Demurrage and detention (D&D charges) are two of the most common additional charges in ocean shipping, and they can quickly add up if not properly managed. Shippers must be aware of these charges and take steps to avoid them to save on overall freight costs. They can find a number of benefits with ocean freight visibility technology as a tool in demurrage and detention mitigation. By analyzing the underlying reasons for these charges and having access to container tracking visibility, shippers can make informed decisions that result in more efficient and optimized shipping.
In this article, we’re looking at how to calculate, how to budget for, and how to avoid demurrage and detention charges, plus how technology has a role in helping shippers reduce these fees.
What is Demurrage and Detention in Ocean Freight Shipping?
Demurrage is the charge that occurs when a full shipping container remains at the destination port/terminal longer than the allowed number of free days. The container must be transported and unpacked within the timeframe set by the shipping line to avoid demurrage, a fee charged by the shipping line to the importer.
Detention is the charge that occurs when the shipping container—arrived at its destination and transported from the port/terminal to be unpacked—has not been returned empty to the designated depot within the agreed number of free days. Detention is also known as a per diem fee.
Both demurrage and detention charges are fees related to the usage of a container beyond the allotted time. As the shipping line’s asset, the container is not available to be packed for the next shipment—the shipper is essentially using the container as temporary storage; therefore, the shipping line is compensated with demurrage and detention fees. For many shippers, these charges may seem unavoidable, but through ocean shipping visibility data, shippers can better understand how and why they occur and respond faster to reduce this added cost.
How Demurrage and Detention Increase Costs for Shippers
According to Global Trade Magazine, demurrage and detention costs increased sharply in 2021 compared to 2020. The annual Demurrage and Detention benchmark report revealed a 39% increase for standard containers, and across a sample of 20 distribution centers, their D&D charges increased 100%--doubling in one year.
Many attribute these abrupt increases in large part to the global supply chain disruptions seen in 2021. Backlogs and delays had companies dealing with inefficiencies at every turn, including more time needed to move containers at the destination port, which increased D&D charges. Some industry disruptions are impossible to predict, while others can be detected with the right data analytics. Shippers must prepare for the eventual occurrence of disruptions and the effects on their D&D budget.
Successfully decreasing demurrage and detention costs involves three factors:
- Understanding the causes by analyzing past data.
- Having control over the supply chain to influence the outcomes.
- Receiving real-time shipment visibility data to allow for fast responses to disruptions.
There is always a chance that unforeseen problems will arise and throw off the budget, but shippers should periodically analyze their data to continue improving.
Since demurrage and detention costs are added at the end of the shipment, the total may surprise shippers if they do not have an adequate plan. Experienced ocean freight shippers should know how to budget for demurrage and detention, even though they only have estimations to work with until each shipment is completed.
How to Calculate Demurrage and Detention Costs
When calculating demurrage for one container, the shipping line takes the total number of days from discharge that the container remained packed until it was moved. They subtract the number of free days they provide from this number and multiply that result by the daily rate. For demurrage, this may range between $50 to $250 per container.
Similarly, detention is calculated by taking the total number of days from the time the container left the port/terminal to be unpacked until it was returned. The number of free days is subtracted, and the remaining number is multiplied by the “per diem” rate. Detention may be a slightly lower rate than demurrage, around $50 to $100 per container.
Often, demurrage and detention are calculated together, called combined or merged demurrage and detention. With this method, there is no distinction between the two fees. The measured time period starts from the discharge of the full container from the vessel and ends at the return of the empty container to its designated location.
Shippers should already be aware of the shipping line’s fees and terms before their container arrives at the destination. Fees may vary depending on the port of discharge, type of container, and size.
Example D&D Calculation
Take the following example of a shipping line calculating demurrage and detention separately (not merged), giving four free days before charging for demurrage and four free days for detention. They count partial days as full days in the calculation.
In this example, the vessel arrives at the destination, and the container is discharged on June 1. The time clock for demurrage begins, and the clock stops when a drayage carrier picks up the container on June 7, counting seven days. This is three days of demurrage costs, after the four free days are subtracted. At $100/day, the demurrage total comes to $300.
The clock for detention begins on June 7 with the pickup of the full container. The container is unpacked, and on June 10, the empty container is returned, stopping the clock on detention at four days (partial days included). The shipping line gives four free days, so there is no detention charge in this example.
Tips for Staying on Budget for Demurrage and Detention Costs
Detention and demurrage have the potential to add up quickly, and shippers should seek to minimize the time their containers are waiting for the next phase in the shipment journey. Here are five tips on how to stay on budget for demurrage and detention.
Be aware of the most common reasons for delays
Areas to watch out for include delays to the container due to:
- Errors in documentation
- Late receipt of documents
- Lost documents
- Issues with customs clearance or cargo inspection
- Issues with the release of cargo (such as bill of lading endorsement)
- Late payment to the shipping line
- Late dispatching to pick up the container
- Poor communication regarding the container status
Get data and analytics on past performance and market conditions
Data analytics shows shippers where problems have occurred in the past preventing them from moving containers on time. Shippers can also proactively budget for demurrage and detention fluctuations by monitoring market conditions and anticipating the potential for increased D&D charges.
Plan according to data insight
Shippers should focus their efforts on repeated causes for delays while adopting the best practices of planning their offloading schedule in advance, having a backup plan for trucking partners, budgeting for contingencies, and ensuring that they have the resources and visibility available to address any unexpected circumstances quickly.
Get real-time data on container statuses
Shippers should be prepared for unexpected changes with real-time updates and notifications on the statuses of their containers. With this data, shippers can respond as quickly as possible to help minimize their D&D charges.
Understand and negotiate terms with carriers
Shippers should understand the terms of their contracts and be aware of the fees associated with late returns and late pick-ups. Equipped with data on past performance, shippers can know what parts of their contracts are worth negotiating and what would be favorable terms of a new contract. Shippers should consider long-term partner relationships to reduce their exposure to demurrage and detention costs.
How Real-Time Ocean Visibility Mitigates Demurrage and Detention Costs
With an API (application programming interface) visibility solution, shippers get the tools they need to make data-driven decisions for reducing demurrage and detention charges. Real-time data helps shippers respond faster in the time-sensitive environment where every day can cost them hundreds of dollars per container. Ocean visibility gives insight into the container ETA at the port, overall port conditions like congestion, and container availability, allowing shippers to plan ahead and ensure containers are collected promptly while also helping shippers negotiate better terms with their carriers moving forward.
Get the Visibility to Reduce Detention and Demurrage with VIZION
Avoiding demurrage and detention charges is about having the data to understand why they occur and making informed decisions moving forward. Through VIZION’s easy-to-integrate API, shippers get ocean freight visibility data they can apply to reduce demurrage and detention, along with getting the benefits of faster response times to disruptions and reduced risk. VIZION API enables automated data collection that eliminates time-intensive manual processes and powerful data analytics for actionable insights. To learn more about how VIZION can lead to reduced detention and demurrage charges for your operations, contact us today to schedule a demo.