. Adjust your plans based on real data to avoid overspending.
Mitigate your Detention & Demurrage costs with Holocene
Holocene was developed using cutting-edge artificial intelligence technology to streamline cross-border supply chain operations. Our solution eliminates errors and reduces the risk of delays, detentions, and demurrage.
With Holocene, you can:
- Transform your trade lane SOPs and make them actionable, while flagging changes in trade and customs regulations to avoid errors from the start.
- Streamline, digitize, and automate document creation, including automated quality control to ensure error-free documentation.
This process provides data to the artificial intelligence system to assess the risks of delays, detention, and demurrage beyond documentation errors. If risks are detected, a simple alert will prompt your attention and proactive response.
To learn more about how Holocene can help you minimize your detention and demurrage costs, book a demo and discover why other companies trust Holocene.
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