Importers shipping goods by container can sometimes be given unpleasant surprises in the form of demurrage fees and detention fees. These fees have been on the rise since Covid appeared, but they are not the same thing. Let’s explore demurrage vs detention here…
Demurrage fees
Demurrage fees will be owed to a shipping company after a set time if a container is not either loaded onto a ship after being delivered to the port or released for delivery from the port terminal after being unloaded.
Demurrage charges or fees are unwelcome, but they serve a practical purpose – to drive importers and exporters to get their goods in and out of port in a timely fashion. In theory, this regulates the flow of containers coming in and out of the port and reduces the chances that full containers will be left sitting around and, therefore, not able to be used for transporting more shipments by the shipping company resulting in them losing business.
Note, you could be charged demurrage if a container is delivered to port too early and is sitting in port for longer than your free time allowance before being loaded…it is not only for unloaded containers.
Your contract with the shipping company will state how many ‘free days’ you have until demurrage fees are charged, but you can expect the ‘free time’ to be several days to around a week.
Fees also vary, an estimate is that fees range from around US$50 to $300 per day per container over the free time allowance. You can see that if a container was left in the port for a week or so over time, it could cost thousands of extra dollars! Note, that even higher fees have been charged recently due to the pandemic.
Demurrage fees are charged on the shipping company’s own containers – if you are using your own container then it is unlikely you’d attract these fees (although most businesses will effectively ‘rent’ the shipping company’s container rather than purchasing their own).
How to avoid demurrage fees?
No one wants to pay additional fees to shipping companies, especially when shipping is already so expensive! There are some ways to avoid demurrage fees:
- Prepare and double-check shipping and customs documents to avoid mistakes and inspections slowing down the process of getting your loaded container to or from the port.
- Arrange your internal logistics (truck or train) well in advance so they’re good to go as soon as possible after your container is ready.
- Pay your shipping company in time so they release or accept the container quickly.
- Practice good communication with all parties, port facility, shipping company, etc, so mistakes and delays can be kept to a minimum.
When considering demurrage vs detention we now know that demurrage fees are charged when a full container has taken more than the agreed time to be loaded after delivery to port or to be removed from the port after unloading, but how about detention fees?
Detention fees
Detention fees are charged by a shipping company when an empty container belonging to them is not returned to the port facility by the agreed time. Your shipping contract will state that you have a set number of days to return the container. A detention charge will be levied per day for each day over this.
The time the container is away will be calculated from the moment it leaves the port or rail facility, to the moment it arrives back, empty, and is placed into the returns area ready for use.
Detention charges are given to customers of shipping companies for the same reason as demurrage fees – to streamline the shipping company’s container flow and to allow them to know and control when they have empty containers in place to sell for the use of other customers.
How to avoid detention fees?
The techniques for avoiding detention fees are similar to those for demurrage fees:
- Complete all documentation carefully and in advance so that holdups can be avoided.
- Arrange your internal logistics in good time and make sure that they fully understand the dates that you’re working to (i.e. when the empty container needs to be returned).
- Communicate with all parties, shipping company, truck or rail supplier, and warehouse to coordinate deliveries and avoid delays.
Are the fees always ‘your fault?’
Let’s say you are too slow in unloading your container and it ends up being returned late to the port. You’ll understandably be charged detention fees.
But demurrage and detention fees can be charged even when it’s not ‘your fault.’ For example, if a shipment is held up at a port due to covid delays, staff shortages, customs checks, etc, you may well still be charged by the shipping company. There isn’t a lot you can do about this, although some companies may be willing to negotiate a lower payment if you can provide a reasonable explanation, especially in the light of the new American Ocean Shipping Reform Act of June 2022 (more on that below).
Are demurrage and detention fees increasing?
Shipping has been affected by Covid as we discussed here and here. The sudden strain placed on shipping routes and internal logistics providers has manifested itself in delays, shipping cost increases, and, unfortunately, more demurrage and detention fees being charged.
Due to bottlenecks at busy ports, we know that container ships are queueing to unload their containers. Labor shortages in ports are also a serious contributing factor. These cause congestion in the ports, and delays for internal logistics like trucks and rail. These delays can result in demurrage and detention fees being charged, even though the company doing the shipping is not at fault.
In fact, the fees have increased a lot recently due to the pandemic:
Across the world’s 20 largest container ports, a report (by Container xChange) found that average Demurrage and Detention (D&D) fees levied by container lines on customers two weeks after a box was discharged from the vessel more than doubled across ports and shipping lines between March 2020 and March 2021, climbing 104% or the equivalent of $666 per container across all container types.
A silver lining: The US Ocean Shipping Reform Act of 2022
In the USA, President Biden enacted the Ocean Shipping Reform Act (OSRA 22) on June 16th, 2022, to provide some additional protection for shippers against unfair prices and bad behavior by shipping companies. Its mandate is to: “Ensure a competitive and reliable international ocean transportation supply system that supports the US economy and protects the public from unfair and deceptive practices.”
When we look specifically at demurrage vs detention, the act states:
Section 7 (d) of the Act changes the burden of proofs in a significant way. Ocean carriers would now have the burden to provide accurate invoice information on demurrage and detention, and failing to do so by providing inaccurate and/or false invoices would result in refunds and penalties to the ocean carriers. The list of items that must be included in an invoice are those one would reasonably expect in terms of the facts that triggered the D&D, but they also must include contact information by which shippers can request mitigation of fees. But most importantly, the ocean carriers must provide statements that a) the charges are consistent with the FMC rules on D&D; and b) that the common carrier’s performance did not cause or contribute to the underlying charges.
OSRA 22 is quite specific in what information invoices from the carriers shipping to American ports need to include:
-
- The date that the container is made available.
- The port of discharge.
- The container number or numbers.
- For exported shipments, the earliest return date.
- Allowed free time in days.
- The start date of free time.
- The end date of free time.
- The applicable detention or demurrage rule on which the daily rate is based.
- The applicable rate or rates per the applicable rule.
- The total amount due.
- The email, telephone number, or other appropriate contact information for questions or requests for mitigation of fees.
- A statement that the charges are consistent with any of Federal Maritime Commission rules with respect to detention and demurrage.
- A statement that the common carrier’s performance did not cause or contribute to the underlying invoiced charges.
If the invoice does not include the correct information, buyers won’t be liable to pay and D&D fees raised:
“Failure to include the information required under subsection (d) on an invoice with any demurrage or detention charge shall eliminate any obligation of the charged party to pay the applicable charge.’’ (Source)
After the past few years when shippers have suffered from outrageously high shipping costs delays in ports due to shipping delays, staff shortages, and a lack of truck drivers and chassis to move containers, the shipping companies zealously charging D&D fees that were difficult to avoid for many of their customers even though they were not at fault has caused a lot of anger ad frustration.
Hopefully, OSRA 22 means that fewer American customers will fall foul of these charges when the shipping company is forced to be more transparent and willing to negotiate with a shipper who has a legitimate reason to ask for mitigation of the fees, such as if something happened beyond their control to prevent timely removal or delivery of the container.
Will the FMC enforce this?
It seems so if the recent US$2 million fine handed down to shipping giant Hapag-Lloyd by the U.S. Federal Maritime Commission for ‘unreasonable assessment of detention and demurrage charges’ is anything to go by. In this case, they assessed detention and demurrage when there were insufficient appointments available, unfairly burdening shippers with extra costs.
P.S.
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