Demurrages are some of the most common costs incurred by logistics professionals. They are outlined in most carrier contracts and, if left unattended, could result in meaningful costs to a company.

In this article, we look at demurrage charges closely to help companies understand their relevance and their leading causes.

What Does Demurrage Mean?

A demurrage or demurrage charge is a common financial penalty in international shipping, imposed when cargo stays at a port or terminal longer than a specified “free time.” This free time, as it is often dubbed in customs language, consists of a grace period which is granted to the importers and exporters. During that time, they are able to move a container without incurring further cost. Exceeding the time-limit incurs demurrage fees, which are fees paid to shipping lines and marine terminal operators as compensation for the use of their facilities.

According to our research, demurrage costs impact on global trade is growing. Average demurrage and detention charges applied in the top 20 ports globally are also up over 100% between 2020 and 2021 due to the disruption of post COVID-19. Those peaks also demonstrate why effective logistics management can help keep these fees, which run anywhere from $75 up to $300 per container per day, to a minimum and out of the big costs equation.

In short, demurrage is a charge incurred when a given shipping container remains at a port terminal longer than the agreed-upon free time period. These are charges to expedite the clearance of goods at the ports, which in turn, ensures terminal operators make the best use of space and equipment.

Demurrage charges are among the factors that can affect nearly every international shipping operation; thus, understanding these charges is essential as they directly affect the profitability of trade operations. Failure to deliver or mismanaging these charges will result in higher costs, supply chain interruptions, and negative relations with logistics partners.

Below, we include some of the most common events leading to demurrage charges:

1. Missing Documentation

Missing or inaccurate documentation, such as customs forms specific to a country or bills of lading, can hold up the processing of cargo at port. This, in turn, could force a company to forgo a number of its “free days” and incur in demurrage charges. Indiscriminate of the reason, a container stuck at port, possibly due to lack of completion of customs declaration, has to pay a demurrage charge every single day until the container is safely returned without merchandise.

2. Delay in Cargo Pick Up

Delayed cargo pick-up is a leading cause for demurrage charges. Even if a container leaves customs, it might be left waiting for ground transportation to pick it up and deliver it to its final destination. This could be the result of late payments or lack of communication between the freight forwarders and importers. 

3. Port Congestion

Port backlogs due to high shipping volumes or lack of labor, lead to slowed operations and, as a result, could hurt a company’s ability to move their containers on time. For instance, a shipment stuck at a busy port during peak trade seasons will be subject to demurrage fees since the company isn’t able to pick up the container due to an existing back log..

What Causes a Demurrage Charge?

There are a number of reasons that could cause demurrage charges according to the terms and conditions of individual shipping contracts. Below we include some of the most common causes:

Documentation and Compliance Issues

If there are missing customs documents or information within them is found to be incorrect they could stop cargo from getting clearance—thus forcing it to stay longer at port and encurring into further dees. 

Customs Clearance Issues

A container can spend more time at the port due to prolonged inspections or misfiled forms—not to mention, the potential for internal errors at customs such as understaffing or software malfunction. Although these factors are outside of the control of an importer or exporter, they could still result in demurrage fees.

Paperwork Errors

Another common mistake that happens at customs has to do with errors done at the time of filling out a dorm. These mistakes—many of them around identifying the proper HS code for a product— can contribute significantly to delays in the release of cargo. An erroneous figure on a bill can postpone the verification of payments and consequently, lead to a container being held up for days at the port.

Port Congestion

As we mentioned in the previous section, when access to a port is limited and there is high demand, this could result in additional delays to pick up or process a shipment. This, in turn, results in additional demurrage charges for a company. 

Bad Weather

Finally, it is worth noting that port operations, such as loading and unloading cargo, are severely affected by adverse weather conditions such as heavy storms, hurricanes, or fog.

How to Avoid Demurrage Fees

Although, as our previous sections highlight, demurrage fees are often a result of external factors that limit the ability of a n importer to operate at a port, there are a number of useful strategies to follow. With planning and coordination of all the stakeholders in the supply chain, demurrage fees can be avoided. Below we include some strategies that you can adopt to help reduce the impact of demurrage fees:

• Track shipment status regularly and notice potential delays with tools such as Desteia. This will allow you to understand if a shipment is at risk of receiving demurrage charges.

• Negotiate for lengthy free periods when possible or choose ports that have more generous terms to accommodate for unexpected delays.

•  Revise documentation before a shipment arrives at customs. This will help you minimize the potential impact of documentation errors.

• Plan alternative courier or port options to deal with the delays or port congestion.

How Are Demurrage Fees Calculated?

The actual demurrage fees will vary depending on certain parameters that are defined in the shipping contract, terminal rules, and/or port rules. These charges are billed after the allowed free time (grace period) is over, that is, to reimburse the use of different port services for more time. Here are the key components taken into account for the calculation of demurrage charges:

• Time – Once free time has expired, then demurrage charges will begin to accrue. It is charged based on how many more hours/days your cargo stays in the port than expected.

• Cargo Type - It is worth noting that not all cargo is treated the same. The nature of cargo influences the demurrage to a great extent. 

• Rate - The daily or hourly demurrage rates will be specified within the contract. Different ports and cargo types will have their own specific terms.

• Policies of the Port - Each port or terminal has their own policy regarding free time, demurrage rates etc. so the final calculations for demurrage will depend on this as well.

These items reinforce an understanding of how demurrage costs can be avoided through either contractual and/or port-specific policies. Alternatively, there are also custom demurrage terms that are not standard but rather bespoke to the needs of one or more of the parties.

Demurrage vs Detention

The journey of a container does not end when it reaches its destination, because it has to be returned to the carrier. This is so the container can be used again for other cargo transport (for instance to a port, container terminal or depot). This keeps millions of containers in circulation and ensures carriers find necessary equipment for ever continuous operations. But exceeding the free time provided by carriers can lead to demurrage and detention fees accrued. Demurrage and detention charges are generally two terms that often go hand in hand in the logistics industry.

Demurrage is the period of time a full container spends within the terminal. This is measured from the moment a container is offloaded from its vessel or train until pickup at the port, gated out. Detention, on the other hand, is the period of time that the containers have spent outside the terminal. Specifically, when you collect them from the port full to empty (in this case) and then return it back to the port for recollection. 

These penalties are meant to encourage efficient use of containers to result in cost savings for shipping lines and more efficient operations overall. Demurrage and detention management are important to reduce delay and increase supply chain effectiveness.

Have an Efficient Logistics Management

Logistics management is crucial, especially in avoiding demurrage charges and ensuring smooth operations. A great strategy that businesses can follow to reduce delays and costs is to adopt tools that give them real-time shipment tracking information and clear insights to port performance as well as congestion. While demurrage fees are oftentimes unavoidable in order to keep port schedules, mitigation strategies can go a long way in reducing their effects.

We built our company to help businesses manage their shipments more efficiently and reduce demurrage and detention. Our tools enable you to improve coordination and provide real-time updates, helping the logistics process become efficient with less delays. If you want to receive updates about the newest trends and actionable insights in your inbox to take control of your shipping operations, make sure to subscribe to our newsletter.

FAQ

Who is responsible for demurrage charges?

The shipping contract typically indicates that it is the consignee or cargo owner who is generally liable. This means that the consignee—or the person receiving the cargo—is responsible for paying demurrage fees.

When does demurrage start?

Demurrage begins counting once the free time offered by port or shipping line ends. Free time is previously negotiated by the parties involved.

How many days before demurrage charges?

There is no standard metric for the “free days” assigned before demurrage charges kick in. These are determined at the time of negotiation and could range significantly depending on the carrier or the type of cargo.

How much are demurrage charges per day?

Demurrage charges range from $75 to $300 per container per day, depending on the port and cargo type.