Miscellaneous shipping charges add up, often costing shippers thousands of dollars for a single shipment. Yet, the different fees, what triggers them, and how to avoid them are commonly misunderstood.
During the pandemic, shippers saw remarkably high port fees that made U.S. ports the most expensive in the world. New York, Long Beach, Los Angeles, Oakland, and Savannah were all two to three times more expensive than Hong Kong, which sat in the seventh spot.
Fortunately, 2023 has seen these costly fees decline year-over-year by 25%, as reported by Container xChange’s annual Demurrage and Detention Charges benchmark report 2023. As prices decline during a challenging moment for the container transportation industry, shippers seek strategies to save even more on detention and demurrage fees.
Per diem, demurrage, and detention fees quickly add up, but mitigating these fees is possible if shippers understand how they work and their impact on supply chain operations. With understanding comes the opportunity to strategize how to combat these fees.
What are Per Diem Charges?
Ocean carriers assess per diem charges after a period of “free days” that a container spends away from the port or sits at the port, taking up space. The per diem meaning in shipping refers to the days after free days are exhausted and daily charges are applied.
These charges exist to help ocean carriers stay on schedule, which requires keeping their containers in circulation, not sitting somewhere holding goods. Per diem charges are used to discourage importers from sitting on containers for any extended period.
The charges vary by carrier and port but typically range from $100 to $300 daily per container. If the ocean carrier allows for three free days, these charges will kick in starting on the fourth day. Some carriers might even escalate the charges as more time passes, meaning after another three days pass, the charge could rise substantially.
These high costs incentivize offloading cargo and storing it in a warehouse rather than keeping it in a container.
Demurrage vs. Detention
Detention and demurrage fees apply to different states of the container, whether it is sitting at the port or out of the port for delivery.
Demurrage charges are designed to get shippers to move their cargo out of the port or rail yard instead of the container sitting and taking up valuable space that new incoming containers require. Once the allotted time has expired, per diem fees are charged for every day it overstays its time.
The allowable free days vary by port or terminal, with rail terminals typically providing 48 hours of free time and ports offering four to seven days on average.
Costs also vary depending on the carriers, terminals, and contractual agreements. Standard demurrage rates can vary from $100 to $300 per container/day and might increase after several days. If a shipper has 15 containers that sit for five days beyond their allotted free time at $200/day, the final charge for demurrage will be $15,000. Undoubtedly, such fees are a serious problem for the bottom line.
A detention fee is charged on containers out of port as an incentive for containers to be returned to the port or terminal and not used as a way to store goods for free. The period of free days might be longer due to the assumption that the container is needed until the goods are offloaded and the container can be returned.
Like demurrage fees, after the free time has expired, per diem charges start to be assessed and could increase after specific periods.
Some steamship and rail lines will charge demurrage and detention charges concurrently if the container exceeds the allotted free time on both. If this stipulation applies, a shipper could be racking up a tremendous amount of charges if a container is still sitting at the port after an extended period.
There are some instances when detention doesn’t apply to containers. When truckload and LTL shipments wait at a customer facility before loading or unloading, and the carrier charges the shipper for making their driver wait, it is considered detention.
When are Different Port Fees Incurred?
To further the understanding of how these fees work, several examples are in order.
Container Left at Port
A container has come into the port, is unloaded from the ship, and sits in the port bay, at which time the clock starts clicking on the three free days contractually allowed by that shipping line. Unfortunately, the container continues to sit at port due to an issue with arranging a pick-up and is there for 11 days total.
As stated in the contract, after the three free days, the shipping line charges a per diem of $250/day for the next three days, $350/day for the following three days, and $500/day thereafter.
The demurrage fee equation is as follows:
Container Out for Delivery
The container was finally loaded onto a truck, but the driver had repeated problems, and finally, the container was left sitting in a yard waiting to be unloaded. Like the time in port, the container was out for 11 days, and the steamship line contract gives the shipper five free days before the same escalating per diem rates kick in.
The detention fee equation is as follows:
In this hypothetical scenario, the fees total $4,600. It is hypothetical and a way to explain how fees work, but the bottom line is severely impacted even if the fees meet the port averages, often over $2,000.
For Supply Chain Professionals, Port Fees Can have a Catastrophic Effect on Operations
Demurrage and detention fees can destroy the bottom line of companies. If the cargo is low margin, there might be no profit at all after shipping and fees. That these fees are incurred in the first place indicates a very inefficient and sick supply chain. If the shipper’s supply is healthy and resilient, these fees should be minimal, if charged at all.
Another adverse impact is that port fees indicate a failure to provide excellent customer service. If containers are sitting at the port or undelivered, the customer is left waiting for what could be mission-critical inventory. Additional charges could materialize as shippers pay extra to move containers last minute or if contractual agreements aren’t met.
If charges pile up, the shipper’s ability to justify new hires as the business scales up could be in jeopardy. C-suite execs might deny new initiatives if they see costs going up.
Shippers have every reason to ensure the efficient movement of their freight.
Strategies to Manage Per Diem Charges, Demurrage, and Detention
There are strategies that shippers wanting to avoid fees and move their freight efficiently have started to realize. Using these three strategies, they dramatically cut fees, delight customers, and realize operational efficiency.
Prioritize Real-Time Visibility
The most crucial component for reducing demurrage and detention charges is simply knowing the containers’ locations, especially if more than one container is moving. With a tech-enabled visual representation, it’s right in front of everyone’s face that a container is sitting at the port and needs to move.
All calls to carriers for updates waste time and will never prompt the action of seeing where the container is and watching the ETA change. Visualizing all cargo being moved and where exceptions might arise gives the shipper excellent reactive efficiency and the ability to be proactive.
Optimize Stakeholder Collaboration
Every container moved has multiple stakeholders in the process, and effective communication is critical for optimizing collaboration. Freight moves more efficiently when all stakeholders have access to ETAs, locations, milestone events, and exception push notifications. A container coming into port is more likely to be picked up within the free time when everyone knows what is happening.
Efficient digital communication reduces the time required to call stakeholders while preventing the potential for miscommunication. Everyone is on the same page simultaneously, and freight is never lost in a void of missed communication opportunities.
Ensure Maximum Awareness
At the center of mitigating expensive demurrage and detention fees is maximum awareness. No container is lost to a dark void that leaves it sitting at the port or out on a truck past the free time allotted.
Beyond real-time visibility, analytics extend visibility to all prior freight movements, unifying them for an accurate picture of what has happened in the past, how partners have performed, and what should be planned for in the future. Shippers have maximum awareness of not just current shipments but their total operational and supply chain efficiency. They acquire the power of proactiveness and build supply chain resiliency.
Awareness Cuts Expensive Demurrage and Detention Fees
Demurrage and detention fees add up quickly and seriously hurt the bottom line if left unchecked, but technology is helping shippers mitigate these charges. When shippers and stakeholders streamline communication, have real-time visibility, and can analyze past performance to understand what events have caused fees, they become empowered to cut them and keep their freight moving.
When shippers approach their supply chains focusing on visibility, collaboration, and awareness, they cut fees, move freight faster, and build resiliency.
VIZION API brings visibility, collaboration, and maximum awareness to shippers. Standardized milestones, port event reporting, push notifications, comprehensive data analytics, and seamless data sharing result from an API easily integrated with existing tech stacks. With VIZION API, shippers gain the edge over expensive demurrage and detention fees while improving customer satisfaction.
Book a demo with VIZION API today to see how you can end unnecessary and expensive demurrage and detention fees.