How to Keep Rising Demurrage and Detention Charges Under Control
Massive shifts in demand, restrictions related to the COVID-19 pandemic, and a global lack of container shipping equipment have all compounded typical port congestion causes like severe weather and labor shortages to brew the “perfect storm,” causing significant port and terminal congestion at the world’s largest ports, and wreaking havoc on the timely handling of shipments.
Ports are reporting record or near-record volumes, a trend that supply chain analysts predict will continue well into 2021. Adding to the challenge, the ongoing pandemic is severely impacting the size of the labor pool and the availability of skilled labor necessary for reliable container handling.
In the U.S., a chassis shortage and lack of necessary container equipment made matters even worse for cargo owners who need to pick up and return equipment within the allotted free time.
What does this mean for shippers, freight forwarders, and other logistics services providers? Detention and demurrage charges are on the rise. Shippers are finding these costs are being assessed unfairly due to the array of issues mentioned above, for which they cannot be held responsible. These are costs that can add up quickly and represent millions of dollars, so visibility to these costs is extremely important to a company’s bottom line.
What are demurrage and detention charges?
An ocean carrier or shipping line will charge demurrage and detention fees to the freight forwarder, NVOCC, beneficial cargo owner, or shipper related to the use of shipping containers (sometimes referred to as import containers) as defined below:
Demurrage charges are storage charges applied after a contractually defined free time for storage of a carrier’s container in a port terminal (maritime terminal), rail terminal, feeder terminal, inland depot, or container yard.
Detention charges are applied after a contractually defined free time for the storage of containers outside a port terminal (maritime terminal), rail terminal, feeder terminal, inland depot, or container.
How can shippers keep rising demurrage and detention charges under control?
A digital rate management solution like Magaya Rate Management puts shippers in control of rising rates with better visibility, accessibility, and more.
Consider the following benefits to timely digital freight rate data:
- Visibility to detention and demurrage charges and the associated free time is important shipment planning information
- With an analysis of detention and demurrage costs, shippers can determine if they need to negotiate free time parameters with their rate negotiations
- Access to tariff data curtails the unknown
- Data-driven decision making helps shippers proactively manage freight logistics spend
- Systematized rate and tariff data enable better forecasting of freight costs
- Digitalized, web-based rate data is accessible 24/7 allowing logistics providers to quickly and efficiently share this data with customers. Data quality also improves.
In addition to using rate data for better decision making, there are other shipment management steps that can be taken to reduce demurrage and detention charges. We explore several additional operational steps in our new white paper, The State of Detention and Demurrage. Download the free white paper here. With up to 25% of all ocean shipments incurring detention or demurrage charges, free time should be considered with every routing decision. Don’t allow market conditions and outside factors like port congestion to be an excuse for not addressing the problem.
Being aware of free time and the potential for additional charges is important data that shippers can use to make the smartest routing decisions. This requires diligence on the part of shippers and freight forwarders to understand free time tariffs and consider those constraints with every routing decision.
DOWNLOAD THE WHITE PAPER: THE STATE OF DETENTION AND DEMURRAGE
Learn more best practices and strategies to avoid rising free time charges.