May 20, 2020
Demurrage and Detention: Why It Pays to Know Your Fees
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The coronavirus pandemic by blunting demand, disrupting supply, and prioritizing the delivery of PPE and medical equipment has disrupted the flow of containers globally. Importers that can’t sell their products are stranding their containers on the quay. Others, without sufficient cash on hand, can’t get their cargoes released. Ports—already impacted by the race to deliver PPE—are operating with less efficiency. Gate in/out operations, including truck turnaround are negatively impacted, increasing congestion and raising the likelihood of detention and demurrage fees for everyone.
For all these reasons, now is a wise time to understand why conditions leading to detention and demurrage are on the rise, how the two fees differ, and what steps companies can take to help avoid them.
The Difference Between Demurrage and Detention (Also Known as Per Diem)
Demurrage is a daily storage fee assessed by the terminal when a cargo remains at port after its contracted Last Free Day. Specific charges vary depending on the port and terminal, but can be steep, especially when combined with detention/per diem fees—anywhere from $75-$200 per container, per day, is typical. What’s more, storage charges are often applied on a progressive scale, rising the longer a container dwells at port.
Detention or per diem is the fee the ocean carrier charges for each day past the number of free days a shipper holds the carrier's container outside of the port/terminal. Storing cargo in its container may be a tempting short-term solution, but detention fees can make it a more expensive option than warehousing. For shippers who run up against maxed-out or closed warehouses, there are solutions to help avoid incurring steep fees.
How to Avoid or Reduce Demurrage or Detention Charges
Given the congestion at many ports and warehouses recently, it pays to know how to minimize detention and demurrage charges. Following are a few of the areas where freight forwarders can help.
- Secure off-dock storage or additional warehouse capacity.
- As off-dock storage is less costly than storage in port, Flexport may be able to support alternative storage solutions that will be less expensive.
- Use slower ocean services or detention in-transit products if storage capacity is tight.
- Informing your freight forwarder two weeks prior to estimated time of departure (ETD) will ease planning.
- Explore alternative gateway ports that face less congestion.
- For example, New York instead of Montreal for Chicago, or Rotterdam instead of Antwerp.
- Track your demurrage and detention costs closely to avoid costly surprises
- Little to no visibility into arrival times and container availability can lead to higher detention and demurrage costs. Look for technology and service models that make it easy to track inventory in motion.
The coronavirus has impacted the global flow of containers in ways that make it harder to avoid detention and demurrage fees even as their impact may be felt more keenly than normal. Shippers should take steps now to understand these fees, monitor the conditions that cause them, and take steps to minimize them.
For more information on how to minimize detention and demurrage charges, get in touch.