Getting hit with extra fees can disrupt a business’s logistics budget, and among the most frustrating are demurrage and detention charges. Often associated with first mile fees, their causes can lead to further delays and result in significant financial strain. Understanding these charges and how to avoid them is critical.
Key Takeaways
We’re going to get into the specifics of both demurrage and detention fees in terms of how they’re calculated, what increases your risk, and which strategies can help you avoid them.
While both fees are often associated with marine shipping ports and drayage services, they are actually separate charges. Getting charged one doesn’t have to mean getting charged with the other.
Let’s go over the differences in terms of what they are penalizing, who is responsible for paying the charge, and how much the average charge can be.
Related: What is Drayage? A Comprehensive Guide to First Mile Freight
Demurrage fees apply when cargo remains at a port or terminal beyond the allowed free days.
Free days, also known as laytime, are essentially a grace period granted by ports allowing cargo to be stored free of charge for a limited time. Businesses are meant to use these days to coordinate pick-ups and related logistics services.
Once all the allotted free days are used up, the demurrage fees will begin. Here’s how they work:
When it comes to final payment, make sure you and your preferred carrier have clarified payment terms for these fees within your contractual agreement.
Recall that ports charge these fees to ensure that containers are picked up promptly, so that space is always available for incoming shipments. Poor pickup rates lead to congested ports and terminals, which will only increase fees for you down the line.
Detention fees, also known as per diem charges, occur when a container or chassis is kept beyond the free time allowed outside the terminal but still on port property. This applies whether the equipment is loaded or empty.
The free time in this situation allows for loading or unloading of containers by the consignor/consignee. It’s also used as a grace period for the return of containers or chassis that carriers have used for transfers or deliveries.
However, this is measured in hours instead of days. Let’s outline the details here:
Fluctuating global markets and increased instances of chassis shortages have made detention fees more commonplace. According to Ian Morphy, a V.P. at R+L Global Logistics, “The increased cost of detention has climbed to 25-30% over the past two years.”
It’s critical now, more than ever, for shippers to avoid unnecessary delays and the high fees associated with them.
As noted, demurrage and detention fees are based on the difference between the duration of the delay and the agreed-upon free time in the shipping contracts. However, depending on when containers actually arrive and what the port’s policies are, picking up loads within the allotted time can still be difficult.
I’ll illustrate this in two examples:
You may find points to argue in both the cases here. For instance, was it possible that weekends could have been negotiated in favor of the consignee to avoid the demurrage charge? We can just as easily say the driver wasn’t at fault for delays at the transload point.
However, the reality is that these things do happen. If you want to mitigate their occurrence, you have to spend time thinking ahead and planning accordingly. Before we get to that, let’s go over other common reasons for unexpected demurrage or detention fees.
Understanding the many causes of demurrage and detention fees is essential to avoiding unnecessary costs. Much of these have to do with logistical inefficiencies and delays that will be beyond your direct control.
By identifying at least the primary reasons for these fees, businesses can take proactive measures. Common causes of additional fees include:
The more you know about the delays that can be caused by these situations, the better you can plan contingencies to minimize their impact on your logistics.
Now that we’ve reviewed possible causes for these additional fees, it’s time to talk strategy. Here are five proven strategies that will help you improve communications and plan ahead:
A dependable drayage carrier ensures cargo is picked up on time. When you’re looking into carriers, or freight brokers offering drayage services, request their demurrage and detention history to gauge their reliability.
Other features to look for include:
Finding carriers who may be willing to help you when free days won’t include weekends, is another added bonus. If your shipments tend to come into multiple ports, working with a 3PL freight broker is also helpful.
They are more likely to have connections with quality drayage services at multiple ports and can streamline communications for you.
Related: What Does a Truckload Freight Broker Do?
Pre-clearing shipments with customs ensures that all paperwork is in order before cargo arrives, reducing delays caused by customs holds.
For help with this, make sure you’re using a customs service that provides a full suite of brokerage services. By having a single firm handle your shipment from end to end, customs clearance is less stressful.
This is especially true if your shipment is coming from a place like China, and facing a wide array of additional fees and documentation.
Your shipping agreement, both with your domestic carrier and any contracts you have with the port of entry, should be carefully reviewed. It’s vital to familiarize yourself with various contract terms and what they’ll cover, including:
The more you work with a specific carrier, the more options you’re likely to have. However, if you are only receiving shipments occasionally, or even if it’s a one-time deal, the spot-rate quotes are likely to be more rigid. This is likely to leave you with fewer options.
This technically falls under what we discussed with shipping agreements, but it’s worth repeating. If you anticipate needing extra time to move containers, negotiate additional free days before signing the shipping agreement.
If you’re a shipper with a high container volume, that translates to greater bargaining power. Use it to your advantage, especially for ports without pre-specified policies or ones that tend to get more congested than others.
Port congestion and driver shortages can cause unexpected delays. Keep alternative carriers or additional warehouse space available to prevent costly demurrage fees. Even if you can’t avoid it completely, having that backup plan in place can still save you thousands of dollars.
Ian Morphy emphasizes, “Nobody wants to charge these fees, and they don’t generate much revenue for the driver or carrier. These fees only slightly mitigate any lost expenses for the driver or carrier. It’s about efficiency, and more efficient shippers will spend less.”
We know you don’t want to pay more for freight shipping than you have to. The ability to minimize how much you pay in demurrage and detention charges is within your reach.
USA Truckload Shipping provides expert freight solutions to help shippers avoid unnecessary fees in all aspects of your shipping.
Our offerings include:
Contact us today at (866) 353-7178 or if you’re ready to start, complete an RFP online now. Get a freight shipping quote from our experts to ensure your shipments move smoothly and stay within your budget.
R+L Global Logistics
315 NE 14th St., Ocala, FL 34470
