What are demurrage and detention fees?
Whether you are importing or exporting, any organisation that pays international shipping rates to transport its products via container ships will at some point run into demurrage and detention. These are fees that you pay for using a rented container (detention) and occupying space inside a terminal or depot (demurrage) for longer than the number of free days you are entitled to under your freight contract.
Of course, you pay shipping fees for the container shipment. But in some cases, shipping lines charge extra fees for using and storing their containers. These extra fees come into play whenever you use or store the containers for longer than the amount of free time that the shipping line includes in the sea freight costs. But what is detention? And what is demurrage? And what are the differences between demurrage vs detention?
If you keep a container outside the terminal for longer than the number of free days allowed, then the shipping line charges you detention fees. Detention fees are basically the price you pay for keeping a container for longer than the number of free days. You can think of them as a “late fee” that you incur when you return an empty container too late to its owner, the shipping line.
If the container is handed over to the shipping line for transport but cannot be loaded right away onto a ship, then it will be held in storage at the terminal. After a set number of free storage days, demurrage is charged to the shipment, generally for each additional day the container is held. These fees also apply if you do not pick up the loaded container at the destination port in time. Demurrage charges are basically the price you pay for storing a loaded container at the terminal for longer than originally agreed.
Who gets to define demurrage and detention fees?
Like international shipping rates themselves, there is no fixed rate for demurrage and detention. Shipping lines are free to define demurrage and detention fees themselves. According to the Benchmark Demurrage & Detention 2020, these fees can reach up to hundreds of dollars a day, although they are usually not made known to the public. However, there are some tools you can use to estimate detention and demurrage fees in advance; for example, when you compare international shipping rates.
In some cases, you can negotiate with your shipping line on the number of free days included in the sea freight service, as well as the costs of demurrage and detention. This depends on the shipping line’s policy as well as the amount of shipping capacity available and the number of containers you are shipping.
Who is responsible for paying these fees?
Demurrage and detention may occur for reasons that are beyond your control. For example, if your manufacturer does not deliver on time and there’s a delay in getting your loaded container to the terminal, there's a good chance that detention or demurrage is charged to the shipment.
In other cases, you may be directly responsible for the extra fees; for example, if there was an error in your customs documentation which prevented the container from being unloaded.
Who is liable for the costs? In general, the contractual party who signs the shipping agreement with the shipping line is liable for any demurrage and detention fees. But in some cases, those fees may be passed on to a third party, such as a consignee—in other words: you.
In such cases, the forwarder and the consignee must determine who will cover the extra costs. If the forwarder is to blame for the extra fees, then the consignee will probably not be very happy about having to pay them. But on the other hand, if the consignee fails to pick up a container at the terminal on time and the shipping line charges demurrage fees, the forwarder will not be very happy about having to pay those costs.
In situations where the forwarder and consignee cannot agree on who is liable, the containers may remain stuck at the terminal and continue to accrue even more demurrage charges.
Can you avoid demurrage and detention fees?
Like many cost points associated with sea freight, it is possible to minimise or even avoid demurrage and detention fees. This takes additional planning and a professionalised approach, so you can ensure your containers are moved to and from the port as efficiently as possible. To find out more about what you can do to keep unnecessary demurrage and detention fees to a minimum, be sure to read our 6 tips for avoiding demurrage and detention fees. If you have any questions, we’d be glad to help. Please feel free to contact us today.