September 8, 2022
Shipping Costs: How to Reduce Detention and Demurrage
Shippers across the globe face detention and demurrage charges, two of the more frequently applied additional costs that can have a huge impact on spending for container shipping and overall business operations. Although they cannot always be avoided, this blog post presents how to reduce their burden.
What is Detention?
Detention is a charge applied to the amount of time that rented containers sit outside of port terminals, beyond the free period, which is usually seven days. It can be applied both prior to container loading and after unloading. In the first case, detention starts from the pick-up date and ends with the delivery to the port of loading. In the second case, the charge is applied from the pick-up date at the port of discharge terminal until its empty delivery. Detention is billed per day, but the rate depends on carrier, location, and container type. The rate often varies depending on the number of extra days too. This charge is paid by the shipper to the carrier.
Detention charges often come from issues with the documentation needed for shipping, such as missing data. Container delivery delays, caused by external factors such as bad weather, can also trigger detention charges.
What is Demurrage?
Demurrage is a charge applied to the use of equipment while a container is waiting for departure at the port of loading (or unloading), beyond the agreed period, which starts when the container arrives at the terminal and ends when the vessel sets sail (or the container is picked up). Like detention, demurrage is billed per day, with the rate depending on carrier, location, and container type.
Shippers with less organized supply chain operations incur more demurrage charges, typically from having payment issues that cause the vessel to refuse releasing the cargo or lacking truck drivers for picking up containers.
Other shipping charges and fees
1. Waiting costs are additional costs that are applied by the hauler when container loading takes longer than planned and exceeds the arranged free time. Some reasons for this can be unready cargo and missing documents. The shipper gets charged, for example, every thirty minutes. The amount charged depends on the hauler.
2. Pick-up charges are applied when empty containers are picked up from depots. Usually, the charge varies depending on the pick-up location.
3. Cleaning and repair fees can be charged if equipment is dirty, wet, smelly, or damaged.
Avoid detention and demurrage charges
Even though seven days is the standard free period, for many freight forwarders and shippers, especially for those with higher volumes, more time is usually needed. Therefore, the first step in reducing the impact of these charges is to negotiate the number of free days before signing agreements. To do so, it is essential for shippers to know the average time they usually need for their operations and to plan shipments accordingly.
Shippers should always negotiate more free days because some events, like trees falling on a railway track, cannot be foreseen and avoided. Therefore, having more free time available helps reduce the impact of charges due to these events.
Furthermore, shippers need to have all the necessary information in their documents since carriers or customs will refuse to release or ship cargo if information is missing.
Logward reduces Detention and Demurrage
When extra costs are due to insufficient free days, Logward helps shippers negotiate more free days. For example, Logward notices that bringing a container to a specific port always takes extra time and suggests that the customer negotiate for more free days, refusing the standard seven days. This visibility helps shippers develop better strategies for negotiating and provides insights for planning.
Furthermore, Logward ensures that shippers have all necessary information and documentation by tracking milestones about shipments. Milestones represent different data points needed for shipments: VGM (Verified Gross Mass), customs documents, BL (Bill of Lading) instructions, etc. These data points enable checks for information that has been sent prior to shipping. With that, Logward informs shippers about issues, so that missing information can be sent to carriers before deadlines hit. Thanks to ongoing support and insights, shippers reduce charges caused by documentation-related delays.
Another scenario in which Logward reduces shipping costs is when a container is not delivered on time. In this case, the carrier can rebook on the next available vessel, but this might have higher costs if the next vessel with free allocation is weeks away, meaning demurrage charges will be applied while the container awaits departure. However, by using Allocation Management (a feature of the Procurement Cloud), shippers can look at other bookings and swap with a booking that will result in lower charges. Namely, if the shipper has another booking for the same destination on an earlier vessel, and if the container has not been picked up and loaded yet, swapping the bookings would lead to less demurrage.
Take control over supply chain costs
By integrating all stakeholders in one centralized platform, and bringing continuous support from industry experts, Logward helps freight managers reduce detention and demurrage costs, especially in persisting chaotic market conditions. Supply chain professionals will, in this way, regain control over their supply chains and bring strategic value to their businesses.
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