Posted On November 14, 2022
Most container shippers have been surprised with an unexpected, unnecessary and unwanted fee for detention or demurrage. And while the charges aren’t always avoidable, there are steps companies can take to prevent them in the future.
Detention vs. demurrage: what’s the difference?
Both detention fees and demurrage charges are issued when a cargo container isn’t where it’s supposed to be according to the carrier or port. But while similar, detention charges and demurrage charges have some important distinctions.
When a container arrives at a port or terminal, it’s allotted free time, or a specific number of days it’s allowed to remain before heading out toward its destination. Free time typically ranges from two to seven days, but depends on the port, and can fluctuate based on port congestion.
If the container is still there after the free time expires, the port, terminal, steamship line or airline will charge the shipper a demurrage fee. Demurrage fees are imposed on a daily basis, meaning the more time spent detained the container yard, the higher the total demurrage cost.
Once that container leaves the port, shippers are expected to return it within a certain amount of time. If the shipper doesn’t return the empty container on time, they’ll incur a equipment detention fee, also called a per diem fee.
In the simplest terms, demurrage fees are issued for containers inside a port or terminal, while detention fees are issued for containers that are outside a port or terminal. But there’s another type of detention fee that’s often confused with container detention fees—and can also cause transit costs to go over budget.
Driver detention fees
When a driver arrives at a warehouse to deliver or pick up a shipment, they have a small window of time before they’re expecting to depart—usually one to two hours. If the shipper or receiver facilities fail to fully load or unpack the shipment within the window, the carrier will charge driver detention fees.
Making issues even more complicated, it’s possible for shippers to be charged multiple fees on the same shipment or even simultaneously. For example, imagine you have an import container that’s arrived at the Port of Los Angeles. If the container sits un-emptied in the container yard for three days longer than allowed, you could be facing demurrage charges from both the organization that owns the port real estate and the shipping line that owns the container.
Similar situations can happen with detention charges as well. Say that same container makes it to its destination, a warehouse in Denver, later than scheduled, and the warehouse isn’t prepared to unload it in a timely manner. The shipper or consignee could be responsible for both equipment detention fees and driver detention fees.
Common causes of demurrage and detention fees
While painful, demurrage and detention charges aren’t levied without reason. Detention and demurrage charges are designed to encourage the flow of goods and incentivize shippers to stick to schedule. And driver detention fees reimburse carriers for the extra truck driver pay they’re liable for when loading or unloading goes long.
But in order to avoid or mitigate detention and demurrage fees, it’s important to understand the circumstances that typically cause or lead up to them.
- Labor shortages or labor strikes – When port employees, truck drivers or other transportation teams go on strike or face staffing shortages, moving containers and chassis in a timely manner becomes more difficult than usual.
- Lack of equipment – Similar to labor, not enough available equipment can cause backlogs. For example, carriers and ports faced a chassis shortage during the pandemic, and countless containers sat waiting to be picked up from ports, surpassing their allotted free days and racking up charges.
- Issues with customs clearance or documentation – Imports and exports require extensive documentation to clear customs. Not having the appropriate documentation in order when the cargo arrives at the port can cause delays.
- Poor communication between the shipper and consignee – Moving goods around the country or the globe requires significant coordination and communication between the sender and receiver. Detention and demurrage fees are a common consequence if both parties aren’t on the same page about cargo arrival and departure dates and times.
- Legal driving hours – By law, truck drivers are required to stop driving after they’ve met a certain driving limit. If a trucker’s legal driving hours don’t align with their delivery schedule, it can cause them to be late returning empty containers to the port.
- Bad weather and natural disasters. Hurricanes, earthquakes, flooding and other weather-related events can also cause backups at ports, terminals and warehouses.
OSRA-22 and its effects on the industry
The pandemic caused major issues for the entire shipping industry, with demurrage and detention charges creating countless issues for shippers. Whereas before the pandemic, a trucking company might only need 30 minutes or an hour to pick up a container from a port, pandemic shutdowns and labor shortages led to truckers spending upwards of four or five hours in line just to get inside the port.
In response, Congress and President Biden passed OSRA-22, or the Ocean Shipping Reform Act of 2022. The act was designed to prevent international ocean carriers from discriminating against cargo originating in the U.S. through excessive rate hikes and demurrage and detention charges. It also gives the Federal Maritime Commission, or FMC more regulatory power and oversight of demurrage and detention charges, among other practices that have been sore spots in the industry for several decades.
While policymakers taking action to address the issues is a step in the right direction, OSRA-22 isn’t a silver bullet, primarily because of timing. After only a year between its initial inception and becoming a law, and despite enacting sweeping changes to industry-wide practices, the law included no grace period for compliance. Compare that to OSRA-98, the most recent version of the law passed in 1998, which took seven years to pass and included a six-month grace period before it became enforceable.
One important aspect of the law requires demurrage invoices to contain 13 data points, including the “container available” date, or the day on which free time begins. The industry has scrambled to meet this requirement, but hasn’t yet become standardized in how this data is conveyed or where various parties, including drayage operators and freight forwarders, can access it.
The transportation and logistics industry continues to smooth out such snags, but at least for the foreseeable future, shippers are likely to incur demurrage fees at higher rates than they were pre-pandemic.
Avoiding demurrage charges
In many situations, like labor shortages and natural disasters, avoiding demurrage and detention costs isn’t possible. But shippers can take steps to decrease the number of demurrage and detention charges they receive. Here’s how:
Plan ahead and consider pre-pulls.
During labor shortages or the peak season, it’s not unusual for container yards to fill up fast. In those cases, your container could find itself at the bottom of a large stack—and until the containers on top of it are moved, you’ve got no choice but to wait. Once you have an appointment to pick up your container, make sure the carrier and driver responsible for pickup are notified. You can also coordinate a pre-pull, in which the container is picked up and stored in a secure location until it’s ready to be delivered to its next stop.
Ensure your customs clearance is done on time.
Import shippers can file entry five days before their container arrives at the port. Pre-clearing your entries within this five-day window prevents one potential cause for demurrage charges. Of course, when dozens of shipping lines are stuck at a port waiting to be unloaded (as was often the case during the height of the supply chain crisis), pinpointing that five-day window can be tricky. Consider enlisting a customs broker to manage your customs clearance on your behalf and eliminate any guesswork from the process.
Negotiate for extra free days.
As the saying goes, if you don’t ask, you don’t receive. If you foresee any issues that might prevent your carrier from picking up the container on time, you can request extended free time from the steamship line, terminal or port. Many experts will tell you only large-scale shippers that import or export hundreds or even thousands of containers a year, can get more free days—but we’ve seen smaller scale shippers get a longer free period as well.
Pay invoices on schedule.
In most cases, any demurrage charge incurred must be paid before cargo leaves the port. In other words, if you aren’t able to pay the demurrage charges you’ve already racked up, you’ll only keep receiving more until you can. Partnering with a freight forwarder can prevent this issue from popping up, as the forwarder will pay the charges on your behalf at pickup and then include them in your invoice. Just make sure your forwarder understands this is their responsibility before they head for the port.
Avoiding detention charges
Just as with demurrage charges, shippers can plan ahead to prevent unnecessary detention charges.
Use proper packaging.
We can’t stress this enough: for both imports and exports, palletize and shrink-wrap your freight. If a shipper plans to send 600 boxes on a container, each one needs to be loaded and unloaded individually, a process that could take hours. Alternatively, those same 600 boxes secured on 18 pallets might only take 30 minutes to load and unload. An experienced custom crating company can help you determine the best ways to package your goods.
The best way to avoid detention and demurrage fees: end-to-end visibility and ongoing communication
The transportation and logistics industry can change in a blink. Staying up to date and informed about various laws and port requirements will be your best bet for avoiding unnecessary fees.
Visibility into your supply chain is also important, as it gives you insight into potential hiccups and helps you plan ahead. Make sure you’re tracking shipments with a transportation management system so the right players—customs brokers, truck drivers, warehouse workers and more—are ready when needed. The more visibility, communication and transparency you have baked into your supply chain, the more likely you are to keep your supply chain moving smoothly.
Flat World has expert teams in every area needed to avoid demurrage and detention charges, including custom crating, freight forwarding, customs compliance, truckload brokerage and more. Our team can work on your behalf to streamline your supply chain and prevent your company from incurring fees. Contact us to learn more and get started.