Shippers have to consider several factors when they are dealing with shipping cargo across countries and continents. Right from packing the shipment the proper way to picking up and delivering it on time, shippers have their hands full.
Add to it, any additional charges and fines incurred due to a slight lapse in the process, and the entire process becomes even more complicated.
However, having a better understanding of these additional charges and fines will help you actively prevent incurring them. With that in mind, let us learn more about what is demurrage, how to calculate it, and how it differs from detention charges.
What is Demurrage?
When shipping your goods through air, sea or rail freight, your goods can often remain in the port of destination (PoD) for a few days. These days are called laytime, and the shipper is not charged for keeping their goods in the PoD for the duration. Carriers tend to bear the cost of storing the goods on the port for those free days.
However, shippers should avoid leaving their goods unpacked in the port terminal or shipping line longer than the laytime. If your goods remain in the port terminal beyond that duration you will incur demurrage charges.
If you keep your goods and containers in the port for a long time, you’ll end up paying demurrage charges per day accumulated over time. Shippers who want to avoid hefty charges and payments should ensure timely clearance of goods from the port terminal.
How Are Demurrage Charges Calculated?
Now that you know what is demurrage and the related charges, let us look at how they are calculated.
For starters, you must consider that most shipments receive 48 hours of laytime after they reach the destination port. Shipments that have travelled through sea or ocean freight tend to receive more laytime - at least four days.
Still, if you leave your goods unpacked, you may be looking at substantially lower laytimes compared to the goods that are still sealed tight. However, if you store goods beyond this time frame, you can quickly start accruing demurrage charges per day.
Now, it is important to keep in mind that your demurrage charges calculation will depend on two major factors:
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The demurrage rate, or the per-day-pro-rata (PDPR) refers to the daily rate that the carrier will levy on the shipper for each day beyond the laytime
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The number of days or hours that the shipment has exceeded the laytime and stayed at the destination port
The calculation of demurrage cost is fairly straightforward and involves multiplying the per-day demurrage rate with the number of days you store your goods in the destination port.
4 Major Causes of Demurrage
Now that you know the demurrage definition and the process of calculating the demurrage charges, let us look at the major causes that led to it in the first place. If a shipper is unable to collect or pick up their goods from the destination port terminal, there are specific causes behind it. They are as follows:
1. Congestion at The Destination Port
While the reasons for not being able to collect your shipments from the destination port might be in your control, sometimes, it is due to external conditions. One of these reasons is possible congestion at ports because of high demand or too much traffic, especially the ones in prominent shipping zones.
Around certain holidays such as Christmas or Easter, when international shipment volume is at an all-time high, port terminals can get congested with shipments waiting to be collected.
2. Documentation Loss or Errors
When dealing with international shipments, you’d also be dealing with a lot of related paperwork and documentation. Any inaccuracies or errors in the documentation can potentially derail the process ahead at the destination port and may even prevent you from collecting shipments on time.
Apart from documentation errors or mistakes, you may also face similar issues in case you misplace or lose the paperwork before the process is completed.
3. Extreme Weather Conditions
There are strategic and business issues, and then there are just issues arising from natural or environmental causes. In fact, certain weather conditions can prevent your personnel from reaching port terminals to collect shipments leading to demurrage.
These extreme weather conditions can include hurricanes, tsunami warnings, earthquakes, floods or more. All these weather conditions would make it impossible for shipments to be collected from the port and cause a plethora of issues. Carriers generally offer insurance coverage for any damages to your shipment resulting from extreme weather conditions.
4. Issues With Customs Clearance
Customs clearances can get complicated for even the most experienced logistics managers and brands. With international shipments, your customs clearance can take longer than you expect depending on the destination your shipment is headed towards.
But often due to errors in documentation, missing paperwork or other issues, you can end up facing a lot of issues with customs clearance and calculating customs duties. Demurrage charges in customs clearance are quite common if the paperwork is not in order, and it can delay the process of picking up your shipments from the port terminal.
Demurrage vs Detention Charges
Once your shipment reaches the destination port, there are two kinds of charges you can incur if you don’t pick them up on time. These include demurrage and detention charges. Here are a few points of difference between the two charges:
Definition
While demurrage fees refer to the fees that you need to pay if you fail to pick up your shipments after your designated free days. On the other hand, detention charges are the complete opposite of demurrage charges.
Detention charges refer to the fees you need to pay if the container is still in your possession and has not been returned even after your allotted free time is over. In a lot of cases, you may end up paying your demurrage and detention charges.
The primary difference between the two concepts lies in the location of the respective containers when they are delayed. While a demurrage charge refers to the late fees you’ll pay for not collecting the shipment in your container inside a terminal, the detention charges refer to the fine you’ll pay for not returning the container you took out of the terminal on time.
Causes
While most of the causes leading to demurrage charges may also apply to detention charges, the latter is usually caused as a result of miscommunication or lack of proper management in the process. Since demurrage and detention exist in import as well as export scenarios, you’ll need to consider quite a few factors for both processes.
Import
Demurrage charges for containers need to be paid before the cargo can be moved out of the port terminal. In the case of imports, congested roads going in and out of the port can delay the process of moving your shipment out. In this case, the shipping line will charge you demurrage till you pick up the shipment.
On the other hand, imagine that your container full of shipments has reached your distribution centre. As a result of labour shortage, you may have been unable to unload your cargo thus delaying the return of the shipping containers back to the terminal. Detention charges are aimed at decreasing the container’s turnaround time and increasing efficiency.
Export
Demurrage charges can hit you hard during the export process just as much. Imagine you are loading a container of shipments from the port near your warehouse onto a ship. However, because of a few missing documents, your shipment may end up not getting loaded on the ship on time, delaying the scheduled departure and lead time.
In this case, you’ll need to pay demurrage charges for the storage period before loading your cargo.
Let’s consider another situation. You have already lined up a few shipments to be loaded onto the next ship and you have picked up a few empty containers to load the goods. However, you might end up facing rough weather conditions that might prevent you from sending your container back to the port terminal.
It is always a good idea to take measures to avoid demurrage and detention charges as you are already likely to have a ton of shipping charges to deal with. While external factors are not always in your control, it is a good idea to prevent any internal factors that may cause demurrage or detention charges.
How to Avoid Demurrage Charges in Shipping?
With this much understanding of the demurrage charges definition, you know that you must avoid them at all costs, here are a few ways to do it:
Proactive Communication
One of the primary ways to avoid demurrage charges in shipping is communicating proactively. As a shipper, you’ll have multiple parties to coordinate within the process of shipping and delivering shipments.
As a shipper, you need to ensure proactive communication with carriers, port officials, and other representatives in the process to ensure that your shipments are loaded and unloaded on time. You can also provide any specific instructions in advance so that you can prevent any actual delays in the process.
Optimising Your Supply Chain Process
Another great way to avoid incurring demurrage charges is to optimise your supply chain to prevent delays. Your supply chain process can play a pivotal role in determining whether your shipments are reaching their destination on time.
You can also optimise your supply chain process to ensure that any bottlenecks or issues that may cause delays are identified in advance and eliminated.
Arrange for Backup
A lot of parties are involved in ensuring that your shipping process is as seamless as possible, however, when one of the parties faces issues, the entire process can break down very quickly. To avoid this kind of situation, it is a good idea to keep a few backup vendors on standby.
In a situation where your usual trucking company or drivers are unable to pick up or drop your shipments on time, you can have your backup vendors come through for you. If you do it right, you can avoid incurring any demurrage.
Wrapping Up
By now, you must have learned the basics of demurrage charges and the steps you can take to prevent them from derailing your shipping operations. Incurring demurrage and detention charges when you are least expecting them can lead to many operational losses making it even more important for you to work on avoiding them.
Get a quote from the PACK & SEND website to partner with a team of reliable logistic experts who can help you level up your international shipping operations.