xChange: Ins and Outs of Demurrage and Detention
- Business & Finance
The process of shipping a container from one point to another includes a number of factors, some of which are demurrage and detention. These are a matter of allowed free-days, determining the number of days a shipper can use the container for free.
If this free time is exceeded, a user has to pay a demurrage and detention charge, usually calculated per day.
World Maritime News spoke to Florian Frese, Director of Marketing at xChange, a Germany-based startup focusing on repositioning of containers, to find out more about demurrage and detention in the container shipping industry.
Referring to the time in port after arrival, demurrage is a charge levied when the full container has not been picked up and moved out of the port for unpacking within the set free-days. For conventional shipping, the free-days are often somewhere between 3-5 days.
Detention refers to the time outside the port, where the shipper holds on to the carrier’s container beyond the allowed free-days. Thus, a detention charge is applied when the container has been picked up, but not returned to the carrier. That is done in an attempt to decrease the container’s turnaround time and make shipping more efficient, according to Frese.
“Of course, you can always negotiate with shipping lines, but usually free time ends after 1-10 days. It completely depends on their schedule and the port itself where they have standard processes. For most companies and container types, demurrage fees are close to USD 100 per container and per day,”
Additionally, Frese explained that longer demurrage free periods would not help solve congestion at terminals fueled by shipping alliances and ULCVs that contribute to higher peaks and congestion. Such a situation would shift costs from shippers to shipping lines.
With the US China trade war for example, imports have risen dramatically in the last month, which led to too many containers being at the port in Los Angeles. Too many containers plus too little capacity inside the terminal/port leads to high demurrage and detention charges, he said.
“Reasons why per diem charges arise include inspection holds, lack of sufficient terminal appointments, closed terminals, congestion caused by inclement weather, port suggestion and lack of available chassis. A problem is that there is no uniform definition for demurrage and detention for when a container is considered as available for pick-up which leads to arguments.”
With Carrier Own Container (COC) shipping there is really not much to be done against demurrage & detention as global trade volumes, capacities or the weather itself cannot be influenced on. That is why many shippers turn to Shipper’s Own Container (SOC) to increase their flexibility. They usually come with a high amount of free days, low per diem-fees and they simply have to be returned at the partners depot, according to Frese.
“To keep it simple, shipping lines are charging fees to maximize their profits. The trend of mega ships for example even increased demurrage and detention as it leads to bigger peaks, more congestion and unreliable vessel schedules,” he said.
Elaborating about the ways in which demurrage and detention charges can be avoided, Frese listed a number of solutions, including pre-clearing cargo and issuing delivery instructions to the inland carrier in advance, as well as having a trucker “back-up” plan when dealing with a particularly congested port.
Additional solutions include dispatching cargo as far in advance as possible, negotiating more time for live loads/unloads, scheduling loading/unloading with the detention clock in mind, or simply using SOC containers. Requesting extended free time could also help, however, this only works for large shippers since they are based on the volume of containers arriving on a vessel at any given time.
“The easiest way to sanction those unreasonably high charges is to completely avoid COC containers when possible. Otherwise it is a vicious circle, the port blames the shipping lines, the shipping lines blame shippers and truckers … the best way is to bring your own container to completely avoid such fees.”
When asked about digitalization in the supply chain, Frese noted that an increase in transparency and electronic data transfers would fuel speed at ports and help reduce the “transition time” of every container. Additionally, data standards and all parties, including ports, shipping lines, truckers, shippers, working together would also help solve the problem.
Speaking about SOC vs. COC containers, Frese explained that COC containers, used for standard shipments, are simple to use. The process starts and finishes with paying the carrier a given „all in“ rate to move the freight. SOC containers on the other hand are for everything else and include control of supply, control of ownership and control of cost by avoiding unexpected demurrage and detention cost.
World Maritime News Staff, Image Source: Pexels, Pixabay