What is the purpose of demurrage and detention charges?
Demurrage and detention charges serve the purpose of ensuring terminal and carrier productivity is maximised.
The charges are designed to deter importers and exporters from utilising port terminals for storage and from retaining containers for excessive periods.
What are demurrage and detention and when are the charges applied?
Demurrage charges are applied by carriers within the terminal when containers are left at the terminal for longer than agreed.
Charges can be levied against imports when importers do not collect their goods within the designated time. For exports, charges may be applied when containers are delivered to the terminal ahead of the agreed time or when containers cannot be shipped out of port due to non-carrier related errors once the allotted time has expired.
Asides from costs incurred from carriers for the use of their containers at terminals, the terminals themselves will often apply a charge for the space being occupied by that container outside of the time allowed. This charge is collected by the carriers on the terminals behalf and is often referred to as quay rent.
Detention charges are applied against the use of the container outside of the terminal, when the shipper is either loading for export or unloading imported goods and fails to return the container to the terminal within the specified timescale.
Given that all shipments, whether imports or exports, have to be manoeuvred from or aboard the carrier’s vessel, custom cleared and haulage has to be arranged, it is accepted that reasonable time must be given for these operations to take place.
Similarly for operations outside of the terminal, it has to be taken into account that there needs to be time given for the delivery of the container for exports, loading and pick up, and for imports, the pick-up, unloading and the return of the empty container to the terminal.
As such, there is a period where no charges for detention or demurrage are applied. This is commonly known in the industry as ‘free days’ or ‘free time.’ Free days are often somewhere from 3 to 7 days.
If the number of free days is exceeded then a charge of demurrage, quay rent or detention is applied at a daily rate. These charges vary from carrier to carrier and terminal to terminal.
Generally importers and exporters don’t factor in these additional costs but should they become applicable they can potentially have a huge impact on a business’s bottom line.
So what steps can you take to minimise detention, rent and demurrage costs?
There are incidents that you may face which are out of your control where demurrage and detention charges may become applicable such as bad weather, strikes and terminal congestion.
Whilst charges are not always avoidable, there are measures which you can take to minimise these costs when importing or exporting goods.
Steps to take to avoid demurrage and quay rent charges
Correct documentation such as Original Bills of Lading, licences, packing lists, commercial invoices and certificates of origin should be in place for your goods in advance of the vessel arrival / departure. You should also make certain that declarations are made using the correct Commodity Codes to help ensure as smooth a clearance as possible.
Irrespective of when you are shipping your goods, for imports, something as simple as not being aware that goods have arrived, perhaps say, due to a missed notification, can mean demurrage charges begin to mount up quite quickly. You (or, if you have appointed one, your chosen freight forwarder) should track vessel arrival dates and confirm when goods have been released by Customs so you are ready to arrange collection.
You should also ensure that any payments due are made on time as a delay in payments can cause the carrier to refuse the release of goods.
Similarly, imported cargo pulled for inspection by Customs, Port Health or Border Force can cause a delay in the release of your goods. AEO accredited companies generally experience fewer inspections than other consignees so when choosing a freight forwarder, an AEO accredited company is a favourable option.
When exporting goods, it is a requirement under SOLAS regulations for all containers to be presented with a valid VGM. Without this in place, carriers will not load your goods onto the vessel.
Whether importing or exporting, where possible, it is advisable to avoid shipping goods during peak periods. When it comes to ocean freight, the increase in the size of vessels means that the working of goods is more-lengthy, and with more pick-ups, congestion at ports can often be experienced during peak times. Any congestion can lead to a delay in collecting or delivering your goods, which may not only result in demurrage charges, but may mean you also incur detention charges.
Pre-planning the movement of your goods to and from the port and final destination can also help to avoid detention charges…
Steps to take to avoid detention charges
Once your goods are released for collection, you should arrange for the movement of these as a matter of priority. Having a good network of hauliers’ means that you have alternatives to go to in case of no availability with your original selected haulier. By opting to utilise a freight forwarder to handle the shipment and delivery of your goods on your behalf, you will be able to take advantage of the established network of contacts that they will have.
Upon delivery of your goods to their final destination, you should make certain that, as the consignee, there is a suitable number of staff available to ensure that the goods can be unloaded and the container returned within the shortest timeframe possible. Similarly, when exporting goods suitable numbers of staff should be employed for the loading of the container to ensure delivery back to the terminal on time. If not enough staff are deployed and the container takes too long to load, the haulier may not have enough driving hours to make the return call to port.
Whilst it is possible to manage your own shipments and take these steps to minimise the likelihood of charges being incurred, using a reputable freight forwarder to undertake your operations can be beneficial as they will have the knowledge, experience and well-established networks to handle your shipments.