Demurrage vs Detention: What Are They and How to Avoid Them

Never be confused between demurrage and detention again with this structured guide developed for every supply chain professional!

Demurrage vs detention what are they and how to avoid them

In the world of international trade, there are many risks of penalties to look out for. Two particular examples which are also often shrouded in confusion, are demurrage and detention charges. If not careful, these charges can quickly compound into significant financial burdens, impacting both businesses and consumers alike.

But, worry not. Today we’ll dive deeper into understanding the details and nuances of these shipping charges. By the end of this article, you will be well-equipped with the knowledge to navigate and avoid incurring them with confidence!

Demurrage and detention: What’s the difference?

Demurrage and Detention Charges chart

Understanding the difference between demurrage and detention is crucial for navigating the complexities of shipping costs. While both involve fees associated with container delays, they apply in distinct situations and impact different aspects of your supply chain.

What is Demurrage?

Demurrage is a form of shipping fee charged by the terminal operator when a container exceeds its allotted "free time" after being unloaded from a ship at the terminal.

Free time essentially refers to the time span after a container is unloaded from the ship and remains within the terminal, free of charge. It usually lasts 3-7 days, depending on the port and agreement. This range of time allows for customs clearance, paperwork, and other processes before the container must be moved.

Here are some common causes that result in demurrage fees being incurred:

  • Customs clearance delays due to port congestion: Delays in obtaining customs clearance can prevent the container from leaving the terminal and increase the time spent within the terminal.

  • Incorrect or incomplete documentation: Missing or inaccurate paperwork can hold up the container's release from the terminal.

  • Lack of storage space at the terminal: If the terminal is congested and lacks space for your container.

  • Unforeseen logistical issues: Unexpected events like mechanical breakdowns or inclement weather can cause delays in logistical activities within the terminal and be penalized with demurrage charges as a result.

What is Detention?

Detention, also known as a per diem fee, is another form of shipping fee. This time, it’s imposed by the shipping line when a container is held onto by the shipper or consignee for longer than the agreed-upon period outside of the terminal.

Similar to demurrage charges, there is also a free period for unloading or handling the container after it leaves the terminal. This time frame however, needs to be negotiated in the booking contract and can vary depending on the specific agreement and intended use of the container.

Exceeding the agreed-upon free time will then lead to detention charges levied by the shipping line. Some of the common reasons on why detention charges are incurred could be:

  • Inefficient inland transportation: Delays in transporting the container from the terminal to its destination and returning it.

  • Delays in warehouse operations: If the container is held up at a warehouse due to slow unloading or other issues.

  • Unforeseen events: Unexpected events like bad weather, strikes, or natural disasters can delay the return of the container.

  • Lack of planning or communication: Poor planning and communication between parties involved (shipper, consignee, carrier).

Who is responsible for demurrage and detention shipping charges?

shipper on phone

The specific party responsible for the demurrage and detention charges is ultimately determined by the agreed upon incoterms in the shipping contract. These internationally recognized terms define responsibilities at various stages of the journey.

For example, in a demurrage scenario with Ex-Works (EXW) terms, the buyer (consignee) is responsible for delays once the container is ready at the origin terminal. Conversely, under Delivered at Place (DAP) terms, the seller (shipper) shoulders demurrage charges until the container arrives at the designated destination terminal.

Similarly, the Free On Board (FOB) term places detention responsibility on the buyer after the container is loaded onto the ship. However, with Cost, Insurance, and Freight (CIF) terms, the seller remains accountable for detention until the container is discharged at the destination port.

Fun Fact
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Did you know that from 2020 to 2022, carriers collected $6.9 billion worth of demurrage and detention fees during the COVID-19 pandemic? This information was published by the Federal Maritime Commission’s final notes in February 2023.

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How to avoid demurrage and detention shipping charges?

container in a port

In the world of international trade, scenarios that could lead to demurrage or detention charges can happen anytime. But, there are definitely ways you can avoid them with some proactive strategies.

3 Ways to avoid demurrage charges

Proper freight documentation

There can be a lot of coordination required to manage the amount of documentation required for every shipment, which is prone to error. This is when shipments might get delayed at the port and you will be charged with demurrage fees.

So, be sure to ensure all paperwork is complete and accurate before the container arrives at the terminal. Better yet, leverage technology to ensure compliance and documents requirements are met.

Pro Tip
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Reduce the number of touchpoints required to coordinate documents! Adopt a freight management system that centralizes all your important documentation within one single platform for easy retrieval, sharing and archiving.

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Accurate cargo details

For terminal operators, your cargo information is the most important detail they will require to provide you with clearance. Always ensure there’s accurate and detailed descriptions of your cargo weight, dimensions, and packing details in your booking to avoid delays during container inspection.

Plan ahead your every move

With proper planning, you can stipulate the time of your pick-up and transportation in advance to ensure a timely departure from the terminal. Always aim to move your container out as quickly as possible.

2 Ways to avoid detention charges

Efficient transportation and route planning

Once the container is out of the gates, container arrival times are key to decrease the chances of getting a detention charge. It’s good practice to plan your inland transportation based on realistic arrival times and container weight/dimensions.

Optimizing your transportation routes can also help to avoid congested areas, factor in potential traffic delays during peak hours, and if need be, consider intermodal transportation for long distance freight. Be sure to also remain in contact with your logistics partner at all times to check on status and receive important updates.

Pro Tip
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Cargo on the road can be tricky to track manually. Supply chain companies are increasingly adopting real-time visibility tools to facilitate accurate tracking with fast status updates.

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Optimize warehouse operations

Warehouse operations are no less complicated than how it is at the ports, and it could make or break your chance of avoiding detention charges frequently.

You can optimize your warehouse operations by ensuring there’s adequate manpower and resources to facilitate efficient container unloading, which helps reduce bottlenecks. It’s also wise to ensure that your warehouse’s inventory and storage management systems are in check to prevent any form of stalling caused by slow retrievals.

Best practices to avoid both demurrage and detention charges

Negotiate for longer free time

While it’s almost impossible to negotiate on demurrage or detention fees, there’s a chance that you might be able to negotiate for longer free time. This is especially beneficial for high volume shipments and can significantly increase your chances to prevent getting charged.

Investing in shipper-owned containers (SOCs)

This applies mostly for shippers who have very frequent freight operations that require containers. For the long run, shippers can assume full ownership of their containers and save a lot more by reducing spendage on carrier-owned containers (COCs). By spending less on COCs, chances of getting a detention or demurrage charge also gets reduced.

Backing your demurrage and detention prevention strategies with a Transportation Management System

shipper on a laptop

There can be a lot to manage when it comes to avoiding detention and demurrage charges. This is where a Transportation Management System like Cargobase TMS can make a difference. Our solution helps you manage shipment documentation easily, use built-in approval workflows to ensure compliance and track shipments from various logistics providers, so you can focus on making better decisions for all your shipments.

Have you been bothered by demurrage and detention charges lately? Come find out more how our Transportation Management System can help you avoid unnecessary charges.

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