The Causes and Effects of Demurrage

Importers and exporters are facing a problem: demurrage. It’s often a surprise for them — both in terms of suddenness and financial loss. Fall 2014’s peak season proved how port congestion can make steamship lines increase demurrage charges and worsen the situation for importers. Careful planning and monitoring of loading/unloading operations and the drayage process can help shippers avoid demurrage fees.

What is Demurrage?

Demurrage is a fee charged by a carrier, port, or railroad company for the storage of containers or rail cars that exceed free time offered for loading/unloading. Once free time is expired, the shipper is charged a daily demurrage fee until the cargo is removed from the terminal. Charges differ based on the terminal or carrier and typically range from $75 to $150 per container, per day, during the first 5 days and can go even higher if the container stays longer.  

Do not confuse Demurrage with Detention fee:
Demurrage relates to cargo (while cargo is in the container/railcar) and is paid to the port. It is charged for the storage of containers with cargo that exceeds free time at the terminal.
Detention (per dime) relates to equipment and is paid to a freight carrier company. It is charged when the shipper keeps the container beyond free time or when trucker waits extra time during loading/unloading containers

Causes of Demurrage

Even if the shipper does its best to plan loading/unloading and has all necessary paperwork, there are other external factors that could affect deadlines and cause demurrage. Late freight release or custom release of containers, damaged containers, or overweight containers are some reasons a shipper could be charged a demurrage fee.

Although, the most common reasons of demurrage are trigged by a shipper’s actions:

1. Delay in payment. If the shipper paid for only part of a shipment, the vessel can refuse to release the freight until paid in full. Any delay in payment will lead to cargo detention at the port, which in turn causes demurrage charges.
2. Paperwork errors. Shippers may not succeed in preparing all initial documents for clearing customs process – after all, the procedures can be confusing. To clear shipments through US Customs, shippers need four documents: a Commercial Invoice, a Bill of Lading or Airway Bill, a Packing List, and an Arrival Notice. Although, some specific goods require additional documents. Without these documents, demurrage charges will occur.

6 Tips for dealing with Demurrage

• Share cargo and shipment delivery instructions with all parties (carrier, vendor, third party provider) in advance, to plan smooth loading/unloading process and avoid delays.
• Provide a back-up plan for the carrier’s driver in case of port congestion – have alternative routes for a tight situation and be able to adjust.
• Large shippers could ask for extended free time (large shipper status starts at a volume of 800 containers a year).
• Understand all required documents and perhaps hire an experienced broker or custom agent that will help eliminate paperwork-related problems.
• Consider the automation of demurrage management by monitoring the containers/cargo as they move through facilities.
• Advanced planning and streamlining trading processes are the keys for minimizing the risk of demurrage charges.

Love this ? Read these posts next:

• The 6 Step Freight Claim Process
• A Comprehensive Guide to Completing a Bill of Lading
• Drayage: Truck Turn Time
• Supply Chain Disruption: 3 Future Solutions

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