Demurrage Charges & Fees: Top Tips to Mitigate

Demurrage Charges & Fees: Top Tips to Mitigate

Given the current cost of transportation services, preventing avoidable container-related fees is even more important for shippers and BCOs than it has always been. While these fees can come in numerous forms, one type of fee that often ends up costing organizations a lot of money is demurrage fees.

The good news is that demurrage fees can usually be prevented entirely with the right tools and strategy. To help you ensure that demurrage fees don't eat away at your company's profits, let's look at everything you need to know about these demurrage charges and fees, including what they are, how they are calculated, and four proven tips for preventing them.

What Are Demurrage Charges?

A demurrage fee is enforced when a full container is kept from the port/terminal within the allotted number of free days the shipping line has provided. The shipping line most commonly levies these charges to the importer, but shipowners are sometimes required to pay demurrage charges if they fail to load or unload containers in time.

Types of Demurrage Charges

There are two types of demurrage charges: levied by the shipping line to the importer and levied by the port authority to the shipowner. Importers incur demurrage charges when they fail to pick up full containers that have been unloaded from the vessel within the allowed number of free days decided by the port authority. Shipowners, meanwhile, can incur demurrage charges when they fail to load or unload full containers from their vessel within the allowed number of days. In both instances, demurrage charges will continue accruing on a per-day basis until the delivery of the container is taken (or, in the case of demurrage fees charged to shipowners, until the container is loaded/unloaded).

How Are Demurrage Charges or Fees Calculated?

Demurrage charges are calculated by multiplying the demurrage rate by the number of days over the agreed free days. This number is then multiplied by the total number of containers to reach a final charge.

Here is an example of what this calculation looks like in action. Let's assume that the demurrage rate is $15,000 per day pro-rata, and the total number of free days allowed is 7 days. If a BCO has five containers that they don't pick up until the ten-day mark (or three days past the number of free days allowed), they would have to pay $15,000 x 3 days x 5 containers, or $225,000.

Other Things to Note About Demurrage Charges

Along with understanding what demurrage fees are and how they are calculated, there are a few other important details to note about demurrage fees:

  1. Demurrage rates may vary depending on the type of container being used
  2. For conventional shipping lines/port authorities, the number of free days allowed ranges between three and seven days
  3. Demurrage charges are different for all countries and are also dependent on the shipping line/carrier
  4. Demurrage fees are charged on both a per-day and per-container basis

Tips to Reduce Demurrage Charges and Fees

Demurrage fees can quickly become costly, but they can be avoided with the right tools and planning. Here are the four most important tips for preventing demurrage charges and fees:

Conduct Advanced Planning and Negotiations

The number of free days allowed before demurrage charges is applied typically ranges from three to seven days. Still, you may be able to negotiate for an additional time, depending on how much volume you ship. Along with negotiating for as much time as possible, another key bit of preparation for preventing demurrage charges is to plan your operations in advance to avoid delays that could lead to demurrage fees. Dispatch cargo as quickly as possible, and always build a buffer of time if you can account for potential issues such as bad weather, labor strife, or excess congestion at ports.

Leverage Real-Time Container Tracking

Carrier ETAs could be more reliable, leaving many cargo owners in the dark about when their shipments will arrive. When you don't know where your cargo is and when it will arrive, ensuring that you pick it up on time can be a real challenge. This is why reliable real-time container tracking solutions such as VIZION are key to preventing demurrage fees. By tracking the real-time location and status of your shipments effortlessly, VIZION ensures that you never incur demurrage charges due to a lack of transparency in the supply chain.

Plan Your Offloading Schedule

Offloading is a process that can take quite a lot of time and can further increase the fees you incur if you are already late picking up your shipment. To streamline this process, plan your offloading schedule in advance by pre-clearing customs and ensuring that everyone involved is continually informed of the shipment's status and location. You may also wish to plan for alternative options, such as alternate trucking lines or alternate routes, that you can use in the event of unforeseen issues such as port congestion, bad weather, or labor shortages.

Learn From the Data

Analyzing container tracking data from past shipments is an effective way to determine what is causing your demurrage charges and how your process can be further improved to prevent them. By providing high-quality data on every shipment your organization receives, VIZION makes it easy to take a data-driven approach to mitigate demurrage charges.

Prevent Demurrage Fees With Help From VIZION

By providing the most detailed, accurate, and up-to-date real-time container tracking data available today, VIZION ensures that BCOs, shippers, and NVOCCs have the supply chain transparency needed to mitigate detention, demurrage, and other fees. To see how VIZION can help your organization reduce the impact of demurrage and detention fees, be sure to book a demo today!

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