Ports and terminals only have so much space, which is why they begin charging demurrage for shippers and freight providers who fail to move containers within an agreed-upon timeframe. When containers arrive at a port, they get a set number of free days that they can sit at the docks or in the yard without incurring fees.
But once that time is up, the port or terminal may start charging a daily fee for every container that is over the time limit. Learn all about demurrage charges, how to avoid them in an effort to keep costs down, and answers to frequently asked questions about demurrage so you can operate a lean transportation company.
Demurrage Explained
The shipping and freight industry relies upon dependencies. Ports depend on shippers to move the freight away from the docks to make room for more goods to arrive. So, when shippers or truckers fail to move the goods within the contracted timeframe, the ports must make up for not being able to use the space by charging a fee known as demurrage.
When goods arrive at a port, the shipper has a timeframe to remove those goods within to ensure the loading and unloading dock is available for more containers. That timeframe is known as free time in the shipping industry.
How much free time the port allows for is variable based on the shipping line. Then the shipping company or trucker picks up the container, takes it to the location where it is unloaded and reloaded, and returns the container to the port within the timeframe outlined in the charter agreement. Once the shipper returns the container, the shipping process is complete.
The demurrage meaning comes from the French word “demeurage,” which means to linger or tarry. This fee helps motivate shippers and truckers to complete timely container retrieval to avoid these unwanted expenses.
How Does Demurrage Work?
A demurrage rate is generally a per-day, per-container fee for every day that a container lingers at a port in excess of the allotted free time.
Learn more about how demurrage works from these frequently asked questions.
How Is the Demurrage Rate Determined?
The demurrage rate is determined by your charter contract. Charter contracts outline the free time that the container can sit at the port. These contracts also state the per-day pro-rata demurrage fee for exceeding that free time.
Who Pays the Demurrage Fee?
Most often, the shipper is responsible for the demurrage fee. However, sometimes trucking companies or other consignees are legally obligated to pay the demurrage fee because they were contractually at fault for the delay in picking up and transporting the goods. It comes down to which party was contractually responsible for the goods at the time the demurrage fees were incurred.
Why Are Demurrage Rates Charged?
Loading docks charge demurrage fees to encourage shippers to keep freight moving. Freight that sits at a port or rail yard slows down the movement of containers and creates a backlog for moving goods. That backlog can make it challenging to load and unload airplanes, trains, and boats to power the supply chain.
What Is Container Free Time?
Container free time is the time outlined in the charter contract that a container can sit at a port or rail yard without incurring demurrage fees.
How Many Free Days Do You Have Before You Are Charged Demurrage?
Generally, shippers get 4 to 7 days of free storage time before the ports begin charging demurrage. Shippers whose goods arrive via air or rail often only get 48 hours of free storage before incurring demurrage fees.
Example of Demurrage On a Shipping Container
To illustrate how demurrage fees work, let’s look at an example of expenses a company could incur. If a container sits at a port for 9 days with 7 days of free time at a demurrage rate of $125 per day, the shipper will incur $250 in demurrage fees for failing to move the goods in the agreed-upon timeframe. But if the shipper has 4 containers that sit at the ports for 9 days, the shipper will owe $1,000.
Many demurrage fees are broken down by hours and minutes. So, if your container sat at the port for 9 days and 8 hours, you’d incur a per-container fee of $291.66 on average. At times, the value of the goods in the container exceeds the demurrage fee. Sometimes this leads the shipper to abandon the container at the port.
4 Ways to Avoid and Reduce Demurrage Fees
Demurrage fees are avoidable expenses in most situations with the right planning, communication, and monitoring of your charter contract. Here are 4 tips for avoiding demurrage fees.
Preparation
Long before your shipping container arrives at the port or rail yard, you should plan for how and when you’ll move it. Prepare the cargo for customs and have all required documentation complete.
Waiting until the containers arrive to make plans for how you’ll transport them makes you more susceptible to delays, problems, and potential fees.
Communication
Stay in close contact with the port authorities so you know the precise timing for when they will unload your container from the ship. That way, you know your timeline for working with the freight broker or truck driver who will be picking up that container to take it to its next destination.
Working with a freight forwarder can help you contract with truckers and other freight companies to ensure timely transportation of the goods to avoid demurrage fees.
Shipper-Owned Containers
Shipper-owned containers can free up your timeline for moving freight. That way you don’t risk detention fees for failing to get your containers back to the port within a few days.
If you’re shipping at the port of LA, you have many options for how to move freight, including rail, port, truck, and freight.
Being Informed
Check the status and location of your shipping containers frequently. Your free time for the container to sit at the port or rail yard starts immediately when it arrives. The sooner you know it is there, the faster you can make arrangements to transport it.
Demurrage vs Detention
Demurrage is not to be confused with detention, which is a charge for failing to return an empty container to a port or container yard within the contracted timeline. Generally, shipping companies incur detention charges when they are working with carrier-owned containers (COC).
Detention is like paying a late fee for failing to return borrowed goods before or by the deadline. It’s much like forgetting to return books to the library or a car back to the rental company.
Demurrage is a charge you can incur when a container arrives at a yard or port and detention is an expense if you fail to return the container in time to avoid supply chain disruptions.
Reduce Unnecessary Shipping Fees by Avoiding Demurrage
Demurrage fees are avoidable expenses that can have a huge impact on your bottom line. With the right planning, freight monitoring, and transportation partnerships, you should be able to avoid demurrage fees by moving containers on time.
