Detention and demurrage charges are part and parcel of global shipping, but they can be avoided. How? By understanding that they are different, by staying informed about these fees, and keeping an eye on the regulatory changes that govern them. All of this matters if you want to steer clear of hefty fines and protect your bottom line.
In this article, get insights into:
- The key differences between demurrage and detention fees
- Recent regulatory changes spearheaded by the Federal Maritime Commission (FMC) and;
- Practical guidance on how to manage and minimize demurrage and detention penalties
Defining Demurrage and Detention
Detention and demurrage charges are applied when shipping containers are used beyond what's known as "free time." The two penalties are often confused, but they each serve a distinct purpose and are applied in different contexts within the shipping process. Knowing when and why they are incurred helps to avoid unnecessary expenses while maintaining efficient container management.
Demurrage Explained
Demurrage is a fee that shippers or consignees pay when they leave containers at a terminal for longer than the allocated free time. Free time is the period during which containers can be stored without incurring charges, typically ranging from five to seven days, depending on the shipping line, port, or terminal.
Once this free time expires, demurrage charges begin to accrue daily, incentivizing shippers to promptly collect their cargo and free up valuable terminal space.
For example, if a shipper leaves a container in the terminal for 10 days when only five free days were granted, demurrage charges for the additional five days would be applied. These charges can accumulate fast, meaning shippers need to plan and manage terminal pickups efficiently.
The logic behind demurrage is simple: ports and terminals have limited space and containers that linger longer than necessary disrupt the flow of cargo and strain logistics operations.
According to a 2023 Drewry’s report, demurrage fees increased by 10% globally within 12 months, with the average charge per day ranging from $75 to $300, depending on the location and carrier.
Thankfully, detention and demurrage charges have declined significantly in recent months. However, in 2024, the shipping industry continues to experience fluctuations in demurrage and detention, with shippers warned to be mindful of sudden penalty increases.
Despite the dip, US ports remain the most expensive for detention and demurrage charges, with New York, Oakland, and Los Angeles topping the list. This is attributed to a number of factors, including the high cost of energy, labor, and land at these ports, plus regulatory shifts in green energy and customs clearance processes.
Detention Explained
While demurrage charges are incurred at the terminal, detention charges apply when containers are kept outside the terminal for too long. Detention fees are assessed when a consignee retains possession of a container beyond the agreed-upon free days for unloading and returning it to the carrier.
For example, if a consignee keeps a container for 10 days but only has seven free days for unloading, detention charges would apply for the additional three days. Like demurrage, these fees can add up quickly if not managed properly.
Just as terminal space is valuable, so too are containers, which are needed to maintain the flow of goods through the supply chain.
Detention charges can be particularly annoying for shippers and consignees who face unexpected delays in returning containers due to congestion, customs holdups, or internal inefficiencies.
A 2023 annual benchmark report published by Container xChange shows that detention charges rose quickly after initial free days to an average of $123 after seven days and $537 after 14 days.
Key Differences Between Demurrage and Detention
At first glance, demurrage and detention may seem interchangeable because both charges are applied when using shipping containers outside the allotted free time. But when you look closer, they are different. Understanding their key differences is critical for managing logistics costs and protecting your bottom line.
Here's a closer look at the difference between demurrage and detention.
Timing and Calculation
The most noticeable difference between demurrage and detention is when and where they are applied. Demurrage charges occur when a container remains at the port or terminal beyond the designated free days, while detention charges are incurred when a consignee retains the container outside the terminal for too long.
From a timing perspective, demurrage focuses on the period between when the container arrives at the port and when it is picked up, whereas detention focuses on the time between when the container leaves the terminal and when it is returned.
Both charges are calculated daily, often starting immediately after the free time expires, and they typically increase the longer the delay continues.
For example, consider a shipper importing goods through a busy port. If the container sits at the terminal for eight days when only five free days are provided, demurrage fees will apply for the remaining three days.
Once the container is picked up and taken off-site, if it is held for 10 days but should have been returned within seven, detention fees would accrue for the additional three days.
Impact on Logistics Operations
Both demurrage and detention can disrupt logistics operations and inflate costs if not managed properly. Demurrage charges often signal inefficiencies in terminal operations or delays in customs clearance, which can cause a backlog of containers at the port.
In contrast, detention charges typically indicate problems with container turnover, such as delayed unloading or scheduling issues.
However, what is true for both these charges is that their impact extends beyond financial penalties. Containers that incur demurrage or detention fees are effectively tied up and unavailable for other shipments, leading to a ripple effect that can slow down supply chain operations.
A recent report issued by Falvey Insurance Group highlighted the ongoing Red Sea crisis as a major factor in ongoing container shortages.
Regulatory Changes and Their Industry Impact
Recent regulatory changes have sought to combat the challenges associated with demurrage and detention charges, providing greater clarity and fairness to shippers and carriers.
Overview of FMC's 2024 Regulations
In 2024, the FMC introduced new regulations aimed at curbing excessive demurrage and detention charges. These changes stem from years of industry complaints about unclear fee structures and disputes over when charges should apply.
The FMC's new rules require carriers and terminals to provide more transparent billing practices, with clear explanations of how demurrage and detention fees are calculated and under what circumstances they apply.
Plus, the FMC’s reforms have introduced provisions that prevent shippers from being penalized for delays beyond their control, such as port congestion or weather-related disruptions.
This is a significant shift, as it ensures that charges are more equitable and that shippers are not unfairly burdened with fees for issues outside their influence .
Implications for Shippers and Carriers
The FMC's regulatory changes have important implications for both shippers and carriers too. For shippers, the new rules provide greater clarity on when charges are applied and offer a more straightforward path for disputing unfair fees.
For carriers, the regulations may require adjustments in billing practices and greater transparency in how they communicate with their customers.
Additionally, the FMC’s 2024 reforms are likely to reduce the number of disputes between shippers and carriers, streamlining the payment process and improving overall relationships across the logistics industry.
Practical Guidance on Managing Demurrage and Detention Charges
Managing demurrage and detention charges requires proactive strategies that optimize both time and resources. Here are five actionable steps to help shippers and carriers minimize these costs.
- Optimize Container Turnaround Times: Plan and execute logistics operations to ensure that containers are loaded, transported, and returned within the allotted free time. Use scheduling software to help visualize and adhere to timelines, reducing the likelihood of incurring demurrage charges.
- Enhance Documentation Processes: Streamline the documentation process to prevent delays caused by paperwork errors. Digital tools that manage and verify documents in real time ensure that all paperwork is completed and accurate before containers arrive or depart from the port.
- Leverage Real-Time Container Tracking: Integrate GPS tracking and IoT solutions to monitor container movements. This technology allows stakeholders to make informed decisions about container management, preventing detention by alerting them to potential delays.
- Negotiate Terms with Carriers: Negotiate with carriers to secure more favorable terms, such as extended free days during periods of known congestion. Plus, maintaining good relationships can lead to more lenient terms on demurrage and detention charges.
- Implement a Robust Contingency Plan: Develop contingency plans for common delays, such as customs holds or transportation disruptions. Having a strategy in place to quickly address these issues can minimize the time containers spend in detention, which reduces fees.
Dodge Demurrage and Detention Fees With Vizion
VIZION is helping shippers worldwide avoid demurrage and detention fees with ocean freight tracking. Shippers can:
- Monitor shipments by container number, master bill of lading, or auto carrier identification.
- Track 98% of global shipments.
- See over 7,000 unique events translated into 60 standardized milestones and ETAs.
- Access instant-on data with documentation.
Book a demo with VIZION to learn more about managing demurrage and detention fees.
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