Freight forwarders play a key role in minimising detention time by:
- Providing accurate and timely pick-up and delivery information to the trucking companies.
- Optimising schedules to ensure truck drivers are not left waiting unnecessarily.
Demurrage & Detention
Among the many challenges you face, understanding Demurrage and Detention fees is crucial. These charges, often a source of frustration, can significantly impact your bottom line if not managed effectively.
The Digital Freight Alliance understands the critical role of clear and efficient logistics management, equipping you with the insights and tools necessary to manage these costs effectively.
By utilising your member benefits, such as our digital tools, members can optimise their operations and enhance overall efficiency, profitability, and smoother supply chain operations.
What are Demurrage and Detention Charges?
In simplest terms, Demurrage and Detention are fees charged by shipping lines or carriers for the use of their containers beyond the agreed-upon free time. Think of it as a late fee for exceeding the container’s allowed time at a terminal or with the consignee. This encourages the timely return of containers to the port to maintain a smooth flow of global trade.
Demurrage
Demurrage refers specifically to the charges that accrue when you leave a container at the terminal (port, rail ramp) beyond the allotted free time. This typically happens when cargo is not cleared by customs or collected by the consignee on time.
When cargo remains on the ship or in the container beyond the allotted free time—usually specified in the shipping contract—the shipper, consignee, or freight forwarder must pay demurrage fees. These fees are designed to compensate the shipping line for the additional costs incurred due to the delay, including the opportunity cost of not being able to use the vessel or container for another shipment.
Detention
Detention charges come into play when you hold onto a container outside of the terminal (e.g., at your warehouse) past the free time. Essentially, it penalises delays in returning the empty container back to the shipping line. This often happens due to unforeseen circumstances like warehouse backlogs, transportation issues, or customs delays.
When containers are used for storage or transport beyond the stipulated free period, the consignee, shipper, or freight forwarder must pay detention fees. These charges compensate the shipping line for the loss of use of their container, ensuring that the containers remain available for other shipments.
Why Understanding Demurrage and Detention is Vital
The impact of these fees goes far beyond just increased costs. While they might seem insignificant at first, Demurrage and Detention fees can quickly add up, eating into your profits. According to the Demurrage and Detention Report, factors like blank sailings (cancellation of scheduled shipping voyages) and container shortages, exacerbated by geopolitical tensions or other supply chain disruptions , significantly impact Demurrage and Detention charges.
For instance, if the rate for a 20 ft container for the first ten days is $60, and the charge after is $12,000 - the total would reach $18,000, which increases significantly when multiplied across several containers and shipments.
| Ranking in 2023 | Port location | Average D&D charges after 14 days for standard containers in USD |
|---|---|---|
| 1 | New York | $2,478 |
| 2 | Oakland | $2,325 |
| 3 | Los Angeles | $2,069 |
| 4 | Savannah | $2,014 |
| 5 | Long Beach | $1,973 |
| 6 | Houston | $1,919 |
| 7 | Vancouver | $1,816 |
| 8 | Hong Kong | $691 |
| 9 | Chennai | $585 |
| 10 | Hamburg | $584 |
Beyond the financial strain, these delays disrupt the smooth operation of the supply chain, affecting your relationship with clients who depend on timely deliveries. A deep understanding of what causes these fees and how to minimise them can help you avoid these issues and maintain a healthy business.
Factors Contributing
to Demurrage and Detention
Various factors, often interconnected, can lead to delays resulting in these unwanted charges.
Customs delays
Customs clearance procedures are often complex. Any incorrect or incomplete information in shipping documents can lead to delays in processing, directly impacting the time containers remain idle and accrue charges. Typos might seem small, but even they can hold up processing. To avoid this, check out the US Customs and Border Protection’s Tips for New Importers and Exporters.
Documentation Errors
Errors in Bills of Lading, Letters of Credit, or other important trade documents create bottlenecks and result in hefty Demurrage and Detention fees. It is imperative to ensure all documentation is complete, accurate, and submitted on time to prevent unnecessary holdups.
Port Congestion
Ports worldwide often experience periods of high traffic and congestion, causing delays in unloading containers. Factors like inclement weather, increased cargo volume, labor disputes, and limited terminal space can all exacerbate the issue.
Lack of Communication
The shipping industry involves multiple players – carriers, freight forwarders, consignees, and trucking companies. Effective and timely communication among all stakeholders is vital. A lapse in communication can cause delays, resulting in extra fees.
Inadequate Infrastructure
Lack of proper infrastructure at ports, rail ramps, and warehouses is a recipe for delay. Insufficient storage space, limited handling equipment, and inefficient processes contribute to cargo staying put longer than anticipated, accruing charges.
Navigating Demurrage and Detention: Strategies for Freight Forwarders
Reducing and sometimes even completely eliminating these fees boils down to strategic planning and proactive measures to prevent delays.
1. Optimise Documentation
Review all documentation carefully for errors, omissions, and inconsistencies before submission to prevent delays.
2. Embrace Technology
In today's digital age, numerous tools can make managing shipments easier. Utilising transportation management systems (TMS) provides real-time visibility into your shipments, allowing you to monitor their status and proactively respond to potential issues. Features like automated alerts, digital document management, and tracking systems contribute towards fewer errors and smoother operations, directly impacting Demurrage and Detention charges.
3. Plan Ahead and Collaborate
Effective communication is vital to navigating the logistics maze successfully. Stay in constant communication with carriers and shipping lines to understand their schedules, potential delays, and free time allowances. Work closely with suppliers to have goods prepared in a timely manner and with customs brokers to ensure all documentation is ready.
4. Choose the Right Partners
Align with reliable drayage providers to avoid logistical hiccups when transporting containers to and from ports. A proactive provider often offers pre-pull services where containers are pulled in advance to a nearby location, ensuring cargo is ready to go as soon as possible. Partnering with a warehousing and distribution company offering facilities located strategically near ports allows you to store your cargo cost-effectively should unexpected delays arise.
5. Consider SOC Containers
Shipper Owned Containers (SOC) give you greater control over your logistics operations, potentially reducing your reliance on shipping lines and their strict timelines. You become responsible for positioning and repositioning containers, offering flexibility but requiring careful planning.
How a DFA Membership can mimimise Demurrage & Detention Charges
As a logistics Member of Digital Freight Alliance, with access to CARGOES Flow, Ship Schedules, SeaRates ERP, and Logistics Explorer, businesses can utilise industry-leading digital tools to mitigate the risk of freight charges.
CARGOES Flow, an advanced enterprise multimodal tracking solution, plays a crucial role in helping freight forwarders and NVOCCs minimise or avoid demurrage and detention charges through several key features. It provides real-time visibility and tracking of shipments, allowing users to monitor container movements throughout the supply chain. This capability helps predict potential delays and enables efficient planning, ensuring timely pick-up and delivery of containers.
Offering automated notifications and alerts, our solution informs users about critical events and deadlines such as container arrival and pick-up, and the expiration of free time periods for container storage, thereby reducing the risk of incurring demurrage and detention charges. All events and milestones for multiple carriers and containers in relation to Demurrage and Detention, can be viewed in the Demurrage and Detention dashboard for convenience. Enhanced coordination and communication among all stakeholders in the supply chain ensures timely decisions and streamlined operations, minimising the chances of containers being held up at ports or terminals.
CARGOES Flow also leverages advanced data analytics and high-fidelity data, to provide valuable, accurate insights into supply chain operations, helping users identify bottlenecks and optimise routes and schedules for efficient resource use and timely container delivery.
Its robust document management capabilities allow users to handle all necessary shipping documents digitally, expediting customs clearance and maintaining accurate records to support dispute resolution.
Searates ERP
This robust enterprise resource planning system that integrates various logistics functions into a single platform. This integration enables efficient management of shipping processes, from booking to tracking and documentation. By centralising data and automating workflows, SeaRates ERP ensures that all logistics activities are synchronised, reducing the likelihood of delays and miscommunication. Users can monitor container statuses, manage documentation deadlines, and streamline customs procedures, all of which contribute to avoiding demurrage and detention charges. The tool's comprehensive oversight helps DFA members maintain control over their operations and respond quickly to any issues that may arise.
Logistics Explorer
Logistics Explorer is a powerful tool for route optimisation and cost analysis, providing users with the ability to compare different shipping options and select the most efficient routes. By analysing various logistics scenarios, users can make informed decisions that ensure timely delivery of containers while minimising costs. The tool's capability to provide detailed transit times and costs for multiple routes helps users avoid potential delays that could lead to demurrage and detention charges.
Ship Schedules
This digital tool rovides users with comprehensive and up-to-date information on vessel schedules, allowing freight forwarders and NVOCCs to plan their shipments accurately. By having access to precise departure and arrival times, users can better coordinate their logistics operations to ensure timely pick-up and delivery of containers. Ship Schedules enables proactive planning, reducing the risk of containers sitting idle at ports, thereby minimising the chances of incurring demurrage and detention charges. The tool's real-time updates also help users adjust their plans in response to any schedule changes, further enhancing their ability to avoid additional costs.
The Evolving Landscape of Demurrage and Detention
Awareness of Demurrage and Detention issues within the shipping industry has risen significantly in recent years, prompting authorities like the Federal Maritime Commission (FMC) to investigate the fairness and reasonableness of these charges. This investigation stems partly from the sharp spike in these fees witnessed during the pandemic. In fact, the FMC's Fact Finding 29 revealed nine major carriers collected around $12.9 billion in detention and demurrage charges just between April 2020 and March 2023.
The investigation into these practices by the Federal Maritime Commission, along with initiatives like Fact Finding 29 recommendations and the Advance Notice of Proposed Rulemaking in February 2022, demonstrates a proactive approach toward addressing concerns and ensuring greater transparency within the industry. These actions aim to create a fairer system that balances the interests of carriers, freight forwarders, and other stakeholders within the maritime supply chain.
OSRA 22 Final Rule in 2024
The Ocean Shipping Reform Act (OSRA) of 2022, finalised in 2024, is primarily designed to stimulate containerised exports and protect the interests of U.S. exporters by increasing control and regulation of containerised traffic by shipping lines operating in U.S. ports. The Act also mandates the control and independent assessment of bills for demurrage and detention charges imposed by shipping lines on U.S. shippers.
Key Components of the OSRA 22 Final Rule 2024
Invoicing Requirements
Invoices must be issued within 30 days after charges stop accruing. They must include detailed information such as container availability, free days, and applicable rates to ensure transparency and accurate auditing
Disputing Charges
Billed parties (shippers and consignees) must raise any disputes within 30 days of receiving the invoice.
Resolving Disagreements
The billing party must address and settle disputes within 30 days. This period can be extended with joint consent.
Impact on Stakeholders
The final OSRA 22 rule in 2024 offers greater protection against dishonest charges and ensures more transparent invoices, providing Beneficial Cargo Owners (BCOs) with accurate invoices on time. The smoother billing processes result from clearer accountability and fewer disputes, leading to quicker and more precise billing cycles.
This efficiency allows logistics companies to focus on providing reliable services instead of dealing with billing disagreements. Multimodal Transport Operators (MTOs) must adhere to the same invoicing regulations as carriers to maintain a uniform billing procedure internationally.
Key Components
of the OSRA 22 Final Rule 2024
Respond to Every Invoice and Settle Any Disagreements Within 30 Days
Maintain Thorough Documentation for a Minimum of Five Years
- This supports adherence and conflict resolution.
Ensure Accurate Invoice Details
- Include container number, free days, rates, and contact information.
Utilize Visibility Tools
- Use tracking tools to keep abreast of the current status of all cargo, ensuring
- awareness of potential changes.
By following these guidelines, stakeholders can ensure compliance with the OSRA 22 final rule, leading to more efficient and transparent operations within the container logistics sector.
The Trucking Side of Demurrage and Detention
The impact of Demurrage and Detention is not limited to the maritime leg of the journey. It significantly affects the trucking side of logistics, directly impacting trucking companies and their drivers. Detention time for truckers occurs when they spend an unreasonable amount of time waiting to load or unload at a warehouse, distribution centre, or a port.
According to experts in the industry, in the past, before Electronic Logging Devices (ELD) became mandatory, truck drivers could often mask detention time. However, the new ELD requirements precisely record drivers' hours, leaving no room for manipulation and bringing more attention to this previously hidden issue. Shippers and receivers are now pressured to reassess their practices and rethink the amount of time they detain drivers at the dock.
Detention not only costs the trucking company money (often transferred to freight forwarders) but also negatively impacts driver satisfaction and retention within an industry already plagued with driver shortages. It's a lose-lose situation.
By addressing detention on the trucking side, you contribute to a more efficient and cost-effective supply chain while promoting driver well-being.
In the global logistics market, Demurrage and Detention remain persistent challenges, but they are manageable with awareness and proactive strategies. These charges significantly impact freight forwarders, and understanding their intricacies is vital for smooth and profitable operations.
By staying informed, embracing technology, prioritising clear communication, and choosing the right partners, you can navigate the complex world of Demurrage and Detention fees, minimising their impact on your business and contributing to a healthier and more efficient supply chain.
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FAQs About Demurrage and Detention
What is the difference between demurrage and detention?
Demurrage charges apply when you leave a container at the terminal (like a port) beyond the allotted free time, while Detention fees occur when a container is held off-terminal (at your warehouse, for instance) beyond the allowed free time.
Who is responsible for paying Demurrage and Detention?
Typically, the party responsible for the delay that results in these charges ends up paying. It could be the shipper, the consignee, or sometimes, even a third-party logistics provider. Reviewing your contract agreements is essential for clarifying responsibility.
What is the difference between per diem and detention?
"Per Diem" literally translates to "per day" and is often used interchangeably with "Detention," both referring to the daily charge for using the container beyond the free time. However, while both terms can apply to exceeding the free time, "per diem" might specifically denote a flat daily charge. In contrast, "Detention" could refer to a charge calculated using a tiered system (increasing daily rates for extended periods). Always clarify the fee structure with your carrier.
How do you calculate demurrage and detention?
These charges vary greatly depending on the carrier, the location (port or terminal), the type of container (size, type), and, importantly, the number of days exceeding the free time. Typically, the fee structure is outlined in the carrier's tariff or a service agreement with an NVOCC.
What are the primary objectives of the OSRA 22 final rule implemented in 2024?
The primary objectives of the OSRA 22 final rule are to stimulate containerized exports, protect U.S. exporters' interests, and ensure greater control and regulation of containerized traffic by shipping lines operating in U.S. ports. The rule aims to create consistent billing procedures, reduce unjust detention and demurrage charges, improve data visibility for better validation and dispute resolution, and ultimately reduce inflation by relieving container terminal congestion.
What are the key invoicing requirements under the OSRA 22 final rule?
Under the OSRA 22 final rule, invoices must be issued within 30 days after charges stop accruing. They need to include detailed information such as container availability, free days, and applicable rates to guarantee transparency and allow for accurate auditing. This helps ensure that all billing processes are clear and fair for all parties involved.
How does the OSRA 22 final rule impact the dispute resolution process for demurrage and detention charges?
The OSRA 22 final rule mandates that disputes regarding demurrage and detention charges must be raised by the billed parties (shippers and consignees) within 30 days of receiving the invoice. The billing party is then required to address and settle the disputes within 30 days, although this period can be extended if both parties consent. This structured approach aims to resolve disagreements promptly and fairly, ensuring a more transparent and efficient billing process.
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