International trade continues to experience growing pains related to demurrage and detention charges.
Unfortunately, global transport interpretations result in an assumption that these terms are interchangeable.
Depending on the origin and destination, they have different meanings, especially in the U.S. In fact, the Federal Maritime Commission (FMC) took the exuberant step to eliminate confusion and streamline port management.
To avoid an assumption of decreased demurrage and detention fees and keep ocean freight spend under control, shippers need to understand their real impacts and how these fees amount to significant issues in the global supply chain.
What Are Demurrage and Detention Fees?
Shippers face the risk of daily demurrage and detention fees. When a shipper schedules an ocean freight container, the clock begins to tick.
If the shipper goes beyond the allotted time, the shipper is on the hook for daily detention fees. If the carrier does pick up a full container by the port deadline, also described as “free time,” either the port or carrier may then assess demurrage fees.
The same practice applies to the destination in reverse.
The biggest threat to shippers involving demurrage and detention is how they amount to high costs.
Each shipment has the potential to result in both demurrage and detention fees during both loading and unloading.
If the prices are based on a predetermined schedule of departure and arrival, delays during loading will lead to additional fees charged upon arrival to the destination.
Carriers may also view fees with additional perspective on where the container rests. Ocean carriers may charge box demurrage for keeping the container in the terminal for too long.
Meanwhile, they may charge box detention fees for keeping a container out of the terminal for too long, notes Ari Ashe of the Journal of Commerce. Operating across multiple OTR mode carriers, the risks multiply.
Causes of Port Congestion and Its Impact on Fees
The idea behind demurrage and detention fees goes back to a simple concept. Additional charges incentivize shippers to stick to the schedule, and load/unload containers as quickly as possible. Unfortunately, that is only one portion of the equation.
If delays occur, drivers may be unavailable to pick up freight. Moreover, drivers may be delayed, resulting in the same delays for container loading/unloading. In these instances, the driver delays may lead to demurrage and detention fees.
It’s not just how quickly shippers load and unload the freight. It’s whether it can be completed safely. Mother Nature may prevent the use of the equipment and may even lead to the closure of ports. This is a common problem. With that in mind, the fees themselves have reached a point of no return.
According to Ashe, U.S. demurrage and detention fees began to climb steeply in 2014. With laborers on strike, supply chain productivity grew to a slow crawl.
Average penalties levied as part of demurrage and detention fees increased 90% in 2014 and another 86% in 2015. Levels settled in 2016, but they rose 30% in 2017, keeping costs well above the pre-2014 average.
Depending on the volume of ocean freight, beneficial cargo owners, such as Walmart and Target, may pay more than $1 million annually in demurrage and detention fees alone. Even among smaller shippers, such as those moving 500 containers per year, six-figure totals remain a commonality.
What Can Shippers Do About Demurrage and Detention Fees?
The most straightforward answer is to ensure that everyone in your supply chain operates on the same page. All parties, including truckers, laborers, and managers must know when freight will arrive, how much “free time” is available, and whether the fees are likely.
It all goes back to increased visibility within ocean freight. More visibility helps keep carriers accountable for their delays, which provides bargaining power when contract negotiations arise. Besides, shippers should review all contracts and ensure it spells out who is responsible for delays and the payment of fees.
Of course, the next best option lies in implementing a single system that keeps everyone on track and provides data-driven processes for managing ocean freight. So, shippers have a few tricks up their sleeves to mitigate demurrage and detention fees. The only question that should remain is: “why hasn’t your organization leaped to gain more visibility and tried to know why fees are happening?”
About the Author:
Josha Brazil works as the Chief Operations Officer of Ocean Insights. Ocean Insights has a best-in-class software and team of experts to make supply chain data visible and actionable, They bring down your demurrage and detention fees, supports day-to-day operations, and strategic decisions within the freight industry.