November 24th 2020

Demurrage what is it?

Demurrage what is it?

The term "demurrage" from Old French demeurage, from demeurer – to linger, tarry – originated in vessel chartering and referred to the period when the charterer remained in possession of the vessel after the period normally allowed to load and unload cargo also known as laytime.

Demurrage refers to the charges that the charterer pays to the ship owner for its delayed operations of loading and unloading at port. Often the demurrage sometime causes a loss to the seller as it increases the cost of the overall freight charge.

In modern terms it not just demurrage which you can be liable for depending on your payment terms (INCOTERMS). You also have Detention which is the element of returning or arriving at port. Often, it’s the return of the empty container to port.

Most carriers or vessel operators offer grace period known as ‘free time’ often between 5 to 15 days are given at ports. This allows the freight forwarder/customer to get the container customs cleared and delivered to their warehouse of premises.

Often or not the demurrage fee isn’t known at the time of the shipment due to either poor communication between the freight forwarder and customer or poor supply chain management

i.e If you book your collection or deliveries greater than your agreed free time. Or you simply order to much product and don’t have enough warehouse space to store your product

Often demurrage can in some cases increase the cost of the overall freight movement by up to 20x the costs of the physical freight charge. The problem is if you do receive a charge chances are you have no way out of paying the additional fees

Why do I have to pay this fee?

Demurrage and Detention have two purposes. It’s to compensate the shipping line for the use of their equipment. It also creates a financial incentive for the merchant to return the container as quickly as possible so that they can get their equipment back empty.

If this charge was not put in place the shipping lines could run out of containers and effectively you would be getting whether proof storage for free. It also stops the possibility of port congestion and stopping vessels unloading and loading at port. Which has recently happened at Felixstowe in the UK.

Each port and shipping line will have varying demurrage charges for example port of Hamburg may be more expensive than Port of Rotterdam. However, you need to find out from your freight forwarder or shipping lines is there a flat rate after your free time or are there tiers for example.

If you have a container sitting at port for 30 days waiting to be customs cleared or there is a problem with the documentation. You have an agreed free time of 5 days you could be charged in the following way.

  • 5 Days – free
  • Next 10 days @ $50 per day
  • Next 10 days @ $100 per day
  • Next 10 Days @ $150 pe day

This would add up to $500 + $1000 + $750 = $2250 in additional charges.

Calculate your Demurrage quickly and automatically.

If your freight forwarder or shipper has decent processes, you can easily prepare or get round the fees by demanding more visibility of your shipments and advising when your free time at port.

Our logistics portal allows you to manage this with ease through our demurrage calculator which you can very quickly see which containers are in free time, which free time is about to expire and those containers which are incurring costs. The system will advise you when your shipments free time will expire by email. Thus, giving you a chance to budget or plan your supply chain. If you see a pattern you then know you need to possibly negotiate better free time or improve your supply chain to make sure you don’t keep incurring costs.

This level of intelligence will not only help you improve your supply chain but also help you to reduce your costs. It could even mean getting your product to market quicker. With BREXIT and also the current congestion at UK ports now more than ever this tool can really help take the stress out of your shipping. It can also help you with routing shipments to possible other ports which are less congested.

If you would like to find out how our tool can assist you, please do get in touch with us.

Got any questions the quickest thing to do is give us a call: +44 (0) 203 8599262