What is demurrage and detention in shipping for buyers?

Container terminals have limited capacity when they are made available to cargo owners. Hence, it is crucial for the parties involved to calculate when containers will be picked up, unloaded and returned to the port once they are empty.

The port or shipping companies charge detention and demurrage fees to keep the handling of countless containers in constant flow. But what exactly are demurrage and detention in shipping? Let us find out.

What is Demurrage?

Demurrage in shipping is a fine to the buyer, which the freight provider or courier levies if they do not pick up their goods away from the terminal or ports. The terminal and port only allow importers or buyers to keep their goods or containers in a port for a limited number of free days.

If a buyer fails to pick up their goods in an allocated free period, then after that, charges are applied. The allocated free period is usually between 3 to 7 days, depending on the port and agreement. This free period usually allows time for paperwork, customs clearance and other processes before the goods are moved.

Causes of Demurrage Fees

Some of the common causes of demurrage fees are:

-Custom Clearance Delays: One of the main reasons for demurrage fees is customs clearance delays. When there have been delays in getting customs clearance, the goods or container can not leave the terminal, which further increases the time spent in the port or terminal, causing the demurrage fees.

-Incomplete Documentation: Incomplete documentation is another reason for the demurrage fees. If the submitted documents or paperwork are not up to mark, it can hold up the container’s release from the terminal.

-Insufficient Storage Space: If the terminal is congested or occupied and lacks space for your container, this can also result in the holding of your container, which can result in demurrage fees.

-Unforeseen Logistical Issues: Another reason for demurrage charges is unforeseen logistical issues, such as mechanical breakdowns, bad weather, etc., which cause logistic delays within the terminal or port.

What is Detention?

Detention is also known as a per diem fee, which is basically another form of shipping fee. The shipping line or company generally imposes this fee if the container is held by a consignee or shipper for longer than the agreed-upon period outside of the terminal.

After the container leaves the terminal, there is a free period for handling or unloading it. Within this timeframe, the consignee or shipper must return the container to the terminal or port. If a container fails to deliver within the agreed-upon time, container detention charges must be paid.

The agreed-upon time is usually negotiated between the parties and can vary based on the container's intended use and the specific agreement between the parties.

Causes of Container Detention Charges

Some of the popular reasons for container detention charges to be incurred are listed below:

-Inefficient Inland Transportation: One of the main reasons for container detention charges is inefficient land transportation. Usually, the container is transported from the terminal to its destination, and after unloading, it is returned to the terminal. However, delays due to inefficient inland transportation cause detention charges.

-Unforeseen Events: Unexpected situations like bad weather, natural disasters, strikes, etc., which delay containers' return to the port or terminal within a stipulated time frame, are another reason for incurred detention charges.

-Warehouse Operations Delays: If the container is held at the warehouse due to any warehouse operation, such as slow unloading, delays in processing, or other logistical issues, it can also lead to detention charges.

-Improper Communication or Planning: Another reason for container detention charges is improper communication between the parties involved, such as the carrier, consignee and shipper.

Let us understand the demurrage and detention in shipping by using examples for both import and export.

• Demurrage and Detention Charges for Imports 

A container is discharged off a ship on 12 December. Around 20 December, a consignee approaches the shipping line to take delivery of the container or cargo. Usually, the free time period is 3 to 7 days, depending on the type of cargo, shipping line and port. 

Let us consider that the free time period in this case is 7 days, which means if the container is picked up by 19 December, there would not be any demurrage charges. However, when the consignee approaches the shipping line on 20 December, the free time has already expired, and they might face demurrage charges for one day. 

Once the full container has been picked up by the consignee, it takes another seven days to return it to the terminal or port. And if they failed to return it, then they need to pay the detention changes as fixed by the shipping line.

•  Demurrage and Detention Charges for Exports 

In the case of export shipments, the shipping line typically grants the shipper a 5-day window to pick up the empty container, pack it, and return it full to the terminal or port. This period is known as the "free time" for container detention. If the shipper exceeds the allotted 5 days to return the container, detention charges will apply for each additional day beyond this period.

However, once the container is packed and ready for shipment, if the shipper is unable to load or ship the container for any reason, the shipping line will incur demurrage charges at the agreed-upon rate. These charges will continue to accumulate until the container is successfully shipped out, as the container is considered to be "in use" but not yet in transit.

Billing importers or exporters for demurrage and detention charges serves multiple purposes for port authorities and ocean carriers.

• Revenue Generation for Port Operators 

Demurrage and detention charges are a great way to contribute to the revenue stream of port operators and terminal owners. These fees help support the maintenance and enhancement of port infrastructure, such as the construction of container yards, storage facilities and more. This will help improve the port's operational capacity, allowing it to handle larger cargo volumes.

• Encourages Better Logistic Planning 

The pressure to avoid the detention and demurrage charges also helps encourage better logistical planning. The shipper and consignee coordinated the shipment schedules, optimised the cargo handling process and ensured timely availability of equipment. These kinds of initiatives help enhance the efficiency of the supply chain, which also leads to reduced transit times.

• Efficient Flow of Cargo 

The container is the main element for transporting goods. When the container return is timely, it will lead to the smooth flow of goods throughout the supply chain. Detention and demurrage charges help prevent congestion and bottlenecks at ports, terminals and storage facilities. These charges also help promote efficient cargo handling practices.

•  Cost Recovery for Shipping Lines 

The demurrage and container detention changes also help shipping lines recover costs. Many times, a container occupied can lead to business loss and additional expenses such as container rental, port storage and other administrative overheads. By imposing these charges, port authorities can recover their losses.

There are some ways in which demurrage and detention costs can be avoided:

• Pick up the container promptly after it is discharged from the vessel to avoid demurrage charges.
• Ensure that the consignee is ready to receive the container and has appropriate facilities for unloading.
• Confirm delivery windows and appointments well in advance with the shipping line or terminal.
• Ensure all documentation, such as customs clearance, bills of lading, release orders, etc., is ready and correct before the container arrives.
• Avoid last-minute changes to shipping or delivery instructions. Sudden changes can cause delays in scheduling, loading or unloading.
• Adhere to the free time for returning empty containers. If delays occur, return the container as soon as possible to avoid detention charges.
• Maintain open communication with all parties involved in the shipment, including the shipper, consignee, carrier and terminal.

Demurrage and detention costs are certainly advantageous for shipping companies, but they can place an additional financial burden on importers and exporters. Therefore, it is essential for businesses to fully understand demurrage and detention practices in order to avoid these charges. This knowledge also helps streamline operations and implement best practices to minimise the risk of incurring these costs.

However, despite taking every precaution, many unforeseen issues can arise during transit. This is why businesses often choose to invest in marine or cargo insurance policies. A marine insurance policy protects business assets against unexpected events, such as damage or loss of goods during transportation. It provides financial assistance to help businesses recover from such losses.

TATA AIG offers marine cargo insurance that is customised to meet your unique business needs. With our marine cargo insurance, you can safeguard your goods or cargo against various risks, such as theft and damage, during transit. Secure your cargo today with our affordable and tailored marine cargo insurance plan.

 Can I get a container for free? 

It is unlikely to get a container completely free, as shipping lines typically charge for their use. However, you can avoid costs by using the container within the allotted free time or negotiating favourable terms with the shipping line.

Can container detention charges affect the business's reputation? 

Yes, container detention charges can negatively impact a business's reputation. Frequent delays in returning containers on time can signal inefficiency or poor management to suppliers, customers and logistics partners. This can damage relationships, reduce trust and lead to higher operational costs.

 Can we negotiate for charges for demurrage and detention in shipping? 

Yes, it is possible to negotiate demurrage and detention charges, especially in cases of delays caused by factors beyond your control, such as port congestion or customs issues.