In international logistics, have you ever met a situation where you are charged detention and demurrage fees? These additional charges can be a headache and you will try to avoid them. The following article helps you understand the meaning of these two charges better.
What is detention?
Detention is also known as per diem. The fee is charged when containers are out of the port beyond the agreed time by the shipping company. Usually, shipping companies will offer free days for container loading or unloading.
For exports, free days begin with empty containers being collected, and end up with full containers being moved inside the port. For imports, free days begin with full containers being moved outside the port, and end up with empty containers being returned.
These fees are charged to encourage customers to return containers as soon as possible. Shipping companies must ensure that containers are turned around quickly for the high price and shortage of containers.
Detention fees are calculated by day. If the free days are 10 days, it means that you must complete the procedures of clearance, collect and return the empty containers to the destination within 10 days. The free days for different types of containers vary, depending on the regulations of the shipping company.
What is demurrage?
Demurrage is a fee charged when containers are in the port beyond the agreed time by the shipping company. When the container with cargo arrives at the port, the shipping company will give you free demurrage days waiting for customs clearance. Once the time for containers in the port exceeds the free days, demurrage charges will arise.
Demurrage fees mainly compensate the shipping company for the loss caused by the container backlog for a long time.
Suppose you import goods from China to the United States, the free demurrage days are 7 days. During this time, you can stack the containers in the port for free. From the 8th day onwards, you will need to pay demurrage charges.
Note that once on demurrage always on demurrage, except in the case when the charter contract stipulates that the ship has a breakdown, etc. In other words, weekends and holidays cannot be deducted when calculating demurrage fees.
Difference between demurrage, detention and storage
Demurrage vs detention
Demurrage and detention are related to containers, but there are some essential differences.
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The calculation time is different in the picture above. Take import as an example, demurrage time is calculated from the cargo arriving at the destination container yard to its leaving the port. Detention time is calculated from the goods leaving the port to empty containers returning to the container yard. The calculation time is bounded by the port.
Demurrage vs storage
It is easy to confuse demurrage and storage. Both terms refer to the fees charged for storing containers in the port longer than the agreed time.
But demurrage is charged by the shipping company to compensate for the loss of stagnant containers. Storage is charged by the port to speed up the flow and prevent blockage.
In addition, demurrage fees can be waived by the shipping company, while storage fees cannot be waived by the port under normal circumstances.
How to calculate demurrage and detention fees?
Calculate demurrage fees
The demurrage fees depend on three factors.
- Demurrage PDPR (Per Day Pro-Rata) varies according to the length of time beyond free demurrage days. For example, the first charge phase is within 5 days. The second charge phase with a higher rate is beyond 5 days. These demurrage PDPRs set by shipping companies differ from each port. The same port also varies with the type and size of the containers.
- Demurrage time is the time that the container is in the port beyond the free days.
- The number of containers.
Demurrage fees = demurrage PDPR * demurrage time * number of containers
For example, you import a batch of goods from China, with five ordinary 20 feet container loading. You enjoy 7 days of free demurrage in the U.S. port. But for various reasons, it exceeds the free demurrage days of 10 days.
- First 5 days each container’s PDPR is $100, and the cost is $100*5*5 = $2,500.
- Second 5 days each container’s PDPR is $150, and the cost is $150*5*5 = $3,750.
Total demurrage is $2,500+$3,750=$6,250.
Calculate detention fees
Detention fees vary from the shipping company to company. The detention charges of the same shipping company are also influenced by the size, number, and type of containers.
According to the standard of MSC for cargo detention in New York port, USA.
Detention fees = detention PDPR * detention time * number of containers
For example, if your cargo is packed in 5 containers of 20GP, the time from the cargo out of the New York port to the return of the empty container is 10 days, which exceeds the agreed 4 days. Then you need to pay 6 days of detention.
- First 4 days each container PDPR is $125, the cost is $125*4*5 = $2,500.
- Second 2 days each container PDPR is $175, the cost is $175*2*5 = $1,750.
Total detention is $2,500+$1,750=$4,250.
If two charges are incurred, usually your forwarder will pay them on your behalf. He will hand over the bills to you at the time of the final settlement.
How to avoid detention fees?
The way to avoid detention charges is to shorten the time to return empty containers. It is also important to know the time of free detention days and make contingency plans in advance.
Choose a proper way to empty the container
You can try to contact the yard where the container is located in advance, to negotiate whether the released cargo can be emptied inside the yard directly. And then the cargo will be delivered to the final destination by rail or truck as needed, so that you can avoid detention charges.
Apply for more free days from the shipping company
If the clearance time of your destination port is longer or the clearance procedure is relatively troublesome, you can ask your forwarder to apply for longer free days. But this situation can only be considered when you have a large number of containers.
How to avoid demurrage fees?
The main factors that cause demurrage fees are customs delays, port congestion, bad weather, etc. Apart from these objective factors, the way you can avoid these charges is to speed up customs clearance, thus preventing containers from being stacked in the port for a long time.
Go through customs clearance in advance
If you work with a competent freight forwarder or customs broker, your cargo will likely be cleared as soon as possible. You just need to cooperate with your broker to prepare the required documents in advance. Depending on the properties of the goods, the documents may vary.
For example, timber products need a certificate of origin, a phytosanitary certificate, and a fumigation certificate. If any problem arises in this process, there is also a buffer time to solve before the ship arrives at the port.
Suppose you need to ship goods to the United States, you can clear customs in advance. When the goods arrive at the port of destination, the customs will release your shipment soon after the audit, you can directly collect the goods. In this way, your cargo can avoid a long-time accumulation in the port.
Know the port in advance
Your freight forwarder will inform you in advance of the port. If this port is particularly crowded, perhaps you might want to consider changing to another.
Also booking a trucker in advance is a good option. Once the cargo is released, it can be moved out of the port quickly. Thus, there is no problem with these fees due to the overdue date.
Note that your forwarder can also try to get longer demurrage days with the shipping company. However, since the cargo is already stacked in the port, demurrage can be more expensive compared to detention. Therefore, it is more difficult to apply for.
Believe you have a clear understanding of detention and demurrage. If you still have any problems, feel free to leave a comment below.
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