Demurrage and Detention – Meaning, Reasons, Impact and Controversy

Demurrage and Detention are the terms that one would come across in the case of international trade and shipping. Basically, these are the charges that importers/exporters pay for overusing the container services.

Demurrage is the charge that one needs to pay for using a container inside the port or terminal beyond the free time period. The average free period is usually 4 to 5 days. Detention, on the other hand, refers to charges that one needs to pay for using the container outside a port or terminal after the free time period. The average free period for Detention is usually 3 to 5 days.

Usually, it is the shipping lines that own these containers. Thus, the shipping lines charge Demurrage and Detention to the exporters or importers.

The primary objective of levying these charges is to ensure importers and exporters quickly return the containers. Also, levying these charges help shipping lines to recover the cost of containers. This can also be seen as the last opportunity/revenue due to delayed rotation and/or extra usage by the existing user.

However, before shipping lines start to levy these charges, it is crucial that they give reasonable free time to the importer and exporter:

  • To exporter: for loading the cargo onto the container and then delivering it to the vessel.
  • To importer: for picking up the container from the destination port and returning the empty container after unloading the cargo at the final destination.

Usually, the free time that importers and exporters get varies from 2 to 5 days. But, the free time period may vary depending upon the port, terminal, trade, nature of cargo, and more.

Demurrage and Detention – Reasons

None of the parties – the importer or the exporter, for that matter would like to pay these extra charges towards demurrage and detention. However, there could be several reasons for the delay in returning the containers. Following are some of the primary reasons that may result in Demurrage and Detention charges:

  • Factors beyond the control of importer or exporter. These could be weather, political unrest, labor strikes, non-availability of trucks and trailers, COIVD-19-like pandemic situation, and more.
  • Delay in getting customs clearance. For example, if customs authorities confiscate the cargo for inspection.
  • If the documents are incomplete or not accurate, it could also result in a delay.
  • In case the document gets lost, it could delay things as well.
  • When there is a delay in vessel departure, it may also result in the importer or exporter incurring Demurrage and Detention charges.
  • Exporters or importers may also incur these charges if the shipping lines delay in releasing the cargo. Usually, shipping companies delay things if they don’t get the payment in time.
  • Delay could also be because of the unavailability of the cargo receiver.

Impact of Demurrage and Detention Charges

Demurrage and Detention could have a significant impact on the bottom line of the exporters and importers. In the real world, there have been cases when parties have to pay as much as 20 times the value of the cargo by way of these charges.

Another impact of these charges is that they could result in further delay. And this, in turn, affects the exporter’s or importer’s complete supply chain.

Demurrage and Detention could also result in confusion. As said above, these charges could vary by port or country. So, if a party does not have information on these charges of a particular port or country, it could make it challenging to accurately track these charges.

Demurrage and Detention – Controversy

Demurrage and Detention have long been controversial topics. And this remains a point of contention between the exporters and importers and the shipping lines. The importers and exporters have long been accusing the container providers of unfair trade practices. For instance, importers and exporters say that shipping lines levy unfairly high charges for the delay. Also, the shipping lines face the accusation of reducing the free time period.

Owing to such differences, several authorities, such as FIATA (Federation of Freight Forwarders Associations) and the United States Federal Maritime Commission, have come up with recommendations to resolve the disputes between the shipping lines and export/importers. These recommendations include:

  • At the first and base level, the Free Time Period should be raised.
  • Encouraging the use of environment-friendly modes by extending the free detention time.
  • Giving opportunities to the shippers to negotiate directly with the merchant haulage. Many importers/exporters may choose merchant haulage over the carrier. This is because it enables shippers to negotiate directly with the haulage provider and not accept the rates that the carrier quotes them.

How to Avoid?

Importers and exporters never prefer to pay these charges as these are extra charges that impact their profit margin. Barring a few factors, the importer/exporter can work to avoid these charges by careful planning. They can avoid these charges using the following tips:

  • Ship the cargo in advance to get some buffer time.
  • Properly plan for loading and unloading to avoid possible delays.
  • Prepare all the documents carefully and make sure they are accurate.
  • Get all the information on getting custom clearance, as well as on the cut-off dates. For example, shipment to the U.S. needs a declaration on AMS 24-hour before shipping the cargo from the departure port.
  • Keep all your trading partners informed with the details of shipment. These trading partners could be freight forwarders, inland transport service providers, financial institutions, and more.
  • Get as much information as possible about the shipping process, such as customs rules and regulations at both ports.
  • It is always better to regularly track your shipment. This allows the importer or exporter to take swift action whenever they sense a delay in the plan, and corrective actions can be taken immediately.
  • Last but not least, one should always have a backup plan/plan B ready. Keeping a back-up, even if you have to incur some cost, could prove very handy and could actually result in more savings (than Demurrage and Detention charges) if things don’t go as per the schedule. For instance, if the port you are targeting is experiencing congestion, then you can quickly divert cargo to another port.

Combined or Merged Demurrage and Detention

Even though Demurrage and Detention are different charges, their concept is the same. So, some shipping lines use a common method to charge a shipper for Demurrage and Detention, rather than calculating the two separately.

This common method is Merged D&D, or combined Demurrage and Detention. In this, the shipping lines offer a flat number of days to exporter/importer to take the container after discharge from the ship and return the empty container back. Thus, this is the end-to-end time period, and no split separately allowed or calculated. One has to manage the whole process within this allowed time period.

For example, suppose a shipping line offers merged D&D of 10 days. In this case, the consignee needs to pick up the cargo from the vessel, transport it to the warehouse, offload it, and return the empty container to the carrier within 10 days.

Port Storage Charge and Demurrage – Are They Same?

This charge is very similar to Demurrage. However, it is not exactly the same, and the collecting parties are also different. Thus, it is important that importers and exporters know about the Port Storage Charge so that they do not confuse it with Demurrage.

A port storage charge is a charge that shipper needs to pay for storing the container at the port beyond the free period time. Usually, the free period for port storage charges is 3 to 7 days. These charges can apply if the containers are waiting at the departure port, or containers are waiting to get the import clearance, or empty containers are stacked at the port or terminal.

However, unlike the Demurrage charge, it is the port or terminal that levies the port storage charge. On the other hand, it is the shipping line that levies Demurrage. The Port or terminal collects the port storage charge from the shipper or from the shipping line, who then passes on those to the importer or exporter.

Sanjay Borad

Sanjay Bulaki Borad

MBA-Finance, CMA, CS, Insolvency Professional, B'Com

Sanjay Borad, Founder of eFinanceManagement, is a Management Consultant with 7 years of MNC experience and 11 years in Consultancy. He caters to clients with turnovers from 200 Million to 12,000 Million, including listed entities, and has vast industry experience in over 20 sectors. Additionally, he serves as a visiting faculty for Finance and Costing in MBA Colleges and CA, CMA Coaching Classes.

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