Demurrage & Detention Charges: What's The Difference?
Freight shipping can sometimes bring unexpected fees. FreightCenter provides a comprehensive overview of demurrage and detention charges. What's the difference? Find out here.
Demurrage and Detention Charges: Everything To Know
Demurrage and Detention charges are key components of shipping and logistics, impacting both shippers and carriers if they are incurred. These charges are applied to a shipper’s expenses when cargo exceeds the allowed time for loading, unloading, or storage at a port or in a container.
Both of these charges are put in place to encourage the steady flow of the supply chain and the timely and efficient use of containers and port space. However, demurrage and detention charges are applied under different circumstances and by terms in shipping contracts.
Here at FreightCenter, we provide a comprehensive overview of both demurrage and detention charges, the difference between the two, and the best practices to ensure you can avoid them on your next shipment.
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What Is A Demurrage Charge?
A demurrage charge is a charge for using a container within a terminal beyond the free time period given for loading or unloading cargo at a port or terminal – this is also known as laytime.
The free time period allows shippers to load or unload their cargo without extra fees. Depending on the contractual agreement, port, and carriers, this period is typically anywhere from two to seven days. In general, rail and air cargo receive 2 days and ocean cargo gets 4 days.
A demurrage charge is put into place to encourage companies to move their containers at a solid pace and to keep port or terminal operations running smoothly without any disruptions.
What Causes A Demurrage Charge?
There are many factors that can lead to a shipper receiving a demurrage charge. The main reason is that a company doesn’t move or unload containers quickly enough or when cargo is left for longer than the allotted free time period. However, sometimes unforeseen circumstances or other reasons beyond a company moving their containers in an untimely manner can occur.
Other factors include:
- Congestion at the port or terminal
- Delays in customs
- Inadequate supply of truckers
- Weather events and disruptions
- Contractual issues
How Demurrage Charges Are Calculated
A demurrage charge is calculated based on two variables and ranges anywhere from $75-$300 per container per day, depending upon the agreement, port, and carrier. This rate, known as the “Per Day Pro-Rata” or PDPR, depends on the number of days that the shipment has exceeded the free time period.
To calculate demurrage charges at most major ports, simply multiply these two variables. So, for example, if you left a container for 2 extra days at a terminal or port, you would multiply the number of days and the daily charge, which does vary.
Strategies To Avoid A Demurrage Charge
Before shipping to or from a terminal or port, it is imperative to ensure that everything is prepared. In order to avoid a demurrage charge, shippers should:
- Carefully plan the shipment
- Track the container in real time by using tracking tools
- Communicate effectively with all parties involved
- Ensure timely customs clearance by having documentation ready and accurate
- Negotiate favorable free time allowances with the carrier
- Arrange for a prompt pickup and delivery of the container(s) once they arrive at the port or terminal
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What Is A Detention Charge?
A detention charge is a charge for using a container outside of a terminal or depot beyond the free time period and they are not returned within the allotted time. These charges come into play after an importer has picked up and unpacked a shipment. Another phrase for detention fees in some terminals is “per diem”.
In maritime freight, detention charges are for the shipper taking too long to return the container, whereas in less-than-truckload (LTL) or truckload shipping, it is for making the truck drivers wait.
Sometimes, detention charges can occur because the container wasn’t picked up on time or took too long to return to the port or terminal.
The free period before a detention charge is imposed upon the shipper is typically 3-5 days, but it does vary depending upon the contract, carrier, and port or terminal.
How Detention Charges Are Calculated
The charges are calculated on a daily basis, beginning the day after the free time ends.
Detention fees range anywhere from $50-$100, and they can be tiered, with higher rates for longer periods of time.
How To Avoid Detention Charges
In order to avoid detention charges as a shipper, there are certain proactive steps you can take. These include:
- Communicate openly with all parties involved
- Carefully plan your shipping schedule, and track your shipment to identify potential delays
- Plan for quick loading and unloading of the containers to avoid exceeding free time limits
- Submit accurate documentation for customs clearance if needed
The Difference Between Demurrage And Detention Charges
Although demurrage and detention charges are closely related, there are a few main differences to be aware of.
Demurrage fees are assessed on loaded containers inside of a port or terminal beyond the free time period, whereas detention fees are for empty containers not returned to the port or terminal before the free time period.
Additionally, the free time period before detention charges occur is generally longer than the period of demurrage free days.
It’s important to note that if shipping via waterways, some steamship lines will charge detention charges for equipment usage beyond the given free time, regardless of whether the equipment has left the port or not. This leaves shippers more susceptible to incur both demurrage and detention charges at the same time.
Understanding both demurrage and detention charges is a vital aspect of freight shipping and can greatly impact the cost and efficiency of operations. By proactively managing loading and unloading, and returning cargo containers on time, companies can reduce the risk of incurring these fees and ensure stronger, smoother supply chains.
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FAQ: Demurrage & Detention Charges
Q. Are demurrage and detention charges negotiable?
Shipping lines may be willing to negotiate or waive the charges, particularly if the delays are caused by issues outside of the consignee or shipper. But it is not guaranteed and varies by the policies and situation.
Q. What happens if the charges are not paid on time?
If the charges are not paid within the specified time, shipping lines or terminals could decide to not release the container, withhold the cargo, or charge additional fees.
Q. How can I dispute the charges?
Disputing demurrage and detention charges can be done by contacting the terminal or shipping line and providing the correct documentation to support your case.
Q. How do demurrage and detention charges impact the overall shipping cost?
Demurrage and detention charges can significantly increase the total cost of shipping if not managed correctly, especially if the duration of the delays are longer.
Q. Do the charges apply to all types of cargo?
Yes, demurrage and detention charges typically apply to all types of cargo. However, certain cargo such as perishable goods, hazardous materials, or large volumes may have specific regulations and in some cases, extended free time limits.
Q. Can I get an extension on free time?
In some instances, you may be able to negotiate an extension of free time, particularly if there are legitimate reasons for the delay. However, extensions are not always granted and often require approval from the terminal or shipping line.
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