What is Demurrage

By extension, the demurrage refers to the charges that the charterer pays to the owner of the vessel due to delays in loading/unloading operations. Officially, the demurrage is a form of liquidated damages settled by the breach of the maintenance time, as established in the governing contract (the part of the contract). The demurrage sometimes causes a loss to the seller as it increases the cost of the total freight.

Demurrage definition

The demurrage is a fee charged by maritime carriers, trucking companies, and railroads when a container from the port is not removed by the last free day, as stipulated in the contract with the shipper. The rate of delay and time vary according to the shipping line.

How Demurrage is Charge?

Demurrage charges begin to accrue 7 days after the terminal has received your container. The demurrage rates are recorded daily for each container at the entrance. Therefore, a late entry of 5 days of 10 containers, with a charge of $ 100 / day, will have a total cost of $ 5000. Once the demurrage rates are imposed, the terminal will not release the containers until it is paid. Most demurrage charges are due to the untimely submission of appropriate paperwork (bill of lading, commercial invoice, customs bonuses, packing list, and other required documents, according to the HTS code of the product). After 10 days of a long stay, an entry is assigned to a G.O. (government order), where additional fees and penalties will be accumulated, in addition to being physically unloaded from a container, which increases the risk of theft and damage to your products.

Who is responsible to pay for Demurrage and why?

In the case of imports, the consignee would be liable and in exports, the shipper would have to pay for the charges. There could however be cases that the consignee is not able to clear the container as documents have not been received from the shipper in time. Or, there may be delay caused by accidents, lack of manpower, congestion, human error, etc. in which the consignee or freight forwarding agent must describe the party responsible for the charges incurred, wherever they are

Demurrage fee is mostly paid by the Shipper when he/she fails to remove his/her containers from the port by the last free day. Even if the sender does everything possible to plan the loading/unloading and has all the necessary documents, there are other external factors that could affect the deadlines and cause demurrage. Late release of cargo or personalized release of containers, damaged containers or overweight containers is some of the reasons why a shipper may be charged demurrage.

Although, the most common reasons for demurrage by a shipper’s actions:

• Delay in payment. If the shipper paid for only part of a shipment, the vessel can refuse to release the freight until paid in full. Any delay in payment will lead to the arrest of cargo in the port, which in turn causes demurrage charges.
• Errors of paperwork. Shippers may not be successful in preparing all initial documents for the customs clearance process; after all, the procedures can be confusing. To handle shipments via US Customs, shippers need four documents: a commercial invoice, a bill of lading or an air freight bill, a packing list, and an arrival notification. However, certain goods require additional documents. Without these documents, demurrage charges apply.

How to avoid demurrage charge?

Demurrage fee is levied by shipping lines for containerized shipments only, however, this fee is charged when the containers are still full and has not been cleared up by the consignee within the seven (7) days free time & extendable as per approval of the shipping line. Menacing as it is, here are some tips to avoid demurrage charges:

• Talk to your cargo agent and know in advance the number of free days given.
• Make sure to always send your shipment earlier. There are many ocean carriers, trucking companies and railroads that can help you clear up your cargo in advance provided all documents are delivered in a timely manner.
• If your shipment comes in volumes, you can request additional free time from your freight forwarder or carrier. (In most cases, the volume of your shipments must be close to 1,000 containers per year to be granted for extended free time).
• Make sure your carrier can pick up shipments within the designated time and that a trucker has been assigned to your shipment. Set up a backup or replacement trucker in case your cargo is not picked up in time.
• Analyze all the documents that contain the terms and conditions of your transport, storage and sales contracts to know the situations in which your company may be responsible for the demurrage charges.

Demurrage vs detention – What is the difference between Detention and Demurrage

On export containers

• Demurrage charges on export containers will be charged if the loaded containers have been returned to the steamship line by the exporter but the delivery is delayed due to delays beyond the allocated free time. The delays can occur if, for example, the exporter can not fulfill the export documentation within the specified time.
• Export containers impose detention rates after empty containers have already been collected for loading, but loaded containers are returned to the steam line and port only after the allotted free time.

On import containers

• Demurrage fees are applied in imports when the containers contain cargo and are in the shipping line because the consignees have not yet picked up the cargo, and the free time of demurrage given by the owners of the charter has already expired. The free period generally begins when the cargo containers have been unloaded from the ship to the terminal. In simple terms, the demurrage is charged for the storage of the containers before being collected and discharged from the terminal.
• Detention fees are charged when consignees pick up cargo containers in the terminal, but containers have not yet been returned to the shipping line within the allotted time. Therefore, the days of detention wavers are also allowed by the line, but if the consignee takes longer to return the containers (whether they are empty or full), the detention charges come into play.