The Per Diem Debacle: How a Dynamic Industry Landscape is Reshaping Per Diem Charges in Shipping

The Per Diem Debacle: How a Dynamic Industry Landscape is Reshaping Per Diem Charges in Shipping

After the pandemic, shippers' high costs for detention, demurrage, and per diem fees remained high. Moreover, global events and supply chain constraints continue to plague shippers and cut into profits.

From 2020 to 2022, shippers' spending increased substantially to cover detention and demurrage fees. According to Container xChange,

“Our Demurrage & Detention: Annual Benchmark 2022 report compared these charges across 60 ports and 8 shipping lines from 2020 to 2022. Our analysis shows that the global average of demurrage and detention charges has increased from US $586 in 2020 to US $664 in 2022. It’s a steep rise of 12%!”

While detention and demurrage fees get industry headlines, increasing per diem charges stand to impact the transportation industry equally. Let’s discuss the per diem meaning in shipping and the difference between detention and demurrage fees.

What Is Per Diem Shipping?

Per diem container fees and surcharges are applied when specific shipment criteria are triggered when met or not followed. These are fixed day rates charged by one carrier to another carrier or customer for the use of trucks, trailers, chassis, and other types of equipment for exceeding a fixed period.

Container per diem charges incentivize shippers to return resources promptly and not hog resources that prevent others from unloading their containers.

These charges are familiar for shippers but continue to become more common and increase their costs. As a result, the financial costs of per diem fees add up, but they are necessary to prevent port delays and reduce congestion.

A standard per diem charge ranges from $50 to $100 per day until the equipment is returned and the clock starts ticking the minute the container leaves the port, terminal, or depot. As a result, a shipper with multiple containers at the port, each racking up per diem fees, will quickly increase costs.

Per Diem vs. Demurrage and Detention

With per diem fees defined, here are their differences from demurrage and detention fees.

Container demurrage fees

Demurrage fees are assessed when the container is not moved from the port within a specified time frame. These charges intend to prevent containers from piling up, resulting in bottlenecks and slowing port processes. Shippers that get their containers unloaded and moved as quickly as possible avoid or mitigate these fees.

Shippers often need help keeping their cargo moving through the port. Ports afford them an allotment of free time, after which fees start when containers have not been transferred, returned, or emptied.

To explain per diem vs. demurrage, per diem fees apply to using another carrier’s equipment over set periods, demurrage fees exist to keep containers moving and not clog up the ports.

Container detention fees

Detention fees are similar to per diem fees, but the tools, machinery, and equipment belong to the port instead of another carrier. If the shipping company uses resources longer than agreed, detention costs kick in. A late return of equipment leaves others waiting in line, and like per diem charges, detention fees incentivize the prompt return of equipment to keep things moving efficiently.

The breakdown

To break these fees down:

  • Demurrage: A charge for containers sitting at the port or not returned within a set period of free time.
  • Detention: Fees for the use of port equipment beyond the allotted time.
  • Per diem: A charge by a carrier to another carrier or customer for equipment used beyond an allotted period.

What's the future of Per diem charges?

Inflation indicators show that an inventory glut pushes up prices due to increased storage prices. The charges to use cargo containers as temporary warehouse space are expected to explode over the coming months.

While other shipping rates have been falling, fees related to holding inventory keep rising. The problem isn’t related to a lack of demand but rather extensive demand and a lack of facilities to accommodate it.

Low warehousing capacity is plaguing shippers, leaving them incurring high fees.

Per the CNBC article, A new inflation warning for consumers coming from the supply chain,

“He predicts that per diem charges will surge in this year's second and third quarters. “These are on top of charges for warehousing, which are still at historic highs,” Brashier said. “Late fees and warehouse fees are passed onto the consumer, which is why we are not seeing products fall as much as they should.”

Mitigating these fees and navigating constrained warehousing space is a crucial consideration for shippers.

Visibility Helps Mitigate Per Diem Fees

Per diem fees show no sign of letting up. On the contrary, they are only expected to keep going up. The current lack of facilities will take time to resolve, and consumer demand has shown no indication of letting up, even with persistent inflation and interest rate increases.

Savvy shippers turn to visibility solutions to mitigate these charges and plans. They know the location and status of their containers and when the fees will kick in, enabling them to move quickly and prevent expensive charges.

Vizion API keeps containers moving by providing total visibility and the ability to share data seamlessly. Shippers gain strategic agility when they have access to their freight’s location and status with container tracking information. Adding Vizion API to your existing tech stack is easy and integrates with all your systems.

Get started with Vizion API today to see how a world-class visibility solution will help mitigate or prevent per diem charges.

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