Demurrage, detention, and per diem fees are all fees that can drive up shipping costs if not carefully avoided. Staying clear of these fees starts with understanding what they are, how they get calculated, and the factors behind them.
This article covers demurrage vs. detention vs. per diem, so you can get started mitigating these fees and their impact on your company's bottom line. Consider this your comprehensive guide to container freight charges and fees — and, most importantly, a resource on how to prevent them.
What Are Detention, Demurrage, & Per Diem Fees & How Are They Calculated?
Detention, demurrage, and per diem fees are related yet separate types of shipping fees. Each of these fees has in common that beneficial cargo owners (BCOs) and freight forwarders have a set amount of free time before they start incurring costs. With that said, we'll start our guide to container fees by defining some important terms.
What is Free Time?
Free time is the period allotted to BCOs and freight forwarders during which they can use a carrier's equipment without incurring fees. Detention, demurrage, and per diem fees come into play when those parties do not return the equipment before the free time expires, and which of these fees applies depends on where your cargo's location and the specific equipment that you are using.
What is Demurrage?
Demurrage fees apply when loaded containers get left at the port terminal for longer than the allotted free time. Once cargo arrives at its destination port, it remains under the control of the shipping line until the consignee picks it up. Generally, shipping lines allow 4-5 days of free time for consignees to claim their cargo. Once this free time expires, demurrage charges accrue per day, every day that full containers remain at the port. Demurrage fees are calculated based on the number of containers and the number of days that have passed beyond the allowed free time. While demurrage commonly applies to imports left sitting at their destination port, demurrage fees can also be charged on exports if the cargo gets delivered to its port of origin before the agreed-upon dispatch date.
What is Detention?
Detention fees are charged when BCOs and freight forwarders fail to return a carrier's equipment within the allotted free time. Once the cargo has been picked up from its destination port and delivered to its final destination, freighter forwarders and BCOs are required to return the container and any other equipment that they have borrowed such as chassis. If equipment is not returned on time, detention fees are charged on a per-day and per-container basis. The biggest difference between demurrage and detention is where the container is located when the allowed free time expires, with detention fees typically being charged for containers that have been taken away from the port and not returned on time. However, some shipping lines will also charge detention fees for containers that are left at the port, meaning that you can sometimes incur both demurrage and detention fees if you fail to pick up your cargo on time.
What is Per Diem?
Per diem is a Latin phrase meaning "for each day" and, in transportation, refers to the fixed rate that is charged per container for every day that cargo is not picked up (in the case of demurrage fees) or every day that equipment is not returned (in the case of detention fees).
What Drives Demurrage and Detention Charges?
On the surface, demurrage and detention charges may seem easy enough to avoid; all you have to do is pick up your cargo on time and return the carrier's equipment on time and you'll never be charged any fees. Unfortunately, several factors make avoiding these fees easier said than done. Today, some of the top factors driving demurrage and detention fees include:
- Errors or discrepancies in shipment documentation
- Late receipt or loss of shipment documentation
- Port congestion
- Issues during customs clearance or cargo inspection
- Labor shortages at the port
- Failure to pay freight charges in full
- Delay or abandoning of cargo by the consignee
- Bad weather
- Lack of container visibility
The cruel reality is that many of these factors are out of your control. Carriers don't care if it is the port's fault or Mother Nature's; they want their equipment returned on time and will charge fees if it is not, regardless of the circumstances. Thankfully, there are also factors that BCOs and freight forwarders can control when it comes to reducing demurrage and detention fees. Achieving container visibility alone will go a long way toward preventing both demurrage and detention fees.
Increase of Demurrage and Detention Charges in Recent Years
In recent years, shipping lines across the market have reduced the free time they allow while also raising their per diem rates. This comes at the same time that BCOs and freight forwarders face increased port congestion and labor shortages, making detention and demurrage fees all the more difficult to avoid.
Shipping lines have become even less forgiving regarding demurrage and detention fees, mainly due to the COVID pandemic and its ongoing impact on supply chains worldwide. Port and terminal congestion created by greater demand for transportation services following the pandemic has caused carriers to incur additional terminal storage fees and container leasing costs, and carriers have increased their fees to offset these costs.
This recent increase in demurrage and detention fees may be necessary for shipping lines, but it doesn't mean that it's been any less painful for forwarders and BCOs already dealing with record-high shipping costs. This makes it all the more important to manage your operations in a way designed to mitigate demurrage and detention charges.
How do BCOs and Freight Forwarders Avoid Detention and Demurrage Charges?
Demurrage and detention fees can amount to crippling expenses when BCOs and freight forwarders don't try to prevent them. Thankfully, there are several effective strategies for mitigating these fees. While factors such as bad weather, port congestion, and labor shortages may make it impossible to prevent demurrage and detention fees altogether, BCOs and freight forwarders can significantly reduce their frequency by employing these strategies:
Leverage Transparency Via Container Visibility
A lack of container visibility/supply chain transparency is one of the biggest factors leading to demurrage and detention fees. It isn't easy to plan and schedule operations ahead of time when you aren't sure where your cargo is located and when it will arrive. Far too often, BCOs and forwarders are unaware that their cargo has arrived, making it impossible to pick it up on time before they incur demurrage fees. Lack of transparency can also lead to detention fees by making it difficult to schedule and manage the operations that must be completed before the carrier's equipment can be returned.
With container tracking solutions such as VIZION API, BCOs and freight forwarders receive real-time alerts regarding their container's location and status. This ability to track containers in real-time allows for complete supply chain transparency that they can use to manage operations in a way designed to mitigate demurrage and detention fees.
Negotiate Terms With Your Carrier
Depending on the volume you ship, you can negotiate with your carrier for additional free time, and having even an extra day or two can do a world of good regarding reducing the impact of demurrage and detention fees. Not all carriers will be willing to negotiate these terms, and their willingness will largely depend on the volume you ship with them; like any business, carriers will sometimes go the extra mile to keep their biggest customers happy. Either way, though, it doesn't hurt to try.
Maintain Open Lines of Communication With Customers and Partners
The processing that must be completed between the time that cargo arrives at port and when the carrier's equipment is returned often requires the coordination of multiple parties. This makes it essential to maintain effective communication with any customers or partners involved in these processes to ensure everyone is on the same page regarding their responsibilities. Organized, standardized, and easily accessible container tracking data is one key to facilitating effective communication between parties and is one of the ways that VIZION API helps organizations manage their operations more efficiently for reduced demurrage and detention fees.
Be Prepared for Customs Clearance
Delays created by the customs clearance process are one common source of demurrage and detention fees. Having all the necessary paperwork completed correctly is vital to avoid this expense. Understanding the customs clearance processes and port regulations is also a good idea so there are no surprises along the way.
Detention and Demurrage Charges by Popular Shipping Lines
The exact rates charged for detention and demurrage vary from carrier to carrier. In addition to the fee mitigation strategies that we've already covered, BCOs and freight forwarders may reduce the impact of shipping fees by choosing carriers with lower detention and demurrage rates. Check out the table below for a breakdown of detention and demurrage charges by prominent shipping lines:
The 10 Most Expensive Ports for Demurrage and Detention
Along with varying from one shipping line to another, demurrage and detention rates can also vary based on the destination port. Here are the top 10 most expensive ports for demurrage and detention fees across all shipping lines:
The 10 Cheapest Ports for Demurrage and Detention
Here are the top 10 cheapest ports for demurrage and detention fees across all shipping lines:
Who is Responsible for Detention Charges?
Liabilities for detention charges often depend on the specific circumstance and the details of the shipping contract. As a general rule, though, the shipper is responsible for demurrage and detention fees incurred on exports, while the consignee pays fees incurred on the import side.
However, there are circumstances where this rule only sometimes applies. For instance, issues with shipping documentation that are the shipper's fault may cause delays once the cargo arrives at its destination port. In this case, the shipper could be held liable for demurrage and detention fees even though they occur on the import side.
Stay Ahead of D&D With VIZION's Container Tracking API
There was a time not long ago when demurrage and detention fees were rare. Today, though, these fees can add up to significant expenses if shippers, freight forwarders, and BCOs don't take action to avoid them. When trying to reduce the frequency of delays that lead to demurrage and detention fees, nothing is more vital than achieving supply chain transparency.
With VIZION's industry-leading real-time container tracking API, shippers, BCOs, and freight forwarders can track the location of their ocean freight with unmatched accuracy and reliability. This allows for complete supply chain transparency and enables organizations to schedule and manage their operations confidently, eliminating delays and the fees they cause.
To learn more about the many benefits of the most complete, detailed, and standardized container tracking data on the market, feel free to book a VIZION API demo today!