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Demurrage is the fee a shipping line or terminal charges if an importer does not pick up a container within the allowed free time. Detention denotes the charges applied when a container hauled from aport does not return within the agreed timeframe.
The fees can range from $75to $300 per day based on the port and the shipping line. For instance, the NewYork Port has an average D&D fee of $2,478 for 14 days. The pandemic saw a massive collection in the D&D Charges of nearly $6.9billion.
However, traders need not pay such expensive and unnecessary charges if they know the major causes and strategies to reduce the fees.
5 Root Causes and Strategies to Diminish Demurrage and Detention Fees
Below you will find the five main factors that inflate your demurrage and detention costs, along with ways to curtail them.
Inadequate attention to contractual terms
Not paying attention to the contractual terms drawn with the shipper/importer/exporter can land you in trouble. For instance, if the contract is for a certain period and there is a delay due to bad weather, labor shortage, or equipment malfunction, you will have to incur the charges for the delayed time.
Try to resolve it by negotiating the terms of the contract with the logistics provider, for instance:
- An extension of free time
- A reduction in per diem charges
- Waiver of demurrage and detention charges
Also, be updated on the regulations and policies, which will help in compliance and avoid unnecessary charges. For instance, the FMC (Federal Maritime Commission), in its OceanShipping Reform Act of 2022, which comes into effect in 2024 requires outlining minimum information and clear communication about demurrage and detention invoices, billing practices, and charges for improved clarity and avoiding overcharging.
Ignorance of custom clearing procedures
If you are unaware of the customs procedure and port regulations of the intended destination of your cargo, it can lead to unwanted delays and expenses.
Some ways to overcome this ignorance are:
- Familiarize yourself with the various procedures involved in customs clearance and regulations related to your specific shipment.
- Plan for pre-clearance activities and documents needed to avoid delays.
- Meticulously prepare the paperwork for customs clearance to comply with port regulations.
- Make sure the documentation is accurate and updated as per the current regulations.
- Management of documentation will ensure smoother shipping and minimize errors and delays that can increase the charges.
Not planning for a backup
While it is good to be optimistic that your well-laid plans will go smoothly, there is no guarantee that everything will work as planned. Human oversight or inadvertent errors can result in exceeding the stipulated free time.
To overcome it, consider having multiple options in case your initial plan fails to work. Some options include:
- Alternative drayage providers or services that can help resolve delays.
- If the inland terminal is not equipped to receive your shipment, consider a facility off-port. This can avoid demurrage charges.
Using alternative storage options can help manage shipments optimally and reduce charges caused by storage limitations.
Not using supply chain visibility processes
Shipping containers are an essential tool in reducing overall logistics costs and streamlining transport operations. As the global shipping container market is projected to reach 16 billion USD by2028, their role in enhancing the efficiency of shipping processes and optimizing time management becomes increasingly critical..
Due to the use of multiple transportation modes, coverage of large distances, and the presence of many stakeholders, knowing the cargo status at any given time can be difficult. This leads to failure to anticipate issues and plan contingencies.
To avoid the issues faced in the supply chain, transparency is vital. When you can monitor all the phases in a supply chain, it will be easy to:
- Monitor shipments effectively
- Anticipate potential delays
- Make informed decisions that ensure an efficient shipping process
Moreover, with advanced tracking and monitoring systems, you can coordinate various shipping aspects.
Not investing in technology
Many issues that lead to detention and demurrage fees are related to not managing the movement of your shipments proactively.For instance, not receiving alerts on route changes or early arrival of cargo can result in difficulties and delays.
Technology advancements when used effectively can help in minimizing errors and increasing efficiency. As per an article published in the Journal of Shipping and Trade in 2023, digitalization is one of the three solutions that can bring about a positive impact.
Solutions such as automation of supply chain processes can help immensely. Northbound, for instance, uses proprietary software that can help in many ways, such as:
- Optimizing container scheduling via real-time D&D dashboard
- Retrieving container milestones real-time
- Mapping individual demurrage and detention rates, and analyzing costs and the movement of each container
- Providing proactive alerts
- Automating the invoice verification process
Tackle Demurrage and Detention effectively
Businesses need to consider this issue seriously as it can cause a myriad of damages. It can negatively impact businesses in many ways, such as:
- Affect profit margins and hinder growth
- Disrupt the seamless movement goods in the supply chain
- Cause compliance challenges like missing customs clearance or inspection deadlines
- Affect customer satisfaction, leading to lost business opportunities
- Impact the environment negatively with higher carbon emissions due to longer wait at ports
Drastically cut down D&D costs in real-time with judicious investment in technology
Shippers and freight forwarders can avoid unjust and high surcharges with the right approach. Cost savings and higher profit margins are possible by investing in efficient software.
With solutions like Northbound, shippers can ensure optimized planning, automation, and transparency. The service has enabled customers to reduce up to 80% of the total D&D costs and more than €1000 in fees per container.They provide a comprehensive approach to proactively navigate the supply chain process, avoiding unnecessary charges and ensuring customer satisfaction.
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