Why is Demurrage Charged?
Demurrage fees are applied by a shipping carrier to incentivize the return of carrier equipment, i.e. shipping containers, once containers are off-loaded at port. Container availability has been scare since the 2020 pandemic. The longer a container languishes at port, the less money it produces for the carrier. Shippers receive on average 7 free days to move the container from port.
Difference Between Demurrage & Port Storage
Demurrage Fees Explained
Shipping carriers charge for demurrage. They charge for the amount of time the container spends at port – not moving to it’s final destination for unload. They need their container unloaded and returned. Otherwise, it’s an asset that’s not making them money. And if it’s not making them money – then that means, they’re losing money. Demurrage fees serve to offset that lost money.
Carriers offer an average of 7 free days after arrival at port, before demurrage fees activate.
Separately, ports also charge for storage. They need their space at port back.
Port Fees Explained
Containers parked at the port consume valuable yard space, which impedes productivity. This in turn, catalyzes congestion issues. Port yards need storage space and equipment to revolve in and out as quickly as possible, to make room for new shipments coming into port. Port storage fees, therefore, incentivize shippers to move with haste. Again, ports typically offer 3 days of free time.
Port terminals offer an average of 3 free days after arrival at port, before port storage fees activate.
Remember, each party offers a different set of Free Time to the cargo’s consignee (freight forwarder or cargo proprietor).
What Causes Demurrage or Port Storage?
Pay Your Carrier
Payment terms must be agreed upon and paid for the carriers’ bill of lading to be released. If payment terms remain unsettled, the carrier will withhold the container, incurring demurrage. Partial payments, from shipper to carrier, may not indemnify the carrier. As such, if payment terms remain unresolved, the carrier will hold the container and its goods, resulting in demurrage.
Incorrect or Incomplete Shipping Documents
Your import and export documents must be perfect. Otherwise, an error can delay the processing of paperwork. This delay will prevent your goods from being moved, until cleared. That time spent waiting will result in unnecessary demurrage.
Improper Scheduling & Planning
Are you aware of when your goods arrived? If not, you probably do not have your customs paperwork ready. That can lead to delays and demurrage. Perhaps the goods arrived but the shipper did not have a trucking partner ready to pick the goods up. That can lead to delays and demurrage. Scheduling could simply be beyond control – where there are no delivery appointments available before the Last Free Day. In which case, your freight forwarder should not have waited till the LFD to schedule a pick up appointment. They should have scheduled a pre-pull instead. This delay can also lead to demurrage and/or storage
How Much Does Demurrage Cost?
Carriers charge demurrage per container, per day. Notably, fees start after containers exhaust their Last Free Day – with the carrier (not port). It continues until the container is returned. The specific charges will vary depending on the carrier. However, fees are expensive. Expect anywhere from $75 – $200 per container, per day. Much like FBA storage, carriers apply a long-term storage rate too. Ports will increase the daily fee amount after a certain number of days. Prepare yourself with the right paperwork to avoid these fees.
Can I Pick Up Cargo Before Demurrage is Paid?
No. Demurrage must be paid before your cargo can be retrieved. As such, if you become aware of the fees early, make sure to pay them early.
How Can I Avoid Fees?
- Plan ahead. Firstly, ensure your freight forwarder schedules a container pick-up as far in advance as possible. Truckers take reservations. Make a reservation. Avoid demurrage and port storage.
- Alternative plans. Secondly, in shipping, always have a back up plan. It is a good idea then, to have a second trucker, in case of unprecedented delays.
- Stay informed. Thirdly, utilize a freight forwarder familiar with port regulations and customs processes at the destination location. Stay in communication with your forwarder so you know where your shipment is.
- Utilize Express or Electronic Releases. Utilize Electronic document expedite the exchange of paperwork such as customs, bill of lading, delivery order form and so on. This quickens the movement of cargo to the trucker to its final unloading point.
- Instructions. Fourthly, communicate clear delivery instructions to your freight forwarder and final warehouse to avoid unnecessary delays or misunderstandings. For example, does the final warehouse need a delivery appointment scheduled?
- Ask for an Extension. Often times carriers and ports might extend the period of free time allotted.
Difference Between Demurrage vs Detention Fees?
Demurrage refers to the charge that the cargo consignee pays for the use of the container within the terminal beyond the free time period, set by the carrier.
These are charged for the time a container spends occupied outside of the port, whilst awaiting an unload and return to its carrier. For example, an empty container can incur detention charges, if it languishes at its final delivery destination, beyond the allotted free time provided by the carrier.
What’s the Difference Between Demurrage and Port Storage Charges?
In summary, when a container exceeds the allowable free time at port, charges are levied by the port, as port storage. This incentivizes shippers to move containers out of port quickly. Alternatively, demurrage is a fee by carriers to cargo consignees when a container’s allotted free time from the carrier at port is exhausted.