Traders sometimes face unanticipated costs while transiting their products. Demurrage charges are a typical source of unanticipated costs when it comes to shipping. There’s also the overused adage “Once on Demurrage, Always on Demurrage,” but this isn’t always accurate. Before we go into the real gritty of demurrage cost, let’s have a basic knowledge of what it is.
What is a Demurrage Charge?
Shipping lines either own or lease containers, which they give to their clients (shippers or traders) for secure and timely delivery of their merchandise.
Because the cost of operating the container during door-to-door transportation is added to the shipment, shipping lines must turn their containers around as quickly as feasible. As a result, in order to encourage merchants to relocate or return their containers quickly, shipping companies charge demurrage and detention costs to traders who surpass the free days.
When a vendor’s container remains at the ports for longer than the authorized time, demurrage costs are levied on them.
Shipping lines are required to give fair “free days” during which no demurrage or detention costs would be applied. These free days are designed to provide the merchant with a reasonable amount of time to:
- Process the loading and delivery of an export container.
- Pick up, unload, and return the vacant container for import.
The Basis of Demurrage Costs
The amount of demurrage levied on a shipment depends on the kind of container utilized, such as a dry container, a refrigeration container, a chassis, or any other apparatus owned or leased by the shipping line.
The number of free days granted by traditional shipping lines/port authorities varies between three and seven, after which demurrage is charged. All nations have various demurrage costs, which are also dependent on the shipping line or carrier.
To make matters even more complicated, costs are assessed per container and each day after a predetermined period of free time.
Reasons for Demurrage Charges on Shipments
Before we focus on how to avoid demurrage and detention charges, let’s first ascertain some of the most common reasons for demurrage and detention charges:
- Due to inaccurate documentation: There have been several occasions when demurrage was charged to the shipment due to the lack of proper documentation. A bill of lading with inaccurate freight, trip, cargo, and address data, or an improper business invoice, are just a few instances.
- Delayed receipt of documents: A few of the many factors that can cause documents to be delayed are shippers not planning well in advance for their documentary processes at origin but waiting until the last minute to gather all of their documents; delays by the shipping line in issuing the bill of lading to the shipper for various reasons; if a Letter of Credit is involved and the documents do not reach the issuing bank on time by the nominated bank.
- Delays caused by document loss: One of the most prevalent reasons for demurrage and detention fees is this issue. There have been multiple instances where documents have gone missing while being delivered by courier. If an authentic bill of lading is lost, it can be quite troublesome.
- Customs clearance or cargo inspection delays: It is not unusual for customs to stop over and check various items being shipped. Customs inspection delays are normal in many circumstances, and there is no set time range for how long such checks may take. Customs inspections take varying amounts of time in different countries, and the container(s) may be subject to demurrage, detention, and storage fees.
- Delays caused by cargo discharge at the final destination: This component might be influenced by a number of factors. It might be owing to a lack of knowledge of Incoterms on the part stakeholders due to which the shipping line fails to receive money by the receiver or it could be due to the shipping line receiving original bills of lading without required endorsements on the bill of lading.
- Delays caused by an inaccessible receiver: Last but not least, there may be instances where the shipping line is unable to contact the consignee or inform the party listed on the bill of lading. The cargo has most likely been abandoned by the shipper, recipient, or both, but the shipping line has not been informed or alerted.
Can You be Demurrage Free?
It should be noted that in many circumstances, the lag in returning or collecting containers is not due to the merchant’s fault, but rather to severe weather, labor strikes, and port congestion outside the merchant’s control.
As you can see, there are a variety of reasons for demurrage and detention costs, but virtually all of them can be avoided if all parties engaged in the cargo follow the correct documented procedures and maintain an efficient workflow.
While there is discussion over the basis for the recent increase in container demurrage and detention prices, it is only prudent to be fully educated and prepared to deal with any eventualities that may arise as a result of these shipping demurrage charges. Using demurrage management software is one of the best ways to stay ahead of the game and control your demurrage and detention costs.