Deterring Demurrage: What You Can Do To Mitigate Port Charges
Imagine you’re shipping a vitally important container of cargo across the ocean—inventory for the busy season, or the first items in a new product launch. The container reaches port, but it’s overcrowded with other ships offloading their containers. Days go by, and your container sits there—that’s when it happens. The meticulously planned shipping process has been interrupted and the tight budget is in jeopardy. All because of one thing: Demurrage. But there are ways to avoid this happening to you.
Demurrage is a standard and sometimes unavoidable aspect of the freight forwarding process. It’s essentially a fee assessed by port terminals if cargo remains at port after the Last Free Day (LFD)—the final day of free storage allotted in an agreement for cargo to be picked up. Charges vary depending on the port and terminal, but they can be unexpectedly steep, especially when combined with per diem and detention fees. Demurrage is also magnified during times of peak demand and congestion, but with careful planning, importers can avoid racking up costs.
Demurrage fees, which are based on the number of containers and days the cargo remains in place after the free period, can happen for a number of reasons: A warehouse may be unable to accept the cargo until after the LFD, documentation might not have been prepared in time, or a port strike could make pick-up impossible.
Making matters worse, some terminals increase the daily fee after a certain number of days, so without prior planning, importers can quickly accrue substantial additional costs. And while demurrage and similar fees can’t always be completely avoided, the good news is that they can be seriously mitigated with an experienced, customer service-oriented freight forwarder.
Shipping experts can help you in three key ways. You should be able to count on them to:
1. Know when the Last Free Day is for a given shipment
2. Monitor the progress of shipments arriving at port
3. Be prepared to offer alternative solutions should the possibility of demurrage arise
Detention: Adding Salt To A Budgetary Wound
Another set of fees to watch out for when you’re dealing with demurrage is ‘detention’ (also known as per diem). Just as ports impose demurrage fees to penalize for each day past the allowed free period, ocean carriers charge detention for each day outside the free period that the container is away from port. Ocean carriers want containers back to keep them in circulation. That’s because, similar to demurrage, the charge is intended to discourage importers from storing containers for long periods of time, clogging vessels that could otherwise keep moving. When the freight forwarding process stalls, carriers feel it in their bottom line. An empty container at a holding depot costs a carrier money better spent elsewhere.
With Increasing Volume, A Higher Chance of Demurrage
One of the unfortunate realities of the business is that no matter where fault lies, the importer is responsible for paying demurrage for the incurred charges. According to Flexport’s Director of Accounts Andrew Mintz, what makes this setup most disagreeable is that these charges stem from a point during shipping where importers have minimal visibility. Insurance might cover the cost for some causes of demurrage, like port strikes, but best practice is to plan ahead, especially in light of increasing rates. As Flexport’s Senior Director of US Ocean Freight Jan Hinz says, “Volume is increasing, but port extensions are not keeping up. Less space and limited zoning for ports typically pushes rent higher. With ocean freights very low, carriers are using every avenue to offset their losses.”
In early 2018, The Journal of Commerce reported that The Federal Maritime Commission (FMC) was conducting an investigation following concerns from beneficial cargo owners (BCOs), freight forwarders, and trucking companies that detention, demurrage and per diem fees “are unfair because their ability to receive cargo and return equipment is out of their control.”
According to the FMC, four areas are ripe for improving demurrage and detention approaches:
1. Standardized and easy-to-understand language for detention and demurrage practices
2. A clear dispute resolution process
3. Evidence to help resolve demurrage and detention billing disputes
4. Consistent notices of container availability
A final report from the FMC reporting on the findings and recommendations from the investigation is expected this September, but next steps for implementation of any recommendations remains unclear.
How a Focused Freight Forwarder Can Help
With all the complexities and potential delays that lead to increasingly costly demurrage, it becomes even more important to partner with a freight forwarder that knows how to keep things on track to avoid those fees.
For instance, the amount of free storage time varies across terminals and differs between LCL, FCL, air and rail shipments, but your freight forwarder should be in contact with port operations to determine the Last Free Day. Occasionally a freight forwarder may be able to secure additional free time at the port, past the typical five to seven days. But, only large-scale shippers are able to command large free-time agreements of 30 days or longer.
To avoid getting your shipment stuck at port, make sure you’re using a customs brokerage that clears shipments through Customs before they arrive at the port. An ocean shipment can clear U.S. Customs up to five days before it arrives at a port, making it easier to keep goods moving on schedule.
In addition, since it’s an unknown cost at the time of the initial quote, demurrage charges are often passed from the freight forwarder onto the importer on the final invoice. But be aware that some freight forwarders favor all-in pricing, which isn’t as transparent. As a result, the importer pays demurrage charges whether or not actually incurred. The takeaway: Make sure you’re partnering with a freight forwarder that provides transparency into its quoting and invoicing processes.
Your freight forwarder should also be able to offer alternative trucking solutions when a shipment is running the risk of incurring demurrage. For example, if the final destination isn’t able to accept the cargo until after the Last Free Day, or if a delivery appointment is required, a freight forwarder can arrange a pre-pull—when the trucker pulls an FCL container from the port and stores it at the trucker’s yard instead of immediately delivering it.
Advance planning is key to avoiding demurrage charges whenever possible, so partner with a freight forwarder that:
• Keeps track of how much free time is available—and can negotiate on your behalf
• Monitors the progress of shipments arriving at port
• Provides transparency and visibility into the shipping process
• Preclears cargo
• Offers alternative trucking and storage solutions