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What is Demurrage and Detention

Views: 41     Author: Site Editor     Publish Time: 2022-09-08      Origin: Site

What does DEM (Demurrage) and DET (Detention) meaning in shipping? When does Free Detention and Free Using start to be calculated? The following in detail by STU Supply Chain for you.


Table of content:

Demurrage

Detention

Then let's talk about Free Detention, Free Using, Free Demurrage

What is Free Time?

What is Storage fee?

Conclusion


What is Demurrage and Detention



Demurrage

DEM Demurrage Charges, means a charge payable in the event the Buyer is unable to complete discharging the ship within agreed laytime.

Refers to the container overdue usage fee under the control of the carrier or its agent, usually refers to the overdue usage fee of the container at the destination terminal or yard before the consignee clears the customs and picks up the goods. The time range includes the time when the box is dropped at the dock, until the end of the customs declaration and the dock is proposed. Beyond this time limit, the shipping company needs to ask you to charge.


For example, the free demurrage given by the shipping company is 3 days. If you do not lift the container out of the port area within 3 days, the shipping company will start looking for you to charge the demurrage fee.


How much does demurrage cost?

Typically, 3-7 days are offered free, but the rules are slightly different for each terminal, and this number can be changed at any time. Free days can also be negotiated in the contract, but the ability to negotiate depends on how much you move as a shipper.


Daily rates range from $75 to $150 per container per day; however, the charges will and do increase the longer the cargo stays at the terminal.


For example, let's say you have 3 days to spare. After that, $100 per day for 3 days. From 4 days to 10 days, the fee increases to $250, and finally to $350 for any day beyond 10 days.


If pickup is delayed by 14 business days, your charges are:

14 days – 3 days free = 11 days demurrage


($100 x 3 days = $300) + ($250 x 6 days = $1,500) + ($350 x 2 days = $700) = $2,500 per container,


You must pay these fees up front to get your shipment back.


What if there are 10 containers in that shipment? This will bring your cost to $2,500 x $10, or $25,000!

What is Demurrage and Detention-3

Important: Demurrage charges must be paid before the goods are picked up from the port, so while you may spot these charges early, planning ahead is key to limiting your exposure to them.


What aspects cause demurrage?

· Delayed payment. Any delay in payment will result in the goods being stranded in port.

· If the shipper has only paid for part of the cargo, the ship may refuse to release the freight until the full payment has been made.

· This includes paying for purchases or accepting payment terms from suppliers.

· If an original bill of lading is issued, the carrier's bill of lading must meet the payment or payment terms agreement before it can be issued.

· Incorrect or incomplete information in your import and export documents can hinder customs processing, and errors in paperwork (even simple spelling mistakes) can prevent your shipment from being released.

· Lack of proper timing and planning.

· The consignee does not know the arrival of the goods and cannot clear the customs in time (informed party information is wrong, or the notification is missed).

· The container is delivered by the carrier to the port, but the shipper cannot export it on time.

· The cargo missed the scheduled vessel and was rolled onto another vessel that arrived later.

· No appointment slots available before the LFD.

· LFD does not provide trucks, drivers or chassis.

· Containers are stopped by customs, police or other authorities to inspect the cargo, which may take longer than expected.

· Port congestion, weather, or labor strikes that cause ports to close or operate very slowly.


What is Demurrage and Detention-4


How to avoid or reduce demurrage?

1.) Active planning is essential to limit your exposure.

Make sure you know ahead of time how many free days you have so you can be sure to ship your shipments before your free time runs out. Depending on the terms of sale and delivery, the choice of port and route to use is also important as some ports/VOCCs are more willing to negotiate free time than others.


2.) Make sure all your documents are in order before shipping.

This means checking that your commercial invoice contains the correct purchase order information, terms of sale and country of origin, that your packing list contains details of the goods and that all necessary documents are included with the goods.


To clear a shipment through U.S. Customs, a shipper needs four documents:

· Commercial invoice

· Bill of Lading or Air Waybill

· Packing list

· Arrival reminder


Verifying that your paperwork is complete will help prevent any delays when dealing with customs.


3.) Pre-clear your shipment through customs and share shipping instructions with all parties in advance.

This includes operators, suppliers and third-party providers. As long as your paperwork is complete, you should be able to clear your shipment five days before the ship's arrival if shipping by sea or "wheeled" air.


In addition to avoiding delays through customs, clearing as early as possible allows for advanced coordination with truck drivers before free time expires and keeps your shipment moving in time.


4.) Confirm that your truck driver can pick up the goods within the allotted free time.

Make sure a truck driver is assigned to your shipment. Always make sure your freight forwarder has relationships with other freight companies, especially if you're dealing with a particularly busy port. Having a backup truck option can be a lifesaver when capacity is tight or time is of the essence.


5.) Pre-pull your container.

When working with an active shipping provider, you can take advantage of their pre-pull service. These services include picking up your cargo from a marine terminal or rail before you start incurring demurrage charges, and temporarily storing it in one of its many secure yard locations until it can be shipped to its final destination.


Active shipping providers will store your containers at prices well below demurrage charges. However, don't forget that you may still be charged withholding and/or per diem charges in addition to the chassis and other ancillary charges if the equipment is not returned before your withholding-free period expires.


6.) Request extended idle time.

For large shippers shipping at least 800-1000 containers per year, you can request an extension of free time from your NVOCC or shipping company during contract negotiations.



Detention

DET Detention Charges, means empty container detention charges, when the cargo owner borrows containers or trailers from the container yard (*CY) from the shipping company for loading or unpacking at their own factory, if they fail to return within the agreed time, the shipping company will The fee charged to the shipper on a daily basis per container. Refers to the overdue use fee for the container under the control of the consignee, that is, the consignee lifts the container out of the yard or wharf after customs clearance and fails to return the empty container within the specified time. The time range includes the time when the container is raised from the terminal until you return the container to the port area. Beyond this time limit, the shipping company will need to ask you to collect money.


Generally speaking, the free time given by the shipping company = free demurrage + dree detention.


When you see this, some people may wonder what the above fees have to do with the storage fees. Are they the same? This is definitely not the same as Storage ≠ Demurrage.


The storage fee refers to the time range from the time when the container is dropped to the terminal until the terminal is proposed at the end of customs declaration. Note that the key word is the terminal, so the difference between the two is that this fee is not charged by the shipping company, but by the port area. 


What are typical situations that lead to detention?

import

The consignee could not be reached and the shipment could not be completed. Loading and unloading at the consignee's facility took too long, and the driver exhausted legal driving time to return the empty container on time.


Export

There is no VGM document in the shipment. "VGM" stands for Verified Gross Mass and refers to the total weight of the officially verified packaging container. Under SOLAS (Safety of Life at Sea) regulations, the shipper will be responsible for weight accuracy and VGM as defined in the International Maritime Organization (IMO) guidelines.


Containers shall not be placed on board unless the VGM of the container has been notified in advance and recorded. This is required for all exports.


How can you avoid or reduce detention?

Growing driver shortages, chassis shortages, ELD requirements to limit service hours, severe weather, and port congestion can all lead to detention charges, so be sure to plan ahead to avoid them.


Here are some tips on how to avoid detention:


1.) Ship as early as possible.

According to an industry analysis by DAT Solutions, only one truck is available for every 12 shipments that need to be transported. Keep this in mind and give your shipping company ample time to schedule pickup and/or delivery to ensure they have the capacity to move your shipment.


2.) Make sure that the loader (export) or the unloader (import) is ready to take action when the container arrives.

Being prepared ensures that truck drivers can arrive and leave in a timely manner, which will allow both your cargo and your driver to arrive on time.


Drivers have a limited amount of time each day they can be on the road, so please be aware and treat your driver with courtesy and this will ensure they provide you with a high-quality service in the future. This will also help you avoid detention fees.


3.) Manage containers entering your facility on a first-in-first-out (FIFO) basis.


This ensures that once emptied, the empty device can be returned quickly within the allotted idle time.


4.) Allow more time for dynamic loading and unloading.

If you know in advance that the container will take longer to load and unload, please negotiate an extension with your truck carrier. Otherwise, make sure you know the allotted free time as well as the billable time.


5.) Use alternate storage options.


Use a reliable warehousing and distribution partner to improve your operational supply chain.

What is Demurrage and Detention-2

Then let's talk about Free Detention, Free Using, Free Demurrage

Free Detention, which means to exempt the storage fee of containers at the port of destination, mainly occurs when the consignee cannot clear customs quickly, or because of the large volume of goods, it is necessary to apply for a reduction or exemption of this fee at the port of destination.


Free Using, which means that the daily rent (penalty) will be waived after the normal use period of the container is exceeded. Generally, the period of free use of containers is set by the major shipping companies. It is roughly 10 days for 20'GP and 14 days for 40'GP. The calculation period of overdue fees for general containers and OOG containers is different, usually 3-6 In the day-to-day stage, the specific number of days of free use depends on the regulations of each shipping company, or even the situation of the goods on a voyage.


Free Demurrage: Generally speaking, for ports with slow customs clearance, free demurrage will take longer. For example, in South Africa, it will give up to 21 days. And Australia may not leave a special demurrage for you. Like free time, these are determined by the strength of each freight forwarding company. But the storage fee and time are usually fixed.


Therefore, according to the above content, we can re-evaluate, Demurrage Charge is the terminal charge; Detention Charge is the charge of the shipping company to which the container belongs; Storage fee is charged by the storage yard, whether it is import or export, there are overdue fees, overdue fees. You can apply for a reduction or exemption with the shipping company. The storage fee is ignored. If you can't apply, SOC does not have the problem of overdue fees, but there are storage fees.


Criteria for Charges:

All fees are stipulated by the shipping company and the port area, and the fees are fixed. Shipping company fees are mostly in US dollars, but some are settled in local currency, which is usually written on the back of the bill of lading. The port fees are in local currency, and they are all stairway fees. The standard fee shipping company or agent usually has a fixed quotation, and the fee is basically transparent.



What is Free Time?

Free time is the amount of time that a carrier's equipment may be used without incurring additional charges. In order to avoid Demurrage Charge and Detention Charge, import and export goods must be processed within a specified grace period, called free time.


Free time refers to the period of time during which no demurrage or detention charges are charged for the use of a container, in addition to the basic freight. These rates and rules may vary between Vessel Operating Common Carrier (VOCC) rates, Terminal or Port Authority Marine Terminal Operations (MTO) schedules or Beneficial Cargo Owners (BCOs) or service contracts between shippers and carriers specified in. Non-Vessel Carriers (NVOCCs). Free time in a contract can vary, so you need to know and understand how much free time you have.


Related to free time is "Last Free Day" or LFD, which refers to one of two situations: the last free day at a port or rail ramp before demurrage begins to be charged on a vessel line, or a sea freight that has been suspended The last free day for the container has been shipped from the port or rail ramp before the ship line begins to collect detention or toll charges.



What is Storage fee?

Storage, sometimes referred to as "ground rent" or "dock rent," is the cost incurred by customers for using physical space in a port, terminal, warehouse, warehouse, or inland container yard facility.


Unlike demurrage and detention charges for using equipment beyond the allowable idle time, storage charges are incurred for using these facilities. Think of demurrage and detention/per diem as costs for equipment "lease", while storage refers to the use of physical space.


Storage charges for port facilities, airline terminals, rail yards and bonded warehouses may accrue when cargo remains on-site beyond the stipulated free days after arrival. The facility sometimes imposes storage fees on containers if the consignee is unable to pick it up via LFD. This practice is more common overseas than in the United States.


Why is storage charged?

The fee is intended to compensate the facility for using physical space and deter shippers from treating this space as a storage location. In some countries, storage costs can be very high due to lack of space in the port/terminal. To alleviate the problem, shipping lines may move containers to private warehouses to cut costs.


A storage fee may occur in the following situations:

· FCLs are imported at a port or inland terminal and held by the shipping line until the container is released to the importer.


· A FCL is imported at a customs bonded warehouse, and the importer or customs requires it to be moved for inspection, etc.


· The whole container is exported at the port or inland terminal and kept by the shipping company before the container is loaded on the ship. This usually happens if the exporter has moved the container into the port but has some documentation or other issues to resolve before shipment.


· On a container detained by the government. Customs and Border Protection (CBP), health, police, and more.


Storage is collected and collected by the entity that stores the container in its facility for the shipping company or exporter or importer. A container may incur both demurrage and storage charges in the same shipment.



Conclusion

Port congestion, winter weather and capacity constraints have led to a significant increase in the incidence of demurrage and detention charges. While some delays resulting in these charges may be beyond the shipper's control, the shipper is usually responsible for paying the bill.


Now that you know what Demurrage and Detention are and how they arise, you have the ability to overcome these charges with some aggressive planning that will help you avoid unpleasant surprises on your shipping bill.


Finally, all clear definitions in one place:


Free time: That amount of time that a carrier’s equipment may be used without incurring additional charges.


Last Free Day (LFD): Last Free Day at the port or rail ramp before steamship line starts charging demurrage or Last Free Day for the ocean container taken out from the port or rail ramp before steamship line starts charging “per diem” or usage fee .


Demurrage: Costs incurred by a customer for using equipment beyond the given free time inside the terminal. Demurrage is charged when containers are still full and under the control of the shipping line, and have not been cleared through customs or picked up by the consignee.


Detention: Costs incurred by a customer for using equipment beyond the given free time, typically outside of the terminal. Detention is charged when the carrier’s equipment is still in use by the shipper or consignee beyond the LFD, regardless if full or empty.


Per Diem: A detention fee where a fixed rate is charged per container per day until the equipment is returned to the port. Per diem and detention are often used interchangeably.


Driver Detention: A fee, typically charged at an hourly rate, that a carrier may assess when driver wait time, either at the origin/pickup or destination/delivery location, exceeds the given free time for loading or unloading the truck.


Storage / Ground Rent: Also sometimes referred to as “quay rent”, storage/ground rent is the cost incurred by a customer for using physical space at port, terminal, warehouse, depot, or inland container yard facilities.

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