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Find easy-to-understand explanations of the most common freight forwarding and shipment terms
Demurrage is a fee charged by the terminal per container for delays in unloading the cargo. It generally applies when unloading the goods is not made within an agreed-upon period and after the Last Free Day.
Demurrage charges are typically imposed on consignees to discourage delays in unloading cargo or returning empty containers. Demurrage fees may be calculated based on per diem rates, although other methods may also be used. Sometimes, it is possible to waive demurrage fees if certain conditions are met.
Unless adequately handled and understood, dealing with demurrage fees can significantly affect logistical planning, cost management, and operational efficiency in global shipping and trade.
Understanding Demurrage Charges:
- Basis of Calculation: Demurrage is typically calculated per diem, meaning a daily rate is applied for each day beyond the agreed free period. The rates and free days are often predefined in shipping contracts or rate schedules set by carriers and terminals.
- Factors Influencing Demurrage Rates: Demurrage rates can vary based on several factors, including the type of cargo, the shipping line, the terminal or port, and geographical location. Additionally, peak seasons, market conditions, local regulations, and the specific terms of the shipping contract can also influence these rates.
- Calculating Laytime: In maritime shipping, laytime calculation is crucial. Laytime is the time agreed upon by the charter party for loading and unloading the cargo. The calculation begins when the vessel is ready to load or unload and ends when the operation is completed.
- Exemptions and Extensions: If there are extraordinary circumstances beyond your control (like natural disasters, political unrest, etc.) that affect the ability to move or clear your cargo in time, you might be exempt from demurrage charges, depending on the terms of your contract with the shipping line.
- Involvement of Freight Forwarders: Freight forwarders play an essential role in negotiating and managing shipping operations, which may also include demurrage. This involvement can be exceptionally important for parties with little maritime experience.
Frequently Asked Questions About Demurrage for SMBs
What Are the Common Causes of Demurrage?
Demurrage typically results from delays in cargo operations, which can stem from various factors. Causes include delays in cargo clearance, documentation errors, customs holds, logistical challenges, and unforeseen circumstances like weather disruptions or labor strikes. These factors can prevent timely loading or unloading, leading to demurrage charges. Additionally, a lack of coordination among various parties in the shipping process, such as freight forwarders, port authorities, and shippers, can also contribute to these delays.
Demurrage Vs. Detention: What is the Difference?
Demurrage and detention are similar in that they both involve fees for delays in the shipping process. However, the specific applications of each are quite different. Let’s examine these differences:
- Demurrage: This fee is charged for keeping cargo at the port or terminal longer than the free period, typically due to delays in unloading the container.
- Detention: This charge applies to the prolonged use of shipping containers outside the terminal or depot, like delays in returning empty containers or extended storage at the consignee’s location.
While both demurrage and detention charges are consequences of delays, demurrage is specific to port or terminal delays, while detention deals with the extended use of containers outside these areas.
How Can Demurrage Charges Be Avoided or Minimized?
Shippers and consignees should proactively plan to avoid or minimize demurrage charges, including accurately estimating cargo handling times and filling in correct customs and shipping documentation. Regular communication with all parties in the shipping process, including ports, carriers, and logistics providers, ensuring timely customs clearance, and having a good understanding of shipping contracts, port regulations, and Incoterms are effective ways to minimize demurrage charges.
With the help of a trusted freight forwarder, you can optimize shipping operations, take advantage of their expertise, and minimize demurrage fees, as they are responsible for interacting with the port, carrier, and even customs on your behalf.
What is the Impact of Demurrage in Global Shipping?
Demurrage affects the cost-efficiency and scheduling in the global shipping industry. High demurrage charges can significantly increase shipping costs and impact trade profitability. It also affects the availability of shipping containers and vessels, influencing overall shipping capacity and efficiency.
Does Demurrage Apply to LCL Shipments?
Demurrage charges are typically applied to full container load (FCL) shipments. However, there may be instances when less than a container load (LCL) shipments will also be subject to demurrage or similar charges.
In LCL, demurrage charges may be incurred if the consolidated container remains at the port beyond the designated free timeframe. This could happen due to delays in unloading the container from the vessel, customs clearance, or other logistical issues at the port. Since the container in LCL is shared, demurrage costs, if applicable, are typically divided among the shippers based on their cargo’s proportion in the container.
Aside from that, storage fees might be charged at the Container Freight Station (CFS), especially if cargo remains uncleared after deconsolidation. These CFS charges, while similar to demurrage, are specifically for the storage and handling of cargo at the CFS.
For more information, shippers should consult their carriers or freight forwarders to understand the specific terms and conditions regarding the possibility of demurrage in LCL shipments.
What Are D&D Charges in Shipping?
In shipping, “D&D” is a term used to collectively refer to Demurrage and Detention charges, two distinct types of fees that are commonly experienced together due to interconnected delays in the shipping process. Demurrage charges are incurred for delays in moving a container out of the port or terminal beyond the allocated free time, essentially penalizing for using port space longer than scheduled. Detention charges, conversely, apply when a container is retained outside the port, such as at a warehouse or the consignee’s premises, for longer than the agreed period. These fees are often linked because a delay in one part of the process (like picking up the container) often leads to a delay in another (such as returning the container), resulting in both demurrage and detention charges being applied to the same shipment.
How Are Demurrage Rates Determined?
The shipping contract terms typically determine demurrage rates and can vary based on several factors. These include the type of cargo, carrier policies, port or terminal regulations, and the specific conditions of the trade route. The rates are often set on a per diem basis multiplied by the number of late days. However, sometimes fees may escalate progressively as the cargo remains longer beyond the free period, incentivizing timely cargo movement.
What is the Last Free Day?
In sea freight, the ‘last free day’ or LFD refers to the final day of a grace period during which the consignee can pick up their cargo from the port or return an empty container without incurring additional charges, such as demurrage or detention fees. This period is granted by the carrier or terminal operator as part of the shipping agreement. The shipping line usually allocates a certain amount of days for consignees and shippers to clear cargo, depending on the specific service providers and whether it’s an FCL or LCL shipment.
What Happens if I Miss My Last Free Day?
If the Last Free Day (LFD) is missed in sea freight shipping, additional charges will be incurred. Specifically, demurrage fees apply if cargo containers are not removed out of the port or terminal by the LFD. Conversely, detention fees are incurred if containers are not returned to the shipping carrier by the LFD. These fees can accumulate quickly, making it crucial to adhere to the LFD deadline set by the carrier or terminal operator.
What Role Does Demurrage Play in Supply Chain Management?
In supply chain management, demurrage serves as an important incentive for the efficient utilization of resources, such as cargo handling equipment and port storage space. By imposing a cost on delays, demurrage motivates shippers and consignees to optimize their operations and logistics planning. This helps in minimizing bottlenecks and improving the overall flow of goods. Effective management of demurrage can lead to more predictable and streamlined operations within the supply chain.
Who is Liable for Demurrage Fees?
Demurrage fees are typically the liability of the consignee, particularly when there’s a delay in clearing containers from the port within the allotted free period, and depends on shipping terms and whether it’s an FCL or LCL shipment. For exporters, detention fees are more commonly applicable, associated with delays in returning containers after loading at their facility and before transport to the port.
The consignee may also face detention fees for delays that occur after the container has been moved out of the port area, such as extended storage at their facility or delays in returning the empty container to the shipping line.