Avoiding demurrage and detention charges

While most shippers have probably incurred the expense of demurrage and detention, the charges are not well understood.

 

Modern container shipping is 50 years old and carries over 90% of global trade in millions of containers every year. Keeping global ports operating smoothly relies on the effective removal of containers, so that traffic can flow without hindrance.

Demurrage is the daily charge applied by ports (through the carrier) for containers that have used up their free period.

Ports understand that it takes time to get containers onto or off of vessels, which is why they will offer a fixed amount of “free time” at their terminals.

Each 40’ container costs several thousand pounds to buy and is an asset that the shipping lines want to keep available, so that they can maximise their return on investment.

Detention is the charge that the lines assign to containers that are being used past their contractual time.

Any time in excess of the “free” period is charged as detention on a daily basis until the container is returned to agree restitution point.

The applicable ‘free’ demurrage and detention periods are agreed during the same negotiation that will set the freight rate.

Supporters of demurrage say that it promotes the prompt flow of commerce through the rapid loading and unloading of cargo and it is certainly true that detention charges provide an incentive to hand back the shipping containers on time.container-163868_640

Global shipping is a complex process that involves many participants and it inevitable that situations will arise when demurrage or detention is unavoidable.

Reasons for these situations vary but may include missing or incorrect documentation, Customs delays, miscommunication and disputes.

In situations like these demurrage and/or detention are unavoidable costs. But if they are not controlled and corrective action implemented swiftly, the charges can soon overtake the value of the consignment, particularly if there are multiple containers in the shipment.

But demurrage and/or detention can be an avoidable cost if you prepare properly. So here are our tips on avoiding these charges.

1. Identify any licensing, or other legislatory requirements for your products and ensure that you have the correct documentation.
2. If you have identified the possibility of delays ask us to negotiate additional free time with the shipping line.
3. Lack of notice of inbound shipments is the biggest cause of demurrage, so ensure that your vendor gives prompt notice of shipment.
4. Specify the documents you require and the method of their despatch, so that they are available in advance of the vessels arrival.
5. If your shipment is under a Letter of Credit, ensure that there is sufficient time for compliance with terms and release of documents by the bank.
6. If your shipment does not require an original bill of lading, then consider asking the shipper to use an Express Release to avoid any delays waiting for an Original Bill of Lading.
7. If the shipper insists on an Original Bill of Lading in order to safeguard his payment, then once he is paid, arrange with him to secure a Telex Release to avoid any delays waiting for an Original Bill of Lading.
8. Ensure that your delivery requirements are sent to the providers well in advance of loading and unloading to avoid any delays.

There are many chargeable components involved in an ocean freight shipment and it is easy for a shipper to get confused by the range involved and the various places that these may be incurred.

The shipper needs to understand the freight rate sheet and be aware of the possible additional charges such as demurrage and detention and take necessary steps to avoid these charges.

If you have any questions arising from this blog, contact your MIQ Logistics account manager, or email info@miq.co.uk