Shipping goods worldwide is a rather complicated task that requires the preparation of the necessary paperwork, knowledge, and understanding of each country's customs requirements.
However, some factors are beyond your control. One of them is the demurrage fee.
Did you know that demurrage charges can arise up to 20 times the value of the container itself?
When you’re running late with your containers, you will run into demurrage charges. From the day you exceed your number of free days, demurrage charges will be added. These fees are relatively standard today and can easily exceed $100 per container per day.
Demurrage is one of the most frustrating aspects of moving cargo. And sometimes it seems like terminals and carriers are intentionally looking for ways to inflate your bills.
What is a demurrage charge?
First of all, demurrage charges relate to the time a container spends inside a terminal. The amount of the demurrage fee depends on how much time a container is in port after arrival. This fee payment occurs in almost all transportation branches.
Demurrage is issued when your cargo exceeds the time allotted sitting at the terminal and if the container is not taken over within the agreed time. Since free time in contracts can vary, the recommendation is to check it to ensure how much free time you get.
The standard is usually 4-5 days. Once the free time expires, you will be charged demurrage (a daily storage fee) until you pull the cargo out from the terminal.
Demurrage charges can occur when you export a container and can increase your transportation costs. This happens when a container can't be loaded onboard the vessel because of missing documentation or other errors.
In this case, the carrier cannot load the container to the scheduled ship, and the container has to stay in the port until the next departure.
If consignees cannot pick up their container (because of financial, documentary, or contractual problems), costs can be relatively high in some countries. But as soon as consignees exceed the allowed free days, the containers affect port productivity, yard space and congestion.
The ports then charge these demurrage charges to encourage importers to take care of cargo clearance issues and pick-up their containers on time.
How are demurrage charges calculated?
Charges are often calculated per container, per day, and they continue to go up after specific time increments.
Once you start to incur fees, costs can mount up quickly. Smaller companies are particularly at risk from the disproportionate impact of demurrage charges.
We will show you how to calculate the demurrage fee with an example on a 20ft container. First, you need to know a few things.
Let’s say you have one container that arrives on the 9th of May and can be collected on the 13th of May. This is what you need to calculate demurrages fees:
Free days: 5
Total days charged with demurrage: 20
The rate on 20ft container on the first 10 days: 60,00 dollars
The rate on 20ft container after the 10 days: 120,00 dollars
When you need 25 days, you will pay charges for the 20 days because you have five free days. That means you’ll have to pay 1,800 dollars in total. However, prices may vary depending on the port and country.
Demurrage fee may differ based on terminal or carrier and it often increases after an initial time. Daily demurrage charges can go from $75 to $150 per container per day. And in some cases, you may be charged up to $200 to $400 per day per container. Expenses generally increase the longer the cargo stays on the terminal.
Do not be discouraged because demurrage charges are, in most cases, out of your hands and you can't directly influence it. Anyway, there are many ways to mitigate the risk of these unpleasant additional charges.
You can always try to negotiate with port officials or carriers before accepting a quote as it is.
For example, you can request more free-days for your cargo and avoid demurrage and fees for some time. Also, if you have a large volume of freight, port officials will grant you more time.
How to avoid or reduce demurrage fees?
Shippers worldwide are looking for ways to reduce different costs, including demurrage and detention fees.
It is up to shippers to find ways they can reduce unfair assessments, especially for time-related fees. It is possible to mitigate these costs by using a comprehensive, digitized and streamlined solution to manage the data to respond to potential risks, improve communication and prevent manageable expenses, such as demurrage charges.
Since no one can guarantee that you’ll never face demurrage charges, advanced planning is the key to mitigating your exposure. Even the most prepared and experienced shippers can find themselves paying a considerable amount of a demurrage charge.
Stay aware of demurrage and take a proactive approach to avoid it whenever you can!
We bring you nine essential tips to help you save money as you send more shipments across the world.
You can’t always avoid demurrage, but you can minimize it.
Always plan for your shipment in advance.
Prepare customs documentation ahead of time for fast port clearance.
Proactive communication with all subjects involved in your shipment is the key.
When your shipment left its origin, keep track of its progress and avoid surprises.
Use the resources and expertise of a service provider to simplify your international shipping.
Try to track and analyze your demurrage charges for better future planning.
Secure additional warehouse capacity or off-dock storage.
Explore alternative gateway ports with less congestion (for instance, New York instead of Montreal or Rotterdam instead of Antwerp).
Additional steps you can take
In most cases, demurrage fees are out of your hands as a shipper and they are hard to control. Still, there are some ways to minimize risks and avoid unnecessary charges.
Analyze and streamline your processes
Try to analyze the whole process to minimize fees and prepare a “plan B” or backup. Suppose you complete analyses on your forecasts and projections. In that case, you can prepare your business to calculate the rates and the free time correctly, then project potential costs/losses and solutions if things go wrong.
If you have a developed backup plan, you can offset the cost of demurrage. Being able to track things will allow you to analyze the routes you are currently taking and routes you might take in the future to guarantee regular freight lane optimization.
On the other hand, streamlining your shipping process will help you refine it regularly and add cost and time savings. In the streamlined, digitized process, you can set up alerts to enable your logistics team to collaborate with the transportation providers proactively.
This way, they can swap out your containers on time and reduce the demurrage charges. This will help you improve the contract charges you face in the future.
Define responsibilities
Better visibility over the supply chain and a streamlined process helps you define relationships and responsibilities with all parties involved in the shipping process. Ensure people are familiar with your backup plan. They should always know their tasks and how they can improve them in the future.
With an adequately automated process, you can enable stakeholders to receive notifications when cargo is left beyond the allotted free time or a missed deadline.
Automate whenever possible
Automate your process as much as possible for a smooth and rapid supply chain process.
A digitized supply chain ensures everyone is notified of everything on time. Automation enables you to access data regularly and monitor your products' progress, the carrier level, order, etc.
This way, you can make sure everything is coordinated long before the cargo arrives in port, which protects you against an extension of that "free time" and demurrage fee.
Demurrage charges can quickly and suddenly become a shipper’s nightmare and result in thousands of dollars in charges. Costs usually arise because of unforeseen circumstances, bad planning and poor communication.
This is why it is essential to plan on time, have a plan B, manage your schedule efficiently, and be prepared for any scenario of the customs clearance process.
We recommend partnering with a good freight forwarder that will help you mitigate these additional charges by making sure your cargo is moved on time.
Find out how Hubbig digital platform can help ensure your cargo is picked up and delivered on time!
Hubbig is a digital platform that automates quoting and orders. You can get an instant offer or search the marketplace on the platform, choose one of many logistics providers, and order transport for your shipment 24/7. Besides these, Hubbig brings you many more benefits:
Unlimited user accounts inside the platform where you and your colleagues can manage your freight
No hidden costs and no surprises
Reduce e-mail communication by 70%
Export reports
Support at all stages
Hubbig helps you import and export goods as safely, quickly and cheaply as possible. Feel free to contact us and see how we can make your business easier. Our support team is here to answer all your questions!