Demurrage and detention charges have been a thorn in the side of shippers for decades. During COVID, shippers faced increasingly higher detention and demurrage fees. U.S. ports, in particular, were notorious for charging much higher fees than European, Middle Eastern, and Asian ports.
Thankfully, average demurrage and detention charges have declined by as much as 25% in 2023, according to Container xChange's annual Demurrage and Detention Charges benchmark report.
This is thanks, in part, to end-to-end supply chain visibility, which is helping shippers swing things in their favor in the battle against demurrage and detention charges. End-to-end visibility gives shippers a greater understanding of their entire supply chain network, including suppliers, manufacturers, logistics partners, and distributors.
Understanding Demurrage and Detention Charges
Carriers use demurrage and detention charges to optimize the flow of containers. They act as an "incentive," encouraging shippers to clear cargo and return containers promptly.
Definition and Differences Between Demurrage and Detention
Demurrage and detention fees are both penalty charges but there are slight differences. Here's how demurrage and detention fees are applied.
When cargo arrives in containers at the port of destination (PoD), they must be moved out of terminals within a specific number of days. Once at the PoD, containers have a grace period, often called "free time" or "free days."
During the free days, the carriers absorb any costs associated with storing cargo and containers at a port. However, if a consignee or representative does not collect the container within the allotted free days, they become liable for demurrage charges.
Shippers and BCOs incur detention charges when an empty container is not returned to a container yard or port within an allotted time. For example, a shipper could have 10 days to return a container. If it's not returned after 10 days, the shipper will be charged a detention fee.
Factors Contributing to Demurrage and Detention
Many factors influence why shippers incur detention and demurrage charges, including:
- Port congestion
- Delayed cargo retrieval
- Equipment shortfall and imbalance
- Natural disasters and weather conditions
- Carrier-related factors
- Documentation delays
Each of these issues may be rooted in or exacerbated by a familiar problem for shippers: a lack of visibility.
Arguably, the most significant cause of demurrage and detention charges is port congestion, which is common across the world's major ports like Shanghai and Qingdao in China and Long Beach and Los Angeles on the U.S. West Coast, Singapore, Hamburg in Germany, and Rotterdam in the Netherlands.
Congestion is often a result of high cargo volumes sitting in ports, which limits space and resources for handling and processing shipments. The knock-on effect is loading and unloading delays, which result in demurrage and detention charges.
The Rising Costs of Inefficiency
There's no hiding from the fact that supply chain inefficiencies are a direct cause of demurrage and detention fees. Here's a closer look at the impact of demurrage and detention fees on shippers.
Financial Impact of Demurrage and Detention
Demurrage and detention charges have a direct financial strain on shippers. Financial penalties mount up for daily cargo delays, which eats into budgets set aside for shipping.
Delays in cargo movement disrupt operational timelines. Production schedules and distribution plans are affected, resulting in additional costs and missed business opportunities.
Ongoing issues with demurrage and detention can strain relationships between businesses, shipping carriers, and other supply chain stakeholders. This can lead to increased friction, renegotiation of contracts, or even the loss of valuable partnerships, striking a further financial blow.
Excessive demurrage and detention charges can tarnish a company's reputation. Late deliveries, unreliable supply chains, and financial inefficiencies may be perceived negatively by customers, partners, and investors. This reputational damage can lead to a loss of trust and credibility, potentially impacting future business opportunities.
Broader Implications for Businesses
The bigger picture for shippers suffering demurrage and detention charges is reduced profitability. For some, the financial burden means they end up going bust. Take Bed, Bath and Beyond. The business filed for bankruptcy earlier this year and is seeking tens of millions of dollars from container shipping lines.
The claim includes reparations for peak season surcharges, plus detention and demurrage fees. Bed, Bath and Beyond claims it paid $1.5 million in demurrage charges and $4.9 million in detention charges between August 2021 and June 2022.
The Role of Supply Chain Visibility
End-to-end supply chain visibility offers a lifeline for shippers in the battle against demurrage and detention charges by keeping cargo moving.
Defining End-to-End Supply Chain Visibility
End-to-end supply chain visibility involves tracking, monitoring, and analyzing every stage of the supply chain process. The goal is to create a transparent and interconnected ecosystem that gives shippers the power to make informed, real-time decisions with precision.
How Visibility Reduces Demurrage and Detention Fees
End-to-end visibility helps shippers to identify the root causes of demurrage and detention charges across their supply chain and take action through:
Proactive Planning and Scheduling
By having real-time insights into the movement of goods, businesses can plan and optimize schedules, minimizing the likelihood of cargo exceeding the free time at ports or storage facilities.
Real-Time Tracking for Swift Action
Real-time awareness of any delays or deviations allows for swift corrective actions, helping to prevent the accumulation of charges associated with extended transit times.
Optimizing Resource Utilization
By optimizing the use of resources, businesses can ensure the timely return of containers, reducing the risk of detention charges due to equipment shortages or delays in returning assets.
Identifying and Resolving Bottlenecks
Whether it's port congestion, delayed cargo retrieval, or documentation issues, end-to-end visibility helps to identify bottlenecks and enables proactive resolution.
Clear communication and collaboration between shippers, carriers, and other partners help streamline operations. By working together, businesses can prevent delays and disruptions that contribute to demurrage and detention costs.
Efficient Handling of Documentation
Automation of paperwork reduces the risk of documentation delays, ensuring smoother customs clearance and minimizing demurrage charges.
Timely Response to Weather Conditions
Businesses can adjust shipping plans in response to adverse weather, preventing delays and minimizing the risk of demurrage and detention charges associated with uncontrollable factors.
Implementing End-to-End Visibility Solutions
Implementing end-to-end visibility solutions requires a structured approach and collaboration across the supply chain combined with the integration of key technologies.
Technological Innovations and Tools
Several technologies and tools have emerged as the key drivers behind end-to-end supply chain visibility, including:
APIs facilitate better communication and data exchange between different software applications. Various supply chain systems can be integrated, allowing real-time data sharing and enhanced visibility.
ELDs are devices attached to commercial vehicles to record driving hours and other relevant data. They improve visibility into transportation operations, ensuring compliance with regulations, optimizing route planning, and providing real-time updates on vehicle locations.
Mobile apps provide a user-friendly interface for accessing and managing supply chain data on smartphones or tablets. They enable on-the-go visibility, allowing stakeholders to monitor and manage shipments, inventory, and other critical information from anywhere, improving responsiveness.
Practical Steps for Shippers
Demurrage and detention charges aren't going away anytime soon, but there are strategies shippers can use to avoid them.
- Do your research: Familiarize yourself with carrier contracts, paying attention to free time terms.
- Collaborate with transportation experts: Engage with carriers, customs brokers, and freight forwarders to discuss processing times, potential delays, and effective strategies for avoiding fees.
- Understand special permissions: Prioritize awareness of unique cargo requirements and consult with freight experts to gain insights into securing necessary permissions.
- Use real-time ocean container tracking: Guarantee access to real-time container visibility to proactively track and manage cargo exceptions in the supply chain.
- Leverage analytics: Integrate modern analytics into your tech stack for predicting potential exceptions and creating pre-emptive strategies.
- Optimize communication with API shipping: Integrate an API into your tech stack for streamlined real-time communication. This ensures all stakeholders can access carrier ETAs, standardized milestones, and exception causes.
The Future of Shipping and Visibility
The future of shipping visibility looks set to build resilience based on strategic shifts and the increased use of advanced technologies. Expect to see:
- A rise in autonomous technologies: Autonomous shipping technologies, including unmanned vessels and drone deliveries, will gain prominence.
- Blockchain integration for enhanced security: Blockchain's immutable ledger will be used to secure transactions, validate shipments, and provide unalterable records.
- Integration of AI-driven predictive analytics: Shippers will leverage AI-driven insights to predict potential disruptions, optimize routes, and proactively manage exceptions.
- Expansion of green shipping initiatives: Visibility solutions will be instrumental in monitoring and optimizing sustainable practices, such as eco-friendly transportation modes and reduced carbon footprints, aligning with global sustainability goals.
- Global supply chain resilience focus: Following disruptions experienced in previous years, there will be a heightened emphasis on building resilient supply chains. Businesses will prioritize visibility solutions that offer real-time tracking, risk assessment, and rapid response capabilities to navigate unforeseen challenges and maintain operational continuity.
Ship with Certainty Using Vizion API
VIZION API is helping shippers worldwide avoid demurrage and detention fees with ocean freight tracking. Shippers can:
- Monitor shipments by container number, master bill of lading, or auto carrier identification.
- Track 98% of global shipments.
- See over 7,000 unique events translated into 60 standardized milestones and ETAs.
- Access instant-on data with documentation.
- See regularly refreshed data feeds.
- Leverage ready-to-use enriched data to make data-informed decisions.
- Improve operational efficiency.
Book a demo with VIZION API today to learn more about controlling demurrage and detention fees.