What are demurrage and detention fees?
Whether you are importing or exporting, any company that’s involved with shipping their cargo via overseas container transportation will at some point run into demurrage and detention fees. These are fees that you pay for using a rented container (detention) and occupying space inside a terminal or depot (demurrage) for longer than the number of free days you are entitled to under your freight contract.
Freetime definition: “Free Time” is the period agreed between the Carrier and the Merchant for which Demurrage and Detention shall not be paid by the Merchant
Detention definition: Compensation payable when the Merchant holds Carrier's Container outside the port, terminal, or depot beyond the agreed amount of Free Time.
If you keep a container outside the terminal for longer than the number of free days allowed, then the shipping line charges you detention fees. Detention fees are basically the price you pay for keeping a container for longer than the number of free days. You can think of them as a “delay fee” that you incur when you return an empty container too late to its owner, the shipping line.
Demurrage definition: Compensation payable when the Merchant holds
Carriers Container inside the terminal, port, or depot beyond the agreed amount of Free Time (the compensation includes terminal storage costs).
So in case you are exporting and the container is handed over to terminal by the trucking company to the shipping line for transport but cannot be loaded right away onto a ship, then it will be held in storage at the terminal. After a set number of free storage days, demurrage is charged to the shipment, generally for each additional day the container is held.
Demurrage fees will also apply if you are importing, if you do not pick up the loaded (import) container at the destination port in time. Demurrage charges are basically the price you pay for storing a loaded container at the terminal for longer than originally agreed.
Storage charges: besides cost of demurrage, some of the carriers do charge additional storage charges on top of the Demurrage charges. Always read the quotation of the shipping line carefully !
Detention definition: Compensation payable when the Merchant holds Carrier's Container outside the port, terminal, or depot beyond the agreed amount of Free Time.
Cost of detention will apply if you keep a container outside the terminal for longer than the number of free days allowed, then the shipping line charges you detention fees. This does often happen with import containers which cannot be unloaded and returned on time.
Detention fees is the cost you pay for keeping a container for longer than the number of free days. It’s a kind of “penalty” when empty containers get returned too late to the terminal and or depot of the shipping line (carrier) by your trucking company, rail or barge operator.
Shipping lines are doing this in order to keep control over their equipment so that they can optimize utilization of their containers.
Who gets to define demurrage and detention fees?
All Shipping lines are free to define demurrage and detention fees themselves. They have different rates and different free time rules.
There are no fixed rates for demurrage and detention. These fees can be substantial per day.
Therefore it’s important to check those cost in front, before making the decision which carrier to be used.
So if you want to make an accurate comparison of the total cost. Request for an ocean freight quotation to your Freight forwarder or Shipping Line in which they should specify the ocean freight, cost of demurrage, detention and free time.
Always negotiate upfront. It all depends on the Shipping Lines policy but at least you will not have any surprises !
Who is responsible for paying these fees?
Today there are many disruptors in the world of logistics. Such as change of departure and arrival time of the vessel. Or your supplier and or manufacturer is not able to deliver on time. But it can also happen that custom authorities want to check the content of the container, which will take a couple of days. Or there is a delay to get the loaded container on time at the terminal. Many thinks can happen and there’s a good chance that detention or demurrage is charged to this specific container and or shipment. A solid and proven logistic concept is off great importance.
Who is liable for the costs?
This all depends on the INCO terms, did you for example buy or sell on Ex-works (EXW) or Door to Door or one of the other INCO terms such as Free on Board (FOB).
In case of Ex-works (EXW) in which the buyer assumes responsibility at the seller’s warehouse and takes care of everything including transportation and insurance.
But in case of Delivered Duty Paid (DDP)which puts most obligations on the seller. They carry all the costs and risks of transport, insurance, and customs clearance. This is the only incoterm that lists the seller as the importer of record at destination.
In general, the “rule” is that the contractual party who did close and signs the deal with the Shipping line is liable for any demurrage and detention fees towards the Shipping line.
Therefore, its important what kind of INCO terms you agreed to.
Free on Board (FOB) is a very common incoterm is for sea freight only, and means that liability and responsibility for cost transfer to the buyer when the goods are loaded “on board” the shipping vessel. FOB gives the buyer a high degree of control over the freight shipping process. Since the buyer is choosing their own forwarder, they benefit from greater flexibility with regards to cost, terms, and shipping planning.
In case, of demurrage and detention fees the forwarder and the consignee have to come to an understanding who will cover the extra costs. How did the cost occur - is the forwarder to blame for the extra fees, or did the consignee fail to pick-up and return the container at the terminal on time.
Always avoid that containers will remain stuck at the terminal. This will only increase cost !
How to avoid demurrage and detention fees?
It does start with the service level of your providers. Your forwarder has to check the estimated time of arrival or departure time of the carriers carefully. The information on the carriers website is not always up to date but still they will stick to their conditions and contract.
Organize, control, plan and schedule your transportation on time. The market can be very tied. With shortage of equipment and carriers having Blanc Sailings it’s important to be in control. Some tips we like to share:
- Make your container booking on-time to get space from the carrier;
- Make sure your supplier and or manufacturer does confirm the closing date so that delivery will be on-time at the terminal or depot of the carrier;
- Check the day of arrival of vessel, will it arrive before or after the weekend. This will help you on the demurrage free time days;
- Arrange custom formalities in front. Your forwarder/custom broker can do the pre-entry before departure and or arrival of the vessel;
- Schedule your container trucking within free time;
- Make sure the container can be unloaded on-time at your logistic centre;
- Return the container to the depot or terminal of the carrier within the detention free time.
To save cost and to optimize the transit time of your cargo does require additional planning and a professionalised approach. We would be very glad to help you to monitor this process.
Calculation of demurrage and detention fees?
Demurrage and detention fees are calculated based on the type of container and number of days. The free time and cost of demurrage and detention fluctuates per shipping line.
There are options to negotiate with your Freightforwarder and Shipping Line on the number of free days included in the sea freight service. This depends on the carriers policy, the amount of shipping capacity available and the number of containers type of cargo you are shipping.
The cost of demurrage and detention will be invoiced:
Per container, per calendar day, per container type, per type of commodity
Depending on the type of containers there are different charges per type of container, per day based on the seaport and or inland terminal !
- Dry Containers 20ft , 40ft, 40fthc, 45ft
- Reefer Containers
- Imo Containers
- Special equipment such as flat racks and open top container with dry or Imo cargo
Demurrage Free time as a standard average:
Majority of the Shipping lines will mention in their quotation 3 days free of demurrage and 3 days free of detention.
Freetime definition: “Free Time” is the period agreed between the Carrier and the Merchant for which Demurrage and Detention shall not be paid by the Merchant.
Application: The free time & charges applied will be those in place on the origin price calculation date (PCD)