The maritime industry has been grappling with significant challenges in recent years, especially concerning the widespread port congestion that has wreaked havoc on a global scale. Events such as the aftermath of the coronavirus pandemic and ongoing Red Sea attacks have shed light on the vulnerability of our supply chain.
In this ever-evolving industry, these occurrences cause delays. Without effective management, these delays can create a ripple effect, resulting in unfavourable outcomes such as additional charges like demurrage and detention. The mere mention of “detention” and “demurrage” in international shipping is often met with collective sighs.
While these charges are undoubtedly necessary, they present substantial hurdles to achieving efficiency in the supply chain and maintaining financial viability. Navigating through these complexities is crucial to ensuring smoother operations and minimizing the adverse effects of unforeseen disruptions.
Quick Insights: Highlights from this blog
- Detention and demurrage charges are costs imposed by shipping lines or terminals when cargo containers exceed the allowed free time for pickup or return.
- Detention refers to the additional time a container or cargo is kept beyond the allowed time frame, while demurrage specifically refers to the additional time a container remains on a vessel beyond the agreed free time for loading or unloading.
- Inefficient operations, port congestion, transportation delays, inadequate planning and communication, customs clearance issues, equipment shortages, and unforeseen events can contribute to detention and demurrage charges.
- The total amount of detention and demurrage billed has increased significantly between Q2 2020 and Q1 2022 but has since decreased. As of Q3 2023, the amount collected is 86% higher than Q2 2020 levels.
- To reduce detention and demurrage charges, consider efficient customs clearance, tracking containers, optimized route planning, and utilizing technology and automation.
- Freight Systems offers services to optimize shipping operations and reduce detention and demurrage charges, including customs clearance expertise, container tracking solutions, and route planning support.
What is the difference between detention and demurrage?
Detention and demurrage charges are costs enforced by the shipping lines or terminals when cargo containers exceed the designated free time for pickup or return. However, it’s important to note that these charges can vary depending on the shipping line, port, and country. Therefore, it is essential for businesses to fully understand the specific terms and conditions outlined by their shipping carriers and take proactive steps to minimize these charges.
For imports, let’s consider an example:
A container is discharged from a ship on March 10th, and the consignee approaches the shipping line to take delivery of the cargo around March 20th. Operating under a standard 7-day free time from the discharge date, the free days lapse on March 16th. Consequently, the line will charge the consignee DEMURRAGE for 4 days from March 17th to March 20th at the rate established by the line. If the client takes an additional 7 days to return the empty container, it is known as DETENTION, which will again be charged at the rate fixed by the line.
For exports, the scenario is slightly different.
Typically, shipping lines offer approximately 5 days of free time for the shipper to collect, load, and return the empty container in its entirety to the port. If there are delays exceeding these 5 days, the line charges DETENTION for the duration the empty or full container is kept with the client. Conversely, should the container be packed but the shipper encounters any impediments preventing shipment, DEMURRAGE will apply at the rate determined by the shipping line until the entire container is dispatched.
*Free time/free days is the period of time that a carrier gives its customers for demurrage and/or detention activities, free of charge.
What is detention?
Detention refers to the additional time during which a container or cargo remains at a terminal, port, or warehouse, surpassing the allocated free days provided by the shipping line. This scenario commonly occurs when the cargo owner or consignee is unable to retrieve or return the container within the agreed-upon timeframe.
Detention charges are imposed to compensate the shipping line for the extended use of their container beyond the designated timeframe.
What is demurrage?
Demurrage is associated specifically with the use of a shipping vessel. It refers to the additional time that a cargo container remains on the vessel beyond the agreed-upon time for loading or unloading.
When the consignee exceeds this allotted free time, demurrage charges are applied as a form of compensation to the shipping line or carrier for the delayed use of their equipment or facilities. Demurrage charges aim to incentivize timely cargo retrieval and promote efficient use of port and terminal resources.
Current scenario worldwide
According to the Federal Maritime Commission, the total amount of detention and demurrage billed has increased roughly ninefold between Q2 2020 and Q1 2022. However, it’s important to note that these indices decreased substantially from their peak through Q3 2023. The amount of detention and demurrage collected is 86% higher than that in Q2 2020, and both the amount billed and the amount waived are roughly 40% higher than Q2 2020 levels.
In terms of dollars, the nine carriers have collected approximately $13.8 billion in detention and demurrage charges between April 2020 and September 2023.
Source: Federal Maritime Commission
Reasons for detention and demurrage charges:
- Inadequate planning and communication: Poor coordination often leads to delays in container pick-up or return. Inefficient planning and communication can result in congested ports and terminals, leading to delays and additional charges.
- Customs clearance issues: Delays in customs clearance procedures can significantly impact the overall shipping timeline. Incomplete or incorrect documentation, customs inspections, and regulatory compliance issues can all contribute to detention and demurrage charges.
- Equipment shortages: Shortages of containers, chassis, or other essential equipment can lead to delays in pick-up or return. When businesses are unable to access the necessary equipment, it prolongs the detention or demurrage period, resulting in additional charges.
- Unforeseen events and natural disasters: Unpredictable events such as strikes, port closures, or adverse weather conditions can disrupt shipping operations, leading to delays and increased detention and demurrage charges.
Tips to reduce detention and demurrage charges
Detention and demurrage charges can significantly impact shipping operations, leading to unnecessary costs and delays. To streamline your shipping process and minimize these charges, consider the following tips:
- Efficient Customs Clearance: Smooth and timely customs clearance is crucial for avoiding detention and demurrage charges. Ensure that all necessary documents are complete and accurate, and work closely with a reliable customs broker to expedite the clearance process.
- Tracking Containers: Keeping a close eye on your containers’ whereabouts can help you stay ahead of potential issues. Regularly track and monitor the movement of your containers to ensure they are reaching their destinations on time. This proactive approach can help you avoid detention charges due to container delays.
- Optimized Route Planning: Careful route planning can have a significant impact on reducing detention and demurrage charges. Analyze your shipping routes and explore options for more efficient and cost-effective paths. Consider factors such as transit times, congestion levels, and port capabilities to identify routes that minimize the risk of delays and additional charges.
- Utilize Technology and Automation: Embracing technology and automation in your shipping operations can greatly assist in reducing detention and demurrage charges. Implement tracking systems, automated notifications, and real-time visibility platforms to streamline communication, enhance efficiency, and promptly address any potential issues that might arise.
Partnering with Freight Systems can be instrumental in reducing detention and demurrage charges. We offer a range of services designed to optimize your shipping operations, including customs clearance expertise, container tracking solutions, and route planning support. With 35 years of expertise and comprehensive services, we can help you navigate through these challenges and minimize the risk of incurring additional charges.
By implementing these tips and leveraging the services offered by FSL, you can streamline your shipping operations, reduce detention and demurrage charges, and ensure a smoother and more cost-effective shipping experience.
To book a shipment, contact us.
