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Demurrage Charges: Who pays & How to Avoid?
Sometimes, you may receive some unexpected bills during container shipping. One of these is the demurrage charge which can increase costs for shippers, carriers, and consignees. Understanding what it is, who is responsible for demurrage charges, and how to avoid it can control your shipping costs. Keep reading!
What is a demurrage charge?
Demurrage charges will occur when a container is retained in the port or terminal beyond the allowed free time(also known as laytime). Typically, the port of delivery will offer free periods ranging from 2 to 5 days, varying from different ports or shipping companies. So it is critical for you to verify the free days allowed for the container depose.
The demurrage fee is charged by the day and per container. It also depends on the type and size of the container, as well as the location and duration of the delay. Under circumstances where you ship LCL shipment, you don’t need to pay for the entire container load if demurrage shipping happens. But the carrier may collect a fee depending on the space your goods have taken.
Why is demurrage levied?
Demurrage charges aim to ensure efficient and quick turnaround for port facilities and prevent the hoarding of containers or vessels. If the shipper fails to move the container out of port within the free days, the port authorities or shipping company will levy the demurrage fee. It aims to encourage better usage of terminal space and container storage.
Common causes of the demurrage shipping
Many factors can lead to demurrage charges. Below are some involves in:
Inadequate communication
A dispute due to miscommunication between the shipper, receiver, or carrier (especially the payment issues) can lead to the late release of the containers. It causes failure to plan shipments properly, which delays unloading or loading cargo. This results in demurrage costs if the shipping container exceeds the allowed free time.
Customs clearance issues
The customs inspection process may take a long time based on distinct customs policies and regulations. When this situation happens, the delays in customs clearance are able to incur surcharges of demurrage.
Documentation errors
Shipping documentation issues are also a common factor of container demurrage. Disarrangement in document exchange between importer and exporter will occur a late submission of shipping documents. For example, it will affect your goods pick up such as bill of lading error.
Other uncontrol factors
Once in a while, some unanticipated situations will create demurrage fees too. Labor shortages or strikes will lead to congestion at ports and terminals. Or other epidemic-related outbreaks that make the supply chain disruption.
In addition, given the weather conditions and labor resources, the freight market can be subject to several factors beyond shippers’ control. Such as worse weather-related issues, like storms or hurricanes, can cause delays in chassis shipping and bring the demurrage cost.
All these can lead to delays in the container handling process, making it rigorous to reduce demurrage charges. If you want to avoid demurrage fees in shipping, it is significant to communicate with the carrier and terminal in advance. Not only do you need to plan container shipments carefully, but also you need to ensure that all shipping documents are correct.
How to calculate demurrage?
Generally, calculating demurrage charges always depends on the carrier, daily rental demurrage rate for container shipment, etc.
For fee calculating, you should count the number of days/part days over the agreed free days at the destination port, multiplying it by the demurrage rate. Here is an example of calculating demurrage fees:
Suppose you ship two containers from Shanghai to Los Angeles. The free time provided by the carrier is seven days, and the demurrage rate is $200 per day. After arriving port of delivery, the container’s retain days exceeded five days than the free period. So the demurrage cost would be:
The Demurrage Payable= US$ 200x 5days x 2 containers = US$ 2,000
However, there may also have additional fees or surcharges added to the demurrage charges, such as the cost of storage or administration, which would factor into the final amount. So it is critical to review the terms of your shipping contract and whether it has any associated fees during container shipping.
Who has to pay?
You should note that the demurrage fee is based on various types of cargo and containers. If you transport sensitive or hazardous goods, or your shipment needs a particular container, like with a freeze feature, the demurrage rate will be more expensive than the general one. Furthermore, the more days increase, the higher charges will be.
The responsibility for paying demurrage charges may change during the import and export shipping process. In some cases, the importer may be responsible for the demurrage fees, while in others, the exporter may be. Here are the details:
If the container is not picked up from the terminal by the end of the “free days” during the import stage, the importer has to bear the demurrage charges. They should pay a demurrage fee regardless of whether the delay is due to failure to return the container or lateness in retrieving the shipment.
If the loaded container cannot be dispatched within the stipulated free time, the exporters should bear demurrage charges during the export process. Whether the importer or exporter pays the fees, full payment is needed before the shipment is released.
Difference between demurrage and detention
While demurrage and detention are often used interchangeably, they refer to different charges. First of all, you should know what the detention fee is.
Demurrage is for the delay of a vessel or container at the port or terminal, while detention represents the delay of a container outside the port, etc. In other words, detention is a charge levied when the receiver holds the container before returning back empty container to the carrier or port.
To illustrate, you (as a shipper) are importing a container into the Port of Long Beach via the HUIN International Logisticsshipping line. Once the container is cleared and ready for haulage service, you have a certain number of free days to return the container to the port. You will be billed (generally $125 ~ $175 per day) by the freight carrier for every day outside this free stage until returning the container.
As mentioned above, the demurrage charges happen at the port or terminal. So the difference between demurrage and detention is that detention charges always occur after delivering the cargo to the receiver. And the purpose of detention is to incentivize the return of the container in efficiency for other shipments.
How to avoid demurrage charges and tips to negotiate
Familiarize all the contracts
Carefully review all agreements involved, including the shipping contract with the carrier and the contract with the buyer. For instance, you should pay attention to any specific permissions or special requirements required for customs clearance or in the shipping terms. So that you can prepare ahead of time to reduce the risk of lateness in picking up the loaded container.
Proper documentation
Ensure all necessary documentation is complete and accurate, such as bills of lading, customs forms, import/export permits, etc. Proper shipping document is helpful to make the whole process of customs clearance seamless and smooth. Meanwhile, it will decrease the likelihood of demurrage charges incurred.
Choose a trustworthy carrier
When selecting a carrier, consider their reputation for reliability and ability to handle the shipment. Look for freight carriers with a strong track record of on-time and efficient delivery and good communication. They can help you unload and clear from the port or terminal in time to avoid demurrage costs.
Tips to negotiate
Negotiation with the shipping carrier involved in the shipment is essential to avoiding demurrage charges. Keep the shipping carrier informed of any changes to your delivery schedule or requirements. And make sure to obtain any necessary documentation or approvals in advance to prevent delays. You can also contact the carrier for additional free time or reduced demurrage rates.
Planning your shipments ahead and guaranteeing that you have adequate resources to unload the cargo promptly is critical to avoid demurrage charges. What’s more, you can arrange for the telex release of shipments instead of just the original bill of lading (BL). It is beneficial for expediting the entire cargo release process, thereby lessening the chance of demurrage penalties.
Get HUIN International Logistics support in demurrage shipping
In conclusion, demurrage charges are a vital aspect of freight that can significantly impact your shipping costs. Working with HUIN International Logistics can avoid costly demurrage or detention fees and keep your shipping freight under control. Besides, ASL allows your cargo to arrive on time and within budget with its global logistic networks.
By planning your shipments professionally and customizing solutions, HUIN International Logistics official team can minimize demurrage charges. They are also an expert at handling special cargo and e-commerce logistics like shipping to Amazon FBA. HUIN International Logistics aims to satisfy your demand for international transportation. As a result of partnering with this 3PL supplier, you can escalate logistics services for your supply chain. For more shipping solutions, get in touch with ASL now to discover further!