Detention and demurrage charges have not always been a main area of focus for shippers. However, sharply increasing detention and demurrage charges during the pandemic — a 39% increase globally from 2020 to 2021 — brought attention to the ways that shippers can reduce this expense. Even with a decrease in 2022, costs are still above where they were pre-pandemic, and shippers have the opportunity to decrease their detention and demurrage charges by how they manage their shipments and logistics. Geofencing is one such opportunity.
We’re discussing detention and demurrage — their causes, differences between the two, and strategies shippers can use for reducing these costs. In particular, we’re considering geofencing and the ways it can contribute to a more informed supply chain, letting shippers take steps to improve their detention and demurrage totals.
What are Detention and Demurrage?
Detention, or a per diem fee, is the penalty a shipping line charges the importer when the container has arrived at its destination port, left the terminal to be destuffed, but has not yet returned empty to the designated depot. Detention charges are assessed per day, per container, starting from the time the full container leaves the gate. A set number of free days, however, are allowed before the container starts accruing charges. Detention stops accumulating when the empty container is returned.
Demurrage is the fee for a container — prior to destuffing — to remain at the port/terminal instead of being picked up by a truck to be destuffed at a warehouse. Demurrage charges, like detention, are per day, per container, starting from the date of discharge until the full container is moved out of the port/terminal, minus any free days. It's important for the importer to take the necessary steps to ensure that the container is transported and unpacked within the allowed free days to avoid quickly accumulating demurrage charges.
Detention and demurrage costs have underlying causes that shippers need to research and analyze. One is port congestion, as we saw in 2021 and 2022, which made it more difficult for each party involved to be on time in handling the next step in the destuffing process. At the height of port disruptions in February and March of 2022, total costs of detention and demurrage fees added up to $114 million.
Other reasons for delays leading to detention and demurrage charges are paperwork issues — from errors and lost documents to issues with customs clearance or cargo inspection. Finally, detention and demurrage may be a matter of late dispatching to pick up the container, poor communication, or limited visibility regarding the container status.
What is the Difference Between Detention and Demurrage?
Demurrage and detention are charges that occur due to delays in the destuffing process at the destination port. The main difference between the two is the location of the container, with detention applied to containers outside the port, and demurrage applied to containers inside the port. The rate for detention may be slightly lower than that of demurrage, and each charge may have a different number of allotted free days. They are generally calculated separately based on separate events. However, shipping lines may choose to combine them into one charge without distinguishing between when demurrage ends and when detention begins. This is called merged or combined demurrage and detention.
3 Strategies for Reducing Detention and Demurrage Costs
The problem with detention and demurrage is they lead to unexpected charges for the shipper. They can add up to thousands of dollars per month for a small and mid-sized shipper or even seven figures for large enterprises. If the shipper is not prepared for the level of detention and demurrage costs they accumulate, it can have a big impact on a company's financials. It can cut into profits, lead to tight margins, and hinder cash flow. All of this together can disrupt a company's ability to maintain an efficient supply chain, making it necessary for shippers to have a plan for improving their ability to manage detention and demurrage charges. Here are three types of strategies that shippers should consider.
Negotiate with Carriers
Detention and demurrage fees are contractual terms, which means shippers should evaluate whether changes would be beneficial to them for the next contract. By taking a closer look at the contract and taking note of not only detention and demurrage fees but also other terms, shippers can identify where they want to negotiate to help them avoid surprises in the future. They should also consider establishing longer-term relationships with their carriers to help drive these conversations.
Improve Management of ETAs
Delays within one area of port operations can quickly lead to chain reactions and bigger problems. Sorting out a bottleneck is not always as simple as devoting more resources to the problem; it can still take a long time to clear, making it much more beneficial to stay on top of situations before they get out of hand. Shippers should seek to manage their containers, schedules, and ETAs as efficiently as possible, not relying on long detention and demurrage times for flexibility. This way, shippers can more proactively ensure that they have the port-side capacity they need to avoid costly charges.
By implementing a streamlined, cloud-based visibility solution, shippers can forgo outdated manual processes in favor of access to more complete data and better insights. Real-time visibility data helps provide quicker information about ETAs for better management, and shippers can plan their resources by having options of capacity from backup trucking partners. Data analytics can reveal where issues have occurred in the past and how to avoid the same problems and delays in the future, while also helping shippers proactively budget for changing detention and demurrage costs.
How Geofencing can Reduce Detention and Demurrage Costs
The concept of geofencing has been around for several decades, but it is increasingly being applied to logistics and transportation as a tool for better visibility. Geofencing is when a solution is drawn — automatically or manually by a user — with a virtual fence around a point or an area of importance in the shipping process. This can be a port, logistics hub, trainyard, warehouse, or shipment center, to name a few possibilities. Then, outfitted with sensor devices on the freight being tracked, when the carrier passes through the fence, the system notifies those it concerns.
It may seem like a trivial alert to have, especially when shipments now have better tracking than they’ve ever had before. However, the difference is that supply chain partners can be notified well in advance of a shipment arriving at a certain location. If they need a certain amount of time to confirm the logistics of the next leg of the journey, they can customize this to their needs.
Geofencing contributes to better visibility for shippers and logistics providers regarding their ocean freight. They can use this data for more accurate vessel ETAs that will not require relying on the carrier to send an update. This also means that when there are delays or unforeseen problems, utilizing geofences allows shippers to know sooner and make adjustments to their schedules, giving them a competitive advantage while saving them time and money.
Polygonal geofencing and increased visibility offer the potential for shippers to reduce their detention and demurrage charges. It provides an added source of data to inform their inland transportation and logistics. Shippers and logistics providers can more quickly make decisions that lead to more efficient schedules and capacity, resulting in less waiting time once the container arrives at the port, reducing detention and demurrage fees. Essentially, geofencing capabilities allow shippers to build proactive, rather than reactive, port-side operations.
Get Unparalleled Ocean and Port Visibility with VIZION API
Detention and demurrage charges have become a significant expense for shippers, especially during the pandemic, and a significant opportunity for improvement. Many of the issues causing these charges can be alleviated by improved visibility, such as dispatching, planning, and communication problems. Strategies like geofencing can increase visibility and decrease the time to receive new data to help improve operational efficiency.
However, visibility is only as useful as the solution that makes it accessible and usable. With VIZION, shippers get a container tracking API and visibility dashboard, automated data collection processes that eliminate manual data collection processes, and data enrichment add-ons to ensure that visibility is scalable and can grow alongside your business.
Learn how visibility technology transforms detention and demurrage into advantages for your business by downloading VIZION’s new guide.