In international trade, transportation costs are the focus of attention of enterprises and individuals. Demurrage is a common expense. Understand and avoid this expense and save transportation costs. This article will introduce demurrage in detail.
Learn more: The 11 Common International Trade Terms
What is Demurrage?
Demurrage refers to an additional fee that the owner or his agent needs to pay to the carrier or port authority after the ship or container stays in the port or yard for more than the free period during the transportation of goods, especially in sea freight or rail freight.
Demurrage usually applies to containerized goods, because containers need to be loaded and unloaded and delivered within a specified time, and demurrage will be incurred if the time limit is exceeded.
Reasons for Demurrage
Demurrage is usually caused by the following reasons:
- Loading and unloading delay: After the goods arrive at the destination port, if the goods are not picked up in time due to port congestion, unloading delay or other operational delays, the time limit for free demurrage is exceeded.
- Port facility limitations: Some ports are unable to cope with peak cargo throughput due to old facilities and limited processing capacity, resulting in detention.
- Untimely customs clearance procedures: Importers fail to complete customs clearance procedures within the specified time, resulting in cargo detention at ports or railway stations.
- Insufficient storage: When the goods arrive, if there is insufficient storage space, the goods cannot be stored in time, resulting in detention.
- Transportation interruption: Due to the failure of the transportation tool or other reasons, the goods cannot arrive at the destination on time.
- Customer operation problems: If the customer fails to arrange for pickup or transportation in time, the goods will be detained.
How to Calculate Demurrage
Demurrage is usually calculated based on the time beyond the free storage period
Different rates for container types
Different types of containers (such as standard containers, refrigerated containers, etc.) may have different demurrage charges.
Port differences
Different ports or railway stations may have different demurrage standards based on their operating conditions and resource constraints.
Rate standards
Calculated based on the number of days of detention and the cost per day.
Difference between Demurrage and Detention
Although the terms “Demurrage” and “Detention” sound similar, their definitions and scope of application are different:
- Demurrage Fee: refers to the fee charged after the goods are detained at a port or station for an extended period of time. Its main purpose is to compensate for the storage and docking resources occupied by the detention of goods, and is paid by the cargo owner or its agent to the carrier or port authority.
- Detention Fee: refers to the fee incurred when the customer fails to return the empty container in time after the container is delivered by the transport company. It usually refers to the detention fee caused by the ship itself (such as failure, maintenance, etc.), which is borne by the ship owner or operator.
Impact of Demurrage
Demurrage has an important impact on international trade and logistics chains:
- Impact on supply chain stability: Detention of goods may hinder subsequent production plans, affecting the overall stability and response speed of the supply chain.
- Increased transportation costs: Demurrage directly increases the logistics costs of the cargo owner. If the goods are detained for a long time, the cost will increase significantly.
- Impact on supply chain efficiency: Frequent demurrage charges reflect poor supply chain operations, which may lead to inefficiencies in cargo transportation and distribution.
- Loss of trust and reputation: Long delays can affect relationships with shipping companies, ports and customers, damaging a company’s reputation.
How to Avoid Demurrage Charges?
Plan ahead and coordinate
Ensure transportation plans are detailed and fully communicated and coordinated with ports, shipping companies, customers and customs clearance agents in advance.
Complete customs clearance procedures on time
Ensure that all documents and customs clearance procedures are prepared in advance to avoid delays in customs clearance leading to stranded goods.
Arrange delivery in time
Ensure that after the goods arrive at the port, pick-up or transportation can be arranged in time to avoid being detained at the port for too long.
Properly arrange storage space
Understand the warehousing situation at the destination port in advance and reserve storage space when necessary to avoid detention caused by full warehouse capacity.
Comply with relevant regulations and requirements
Understand and comply with the regulations and requirements of shipping companies and ports, including container-free periods, stacking-free periods, loading and unloading procedures, etc., to ensure that goods comply with regulations, are loaded and unloaded on time, and are picked up on time.
Frequently Asked Questions about Demurrage
Will demurrage be charged on an hourly basis?
Some ports and shipping companies may charge demurrage on an hourly basis, but in most cases, demurrage is calculated on a daily basis.
Do demurrage and demurrage exist at the same time?
Yes, demurrage and demurrage can be incurred at the same time, especially when the cargo is detained at the port and the container is not returned in time.
Is the demurrage charge transparent?
In most cases, shipping companies and ports will clearly specify the standards and billing methods of demurrage in the transportation contract to ensure that the charges are transparent.
Can demurrage be negotiated for reduction or exemption?
Whether demurrage can be negotiated for reduction or exemption depends on the specific terms of the contract and the actual situation. In some cases, if the demurrage is caused by force majeure, the parties can negotiate to reduce or exempt part or all of the demurrage.
Through this article, you can clearly and comprehensively understand the concept, calculation method, impact and avoidance method of demurrage, better understand this fee, better control logistics costs, and ensure the smooth completion of transportation tasks.