What is Demurrage?
So clearing your shipment took a little longer than planned and you weren’t able to pick up before your last free day. Or maybe your container arrived earlier than planned and you found a charge you sure weren’t expecting. Demurrage charges can sneak up easily and shock your invoice if you don’t see them coming.
Simply put, demurrage is the fee charged by a terminal if your shipment is left for longer than your allotted free time. Demurrage is also often called storage, but don’t let it get confused with detention or per diem charges—those refer to a delay in returning equipment. In places like ports, where so much traffic passes through on a daily basis, it’s natural to expect some sort of repercussion for slowing things down and taking up space.
How Does Demurrage Work?
Demurrage charges are dependent on three factors: the terminal, the carrier, and the amount of time for which your container is stored. Demurrage is enforced by port officials and charged by the terminal at which the container is stored, meaning that they determine the price and the method of payment. Because of that, charges vary from terminal to terminal and can change from year to year. You may also find different types of fees charged by specific ports. For example, don’t be surprised if you find wharfage fees—which cover the cost of using a wharf to unload cargo from a vessel—when you’re importing into ports like Houston.
With fees like this, buying power becomes very important. Larger carriers often have contracts with ports, exempting them from fees like wharfage or extending free time for storage before demurrage is charged. Typical free time for ocean containers is 4-5 days, but carriers with a lot of leverage often negotiate longer and better terms. Of course, this is only the case for standard, dry containers. Free time is typically much shorter for special containers and equipment, as well as for rail and air shipments. For those, you can typically expect free time closer to 48 hours.
Once your last free day has come and gone, you can expect to pay anywhere from $75 to $350 per container, per day. The longer your cargo sticks around, the higher those daily fees climb. Oftentimes, if your cargo is left at port for too long, the terminal will move your container to a side lot for storage. A good freight forwarder will do this for you before you rack up too many demurrage charges because most storage charges are only about $25 per container, per day.
While there are certainly ways to manage demurrage and storage, it’s not a long-term solution. We once saw 3 containers left at a port for 6 months—which racked up fees of more than $57,000. It’s severe, but it serves as a fair warning for what can happen if you don’t plan properly.
How Do I Avoid Demurrage?
Pre-Clear Your Cargo
Your customs broker should always attempt to pre-clear your cargo. U.S. Customs allows shipments to be cleared up to five days before arrival by ocean, as soon as you’re “wheels up” by air, and five days before arrival at final destination by rail. Pre-clearing cargo allows you to get your pickup number and schedule pickup from the terminal. Neglecting to pre-clear means that you can’t schedule pickup in advance, since most truckers aren’t willing to book for uncleared shipments. For those who are willing to book a pickup, you risk paying a dry-run fee if your shipment isn’t cleared in time. For specific types of shipments, like ones that need to be inspected by USDA or FDA, you should still attempt to pre-clear, but know that it may not be accepted right away. If you don’t try to pre-clear, you’ll be delayed in knowing whether your shipment needs to be moved to an exam site or if it will be released right away.
Utilize Express or Electronic Releases
Your bill of lading, while essential to every shipment, can be the source of plenty of hiccups. For those who are shipping internationally and may not have a secure relationship between seller and buyer, it’s common to choose to use an Original Bill of Lading, which requires actual paper documents to be mailed, endorsed, and passed from party to party. To speed this process up, many choose to use an electronic release (some still call it a Telex) which does this same process, but typically via email rather than with physical documents. Even faster still is the Express Release option. These should really only be used when there’s a trusting relationship between the buyer and seller, as it allows cargo to be released without a signature on the bill of lading.
Plan Ahead
With most things in logistics, it’s best to plan and do as much as possible in advance. Taking care of payment, clearance documents, and transportation planning before your freight reaches port is the surest way to make sure it can get moved before the last free day. Making sure all parts of the puzzle are in order ahead of time allows each person involved in your supply chain to do their job well.
Have a Good Team on Your Side
All of these steps are made easier with a smart, experienced team behind you. Make sure you take the time to nurture your relationship with your supply chain partners to build the trust needed to get things done right. A good customs broker will always make sure your cargo is pre-cleared, in addition to keeping in close contact with your carrier to verify the status of your shipment. If you’re able to couple good technology with a good broker, you can also track your shipments and dispatch trucking electronically, rather than chasing down phone calls and waiting for emails. A reputable customs broker will have a good relationship with U.S. Customs, too, maintaining established trust with them and staying informed on the latest regulatory changes.
Make sure unexpected fees don’t show up on your next invoice. If you have questions, need help, or want to explore what a reputable customs broker with best-in-class technology can do for you, contact us.
Photo by Upadek Matmy via Unsplash.
