Maritime shipping is a cost-effective way of international shipping, but it has its own rules that need to be followed, or else importers and exporters may end up paying more than expected. Late fee charges are levied upon shippers for various reasons, and sometimes, such charges significantly increase the shipping rate for a consignee. Detention and demurrage charges are late fees charged by the port authorities or shipping lines. It is a way to discipline the shipping parties to avoid any delays that may cost them and the maritime industry economic losses and disrupt the supply chain. Let us learn more about the causes of demurrage and detention.
Why does the shipping line charge extra?
Shipping lines incentivise consignees or shippers by levying extra charges as a late fee whenever the free time for using shipping containers gets exceeded. Demurrage and detention charges are among the many charges that shippers and consignees incur due to disobeying port guidelines. Upon the shipment’s arrival at ports, the port authorities allot a fixed number of free days within which the consignee must ensure that the containers are unloaded and returned to the hands of the shipping lines or the owner.
What is demurrage and detention?
Demurrage charges are levied after the arrival of the shipment at the port when the shipping containers are lying in the container terminal and have exhausted their free days. Upon exceeding its ‘laytime’, the port authorities charge the consignees, and the charges are calculated based on the number of days the container sits at the terminal. For example- If an import consignment has reached the port, the consignee gets notified to unload the container and secure their shipment within the given time frame. If the consignee fails to retrieve the shipment within the specified time frame, the container, if left unpacked at the terminal, accrues demurrage charges as a late fee.
Detention charges are late fees incurred by the consignee or shipper when they fail to return the containers to the designated port facility after unloading them. This amount is taxed for activities outside the port or container depot. The shipping carriers levy it against the late procurement or unloading of shipping containers. Once the importer picks up the containers from the port, he is supposed to return them to the port or depot in the given timeframe. Failure to return it within the free period causes detention charges. For transport via trucks, detention charges are charged when the importer or exporter fails to load or unload the trucks or trailers with containers during an intermodal transport that causes delay for the carrier. For example- As an importer, if you have secured your shipping container but need more equipment or workforce to handle the shipment out of the container, it may take some time and lead to delays. It causes detention charges.
Difference between demurrage and detention
- While port authorities charge a demurrage fee for keeping containers inside the port facility for more than its layover time, detention is charged by the shipping lines when the cargo container is not returned to the designated port, even by the end of the extra time.
- The purpose of demurrage charges is to ensure that container loading and unloading duties are performed on time to maintain the seamless flow of the supply chain. The detention fee aims to incentivise importers to ensure the quick return of cargo containers and equipment, making them available for other shipments.
- While demurrage charges can apply to either the importer or the exporter, detention charges are paid by the importer.
- Detention charges are calculated daily or hourly until the containers or equipment are returned. Demurrage charges are calculated daily unless the cargo is not removed from the container terminal.
Causes of demurrage and detention
The reasons for demurrage and detention fees can be noted to be the following.
- Shortage of workers– Sometimes, due to staff shortages, lack of skilled labour or abrupt labour strikes, ports face a labour crunch. Few workers know how to operate vehicles and equipment or assist in autonomous transportation. Under such circumstances, shipping containers may stay held up at ports for long, causing demurrage fees. If the same situation occurs beyond the port facility, it sums up a detention fee.
- Shortage of equipment– Different types of shipping containers and cargo require various handling equipment. Lack of equipment and container handling resources, such as container chassis, AGV, forklifts, etc., can lead to significant backlogs that can cause demurrage fees.
- Delay in customs clearance– It is essential for importers to file a bill of entry when the shipment is about to arrive to complete the customs clearance process. The bill enlists all cargo specifications and must be submitted to customs. Only after paying the taxes enlisted in the bill will the consignee be handed over the shipment. Failures or delays in filing the bill or receiving it back from customs can postpone the procurement of shipment and lead to exhausting the free period before demurrage fees are levied.
- Delays in Cargo inspection– In maritime shipping, cargo inspection delays can also occur in failing to provide adequate or proper documents. If the documents do not match with the cargo or the guidelines have not been followed, it can result in a significant loss of time due to cargo clearance delays.
- Emergency conditions– Weather-related events such as hurricanes and floods make unloading containers off the vessel challenging, leading to significant delays. Pandemics lead to a labour shortage and are another reason for shipment delays.
- Lack of communication– If the shipper and consignee are not communicating frequently, it becomes difficult for the consignee to have an estimated arrival time, make bookings and coordinate with transporters and distributors. Lack of cooperation between shipper, shipping company and consignee causes delays that can cause container demurrage and even container detention charges.
Who is responsible for demurrage and detention charges?
The demurrage reasons indicate that the importer collects the shipment by unloading it from containers. The port authorities hold the container for the consignee but, in return, charge an extra fee as port storage charges. The port authorities charge a detention fee in shipping to the importer when the shipping containers are yet to be unloaded and given back in possession to the designated port. Regarding transport via trucks, the shipping carrier levies the detention charges on the importer.
How can we prevent demurrage and detention?
By knowing the causes of demurrage and detention, importers can avoid demurrage and detention in logistics by following these tips.
- Negotiation– All ports and shipping lines offer a 3-5-day before levying any demurrage or detention charges. Importers can communicate their reasons for negotiating to extend the layover time with the authorities. Discussing and negotiating to lower the demurrage and detention fee is also possible.
- Considering various ports and shipping lines– Before signing a contract with any transportation partner, knowing and discussing the late charge fees is essential to avoid any last-minute burden. By understanding the rates, you can prepare to make necessary shipping decisions and save yourself from paying hefty charges.
- Be aware of legalities– Importers and exporters must be mindful of the customs clearance process and port regulations as they vary from country to country, and inadequate documentation can lead to delays. Manage all the paperwork completely, accurately, and precisely to avoid customs clearance hassles, which can cause severe demurrage fees.
- Keep track of time– A seamless communication between the importer and exporter helps the consignee keep track of the estimated arrival time of the shipment. It gives the importer adequate time to book intermodal transport if necessary and arrange for timely container unloading. In case of any emergency delays, the importer must reschedule further processes to ensure no more delays can cause losses.
- Prepare for off-port storage– When the importer is sure that a necessary delay may occur both at the and out of the port facility, leading to heavy demurrage and detention charges, consider taking the shipping containers to off-port storage. It helps avoid demurrage charges, and the detention charges can be negotiated with the authorities.
- Book for carrier haulage– In intermodal transportation of freight containers to their destination, importers can choose container haulage with the same shipping line to avoid unnecessary detention and demurrage fees. The shipping line directly connects with its haulage and takes full responsibility for the cargo arriving at the port.
These are a few causes of demurrage and detention that lead to increased shipping rates to be paid. By following the tips to avoid demurrage and detention charges, importers can save themselves from paying additional charges.
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