Any entrepreneur or logistician dealing with international transportation is afraid of these two words – downtime and detention. It is obvious that no one benefits from missed deadlines and additional financial costs. So let’s figure out how to effectively manage these risks and avoid difficulties with cargo delivery.
What is demurrage in logistics
Demurrage is a penalty for a container being idle in the port beyond the allowed free time (free time) before the container is removed from the port.
Usually occurs in maritime logistics, but is also possible in rail (wagon) and road (truck) transportation.
How is demurrage calculated
Container demurrage begins to be calculated from the moment the time for unloading or loading onto a vessel in the port ends.
Formula: demurrage amount = number of days of delay (above free time) × rate per day.
The daily rate is set by shipping and transport companies. Most often, all rules and rates are specified in the contract of carriage, for international sea transportation – in the bill of lading. If such a condition was not stipulated, then the amount of demurrage is determined based on the port rate and actual losses.
The shipping line or port charges a demurrage fee for exceeding the free storage time of the container. The payer may be the owner of the cargo (importer or exporter), if the delay was due to his fault, or the carrier/line, if they did not ensure timely loading or unloading.
What is detention and how is it different
Detention is a penalty for not returning the container to the shipping line on time after it has already been removed from the port.
The thing is that each port gives the client a certain number of free days. During this time, the container must be unloaded and returned empty to the carrier. If it is delayed longer, the detention fee will start to “drip”. Often the tariff increases every day.
Several factors affect the cost of detennination. Let’s start with the type of container. The more expensive and rarer it is, the higher the rate. Refrigerators will be the most expensive, because they require electricity and maintenance, as well as tanks for chemicals and open-top for oversized and heavy cargo.
| Demurrage | Detention | |
| Idle place | In the port or terminal. | Outside the port (in the warehouse, in transit). |
| Problem | The container has been in the port for too long after unloading. | The container is already outside the port, but has not yet been returned. |
| Container condition | With cargo. | Empty. |
| Start of charging | After the end of the free time in the port. | After the end of the free time outside the port. |
| Duration of the free period | Usually 3–5 days. | Usually 5–10 days. |
| Amount of the fine | Determined individually. | Specified in advance in the contract. |
| Consequences in addition to the fine | Inability to receive the cargo without payment. | Refusal to accept cargo in the future, blocking of the client’s discount rate. |
| Goal | Optimize the port’s operation. | Ensure the rapid return of containers to circulation. |
To save money, it is worth choosing “dry” containers instead of special ones, but this is impossible for goods with special storage requirements (food, medicines, etc.).
Example of detennination
Let’s imagine a situation: An importer received a container with goods at the port of Odessa on June 1.
The shipping line provided 7 free days for unloading and returning the empty container.
The company removed the cargo from the port warehouse on June 2, but unloaded it only on June 10, and returned the empty container on June 14. In total, the importer caused a delay of 6 days. The shipping line will charge him detention for them.
The approximate daily rate for a typical container is 30–40 USD/day.
So:
- Rate: 40 USD/day
- Delay: 6 days
- So: 40 USD × 6 = 240 USD
The actual rate should be specified in the freight contract or booking confirmation.
Demurrage and detention — what’s the difference
Both terms come from French and are translated as “delay”. It’s no wonder that even experienced logisticians get confused by these two similar definitions. In addition, both words relate to international maritime transportation and mean “payment for extra time” that the cargo container spends outside the schedule.
In order not to get confused, let’s analyze the main differences between demurrage and detention.
Is there anything in common between the concepts of demurrage and detention? Let’s highlight a few that are the same for both characteristics:
- a fee for overtime use of the container;
- the conditions are set in the sea freight contract;
- the rate depends on the type of container;
- a fine is charged for each calendar day the limit is exceeded.
In summary, demurrage and detention are time costs – the difference is in place and moment.
The main reasons for charging demurrage and detention
There are actually quite a few reasons for violating delivery deadlines that lead to demurrage and detention, so let’s consider them separately.
The reasons for charging demurrage:
- lack of necessary documents;
- delays at the border or during customs clearance;
- an unsuccessfully designed route;
- high port or terminal load;
- non-payment of mandatory payments, including port dues;
- incorrectly specified terms or dates of cargo arrival;
- long acceptance of cargo by the recipient.
Reasons for charging demurrage:
- delay in unloading of goods;
- damage to cargo;
- downtime at the recipient’s warehouse;
- lack of transport to return the container.
If we generalize the reasons for demurrage and demurrage, they can be reduced to incorrect time planning and lack of coordination between the participants in the logistics chain.
How to avoid fines
Any downtime and errors can be corrected if the business cooperates only with reliable suppliers and maintains transparent and active communication with them.
For successful sea freight, it is important to take the following steps:
- plan customs and delivery in advance;
- clearly know how much free time is provided for each container;
- add several spare days to the logistics chain;
- scrupulously coordinate the date and time of arrival of the cargo;
- use modern digital technologies (for container tracking, data accounting, etc.).
A guaranteed way to neutralize the risks of demurrage and detention is to contact customs brokers and transport and logistics companies. Their experience and professionalism will ensure compliance with deadlines and coordinated delivery of cargo.
Conclusion
The system of fines in logistics appeared for a reason. It stimulates all participants in the transaction to promptly process the cargo, return containers, meet deadlines and respect them. Business players transfer this responsibility to brokers and logisticians. They take on the registration, coordination of carriers and control of deadlines. And in return, the client receives peace of mind and confidence that the container will arrive without demurrage and detention.
