Are demurrage and detention charges justified..??

Are demurrage and detention charges justified..??

This is a question that has arisen on the back of demurrage and detention charges levied by the port, terminal and shipping lines to the shippers especially in the key USA gateways of Los-Angeles/Long Beach on the West Coast and New York-New Jersey on the East Coast..

Ok, for those of you that are not aware, here’s the background..

There has been some serious congestion in the main USA gateway ports such as Los-Angeles/Long Beach on the West Coast and New York-New Jersey on the East Coast.. This has been going on since 2014 apparently kick started by labor disruptions on the U.S. West Coast in late 2014 and early 2015..

As per WSC’s observations on Port Congestion, Vessel Size and Vessel Sharing Agreements,

Port congestion can arise from multiple causes, and those causes may vary by port or by a marine terminal. These include:

  • Labor productivity issues, as has been vividly demonstrated recently on the U.S. West Coast
    • During the U.S. West Coast labor difficulties, port productivity at some terminals fell by 73% from September 2014 to February 2015, delaying cargo and resulting in vessels waiting for a berth.
    • Accountability for chassis inspection at U.S. West Coast ports under the new ILWU-PMA labor agreement is another controversy affecting the efficiency of port operations.
  • Unexpected surges in cargo volumes, as occurred in New York/New Jersey when carriers and shippers diverted cargo from West Coast ports dealing with labor difficulties to East Coast ports
  • Inconsistent marine terminal productivity
    • The same vessel may be served with more efficient terminal productivity in Asian ports than in U.S. ports. Poorer and/or inconsistent productivity levels have existed at U.S. ports/terminals for years.
  • The efficiency of vessel operators’ cargo stowage planning

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  • Vessel operators’ schedule reliability
  • A terminal’s ability to avoid berth congestion
  • Inefficiency of the transportation infrastructure connecting a marine terminal to rail and roadways
  • Disruptions to intermodal rail networks that serve ports
  • The lack of on-dock rail capacity at some marine terminals, or the inability of more than one railroad to access an on-dock rail facility
  • The amount of land that the port facility has to store containers and conduct operations, how wide and deep the container stacks are in the facility, and how many container moves are required to retrieve a container from a stack
  • Shortages of various types of equipment (e.g., yard cranes, chassis, railcars, etc.)\
  • The recent transition in North America from reliance on ocean carriers providing container chassis to reliance on other parties to provide the chassis, as they do in other parts of the world.
  • Hours of marine terminal operation
  • The time chosen by shippers or truckers to pick up their shipments
  • Hours when warehouses or distribution centers are open to receive or discharge containers
  • Weather, such as the bad 2014 winter weather affecting U.S. north Atlantic ports, and
  • Whether there are efficient alternatives to storing empty containers within the port terminal facility.

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While this congestion was continuing, truckers, forwarders and BCOs (Beneficial Cargo Owners) were being charged by the shipping lines and the ports/terminals for demurrage and detention..

Say what..!!!!!!!!!!!!

Yes, that is right.. But to understand the problem with this, you need to understand what is demurrage and detention..

As summarised in previous posts,

  • Shipping line offers X days as free for the full to be picked up and empty returned in the case of imports and vice versa for exports
  • This means the client has X days to pick up the full container and return the empty to the nominated depot and vice versa for export
  • If the time frame exceeds X days, then the shipping line will bill the client for those many days that the container was in the custody of either the consignee or the shipper
  • Demurrage relates to cargo (while the cargo is in the container)
  • Detention relates to equipment (while the container is empty after unpacking or before packing)

Depending on the country, the meanings of these terms could change slightly.. In some countries there is a difference between demurrage and detention and demurrage and storage..

Since the subject of this article is the USA, we will follow the local practice in the USA.. In the USA,

Demurrage charges are applied for storage of the full container while in the care of the carrier INSIDE a port, rail terminal, feeder terminal, inland depot or container yard.. This Demurrage becomes applicable after the expiry of free days ranging from 4-7 days depending on which port your container is sitting..

 

Detention charges are applied for the storage or holding of full containers while it is in the care of the customer OUTSIDE a port, rail terminal, feeder terminal, inland depot or container yard.. This Detention becomes applicable after the expiry of the same free days ranging from 4-7 days until the empty container is returned to the empty depot nominated by the shipping line..

 

The problem

Let me illustrate the problem with an example.. For example, CMA-CGM’s (world’s 3rd largest container carrier) demurrage and detention tariff is as below* :

demurrage and detention

* (CMA-CGM and the tariff has been used as an example ONLY and has no other bearing on this discussion..)

In the above example, a 20′ General Purpose Container (GP), is allowed a total of 5 free days within which the customer has to take the full container out of the terminal, unpack it and return it to the empty container depot nominated by CMA-CGM..

If the container stays inside the terminal for more than the 5 free days, then from day 6, there is a demurrage of USD.220/20’/per day applicable..

If the container has been taken out of the terminal within the 5 free days, but not returned as empty, then from day 6 to day 10 there is a detention of USD.115/20’/day applicable and if it takes more than 11 days there is a detention of USD.165/20’/day applicable..

The lines charge different rates for general containers and different rates for special containers.. Each line’s tariff could be different for different types of containers in different ports and we will not delve into such detail here..

demurrage and detention shockNow imagine a customer who has 10×20′ GP containers stuck in the terminal not cleared, not moved, not delivered for say 10 days due to the congestion..

As per above calculation, the customer will be liable for demurrage charges for 10×20’containers @ USD.220/20’/day = 10 (containers) x 10 (days) x 220 (demurrage amount)) = a whopping USD.22,000/- !!!!!!

YES, and that is why there is an uproar from the truckers, BCOs, freight forwarders etc because a lot of them were unable to clear or move their cargo out of the port/terminal within the allocated free time due to the congestion issues..

So even if they WANTED TO, they couldn’t get the containers out in time but were/are being charged by the shipping line and/or port/terminal for demurrage..

Hence the question whether the demurrage and detention charges are justified has been raised..

So what is the shipping line’s view..??

As with ships or any movable assets (trucks, taxis etc) containers also make money for their owners ONLY WHEN IT IS MOVING and not when it is sitting still.. Therefore shipping lines are charging demurrage to offset these losses as the delays are from the port..

John Butler, WSC president and CEO, said carriers and terminals should not bear all costs of port delays, as it would place them “in the role of insurance providers against adverse weather events, labor disruptions, and delayed government inspection of containers.”

Ok so what do the ports say..??

Well ports seem to be blaming the congestion issues on the increasing sizes of ships in the Trans-Pacific trade lane, which require longer times to berth and also on the fact that when mega ships arrive at port for loading or unloading there must be sufficient terminal operations to maintain vessel schedules (a global issue)..

But The World Shipping Council (WSC), in particular, whose carrier members control 90 percent of global container capacity, is having none of this and have noted in their report that

The growth of large and ultra large vessels in the container industry has affected the Asia-Europe routes more than the Trans-Pacific and other trades. The largest container ships (18,000 TEU +) are deployed only in the Asia-Europe trade.

Federal Maritime Commission Chairman Mario Cordero has noted, this development in increased vessel size is no surprise, and port authorities and port operators have known that larger ships are being built and deployed for some time. Major U.S. container ports have been dredging to 50 feet channel and berth depth for years and adding cranes with the height and reach in order to serve larger vessels. Their arrival is not an unforeseen event.

It’s a darn vicious cycle..!!

So what is going to happen and are these demurrage and detention charges justified especially when there is port congestion involved..??

Well, as per a JOC news item on the 20th of September, US Federal Maritime Regulators have agreed to hold a public hearing on whether demurrage and detention fees charged to the shippers are justified or can be considered unreasonable and therefore void..

This is in response to a petition submitted by a shipper coalition to the FMC nine months ago, seeking guidance on this very costly matter that cost shippers millions of dollars every year..

A date has not yet been set as to when the hearing will take place, and the FMC is expected to publish details on the schedule and is expected to invite participants for a panel discussion..

In the meantime, the FMC staff report on Detention, Demurrage, and Free Time titled Report: Rules, Rates, and Practices Relating to Detention, Demurrage, and Free Time for Containerized Imports and Exports Moving Through Selected United States Ports makes for interesting reading and comparison of the terminologies and charges..

So do read up on all of the above and form your own opinion on whether the demurrage and detention charges in this particular case are justified..


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28 comments on “Are demurrage and detention charges justified..??”

  1. By Bobby Reply

    This happens all over the world where freight forwarders,importers have to pay additional demurrage for problems beyond our reach which i believe shouldn’t be. Anytime there’s a problem, it all falls on the agents, importers who have to pay additional charges.

    • By David D. Murray

      Justified? Yes, most certainly. Outrageous? Yes, most certainly. But that’s the shipping game. Live with it. Everyone in this business has to make money, including the shipping lines and terminals. Whether or not it is “fair” is another topic for discussion.

  2. By Afnan mohammed Reply

    Yes it justified l think this has lead to reducation of port congestation especially after expiry of the × dys …through your articles am able to learn alot about shipping trade especially this recent articles concerning port and terminal managment which am currently studying ..Thnks for knowledge nd ideas

  3. By Ramana Murthy Reply

    Hi Hariesh
    You have raised a very important topic in container shipping. Thank you very much.

    I have a question:

    Can a shipping line hold shipper resposible for destination detection and demurrage charges if consignee fails to clear the consignment at destination.

    In a typical third country sourcing transaction , there is no privity of contract between shipper (seller) and consignee , since shipper ship goods to a consignee (unknown to shipper ) in a third country as per the shipping instructions of his buyer. At times shipper (seller) would got paid by his buyer and property in goods would pass from seller to buyer before the consignment reaches the destination port. In such cases shipper is least bothered about whether the consignmnet is cleared at detination port or not.

    Of course, bill of lading may have clause making shipper liable for demurrage/detention at destination port.

    What is the recourse to shipping line in such cases ?

    What defence can a shipper take if there is claim from shipping line ?

  4. By Paulo Elias Reply

    Well, I think the Demurrage/Detention is justified.

    Anything you rent you have time to deliver. If it wasn’t delivered as combined the cnee has to assume the cost. The container owner is not concerning about port and customs problems. What it really matters is the container is stopped without possibility of using by new clients.

    Suppose a traffic between Europe and South America. You have a transit time of 14 days. If the cnee got the container for 30 days, the container owner(it means carrier) could rent the container for 2 voyages. In words, in Brazil the importers don’t analize this situation/cost and claim the high values of Demurrage rates.

    Other importante point: The Freight forwarders are responsible for paying the carrier not the cnee. So all the risks are ours. So, we have to inflate the carrier rates in order to cover the risks.
    If we do not pay the carrier we will be blocked of new shipments with such carrier and I do not consider reasonable not charge the cnee for that.

    We had a client with 45 containers in this situation. Imagine the carrier calling you every days asking about payment and threatening of not releasing new cargos till we pay the total Demurrage (I am talking about > USD 100,000).

    But in case of delay in the port Operation is a new discussion. For this reason the importers in Brasil requires as standard free time of 30 days of shipments from China. This because our customs procedure in general is no so fast.

  5. By Karl-Heinz Ruzsitska Reply

    One needs to be carefull, besides Demurrage and Detention, which is charged by the carrier, any applying terminal storage charges will apply in addition should the container stay at the port.

  6. By David Murray Reply

    First, I have to say that the demurrage/detention rates in the article seem to me to be inflated, at least they appear considerably more that at the LA/LB port in the USA. But whatever, it varies from place to place and it does add up, normally to the benefit of the port and to the detriment of the owner of the cargo. I am pleased to see that US Federal Maritime Regulators have agreed to hold a public hearing on whether demurrage and detention fees charged to the shippers are justified or can be considered unreasonable and therefore void. But I won’t hold my breath waiting for that to happen; and even if it does happen, I don’t expect a positive result. The USFMC has no vested interest and no “shipper’s coalition” has the clout to fight the shipping lines and the terminals.

    The topic here is, “Are demurrage and detention charges justified?”

    My response is, “Sometimes yes, sometimes no.”

    So that naturally raises the issue, “When are they justified and when are they not?:

    When ARE they justified? . . . Terminals have limited space. Given the bent of human nature, people will put things off until the last minute. Like me filing my income taxes which are due in three days and still not finished. The problem is, shipping lines sometimes give unrealistically small amount free days and unless more can be negotiated, you’re stuck. Three days is unacceptable, four days is better, but no cigar, and five days as a normal allowance as a minimum on all incoming cargo does not seem to me to be unreasonable and 7 days, not including weekends or holidays would seem ideal.

    Customs holds? Well, whose fault is that? Certainly not the terminal, not the shipping line, not the owner of the goods. And certainly not Customs – Customs is not to blame for ANYTHING, so how could it be their fault? They are mandated by law to protect the borders of their country from violating goods of various sorts, drugs, counterfeits, improperly marked goods, misrepresention of goods to avoid duties, etc.

    When are they NOT justified? . . . When through absolutely no fault of the owner of the goods, circumstances occur (other than customs holds) where the cargo cannot be released, such as port congestion, closing of a portion of a terminal making cargo inaccessible, an act of God, strikes, famine, petulance, cargo arriving late Friday afternoon with three free days and the port is closed on Saturday and Sunday (weekends or holidays should NOT be counted as “days”), stuff like that; you all have your own scenarios and can add them.

    The bottom line is that there needs to be a commercially reasonable balance of interests between the limited space of the terminals, the contingencies that are bound to occur, and the reasonableness of the free time allowed that corresponds with business realities.

    Let’s just hope the USFMC can take some sort of action to give us relief. But that is only in the USA and does not solve the world’s demurrage/detention problem. To solve the world’s problems, we need to look to our trusty politicians and dictators . . . they seem to have all the answers. God help us all . . . . . .

    • By Hariesh Manaadiar

      Thanks for your views David.. Just to clarify, the demurrage/detention rates quoted in the article are the rates published by the shipping line on their site so these are real rates.. It may be viewed here..

  7. By David Murray Reply

    OK . . . . here is the Grand Daddy of Demurrage/Detention stories” Last year our company handled an Intermodal shipment from Asia to Los Angeles, then proceeding by rail to Minneapolis, Minnesota – 27 containers that all arrived on the same train – choo choo – on the same Bill of Lading.

    Upon arrival at the BSNF rail terminal, US Customs ordered an inspection of one of the containers. They discovered non-conforming markings, i.e. while the outside of the boxes were marked with country of origin designation, the product inside the box was not marked. This is a violation of US marking law. A customs hold was put on all 27 containers, with a mandate that the marking violation be remedied before the cargo would be released. Meanwhile, Demurrage/Detention of USD$150 per container per day, incurred on all 27 containers. Yes, those of you whose math skills are up to par have figured it out . . . USD$4,050 per day.

    There were 600 pieces in each of the 27 containers, sitting on double-stacked banded pallets, with a container floor footprint of12 pallets per container, with each piece on the pallets being in its own card board box measuring about 72x 36x 6 inches. Yes, that’s 16,200 “Made in __XXX___” stickers that would have needed to be applied, after the containers were unloaded and the card board boxes partially slit open on one end. Do the math . . . how long would that take? Who would do it? Where could we find space that would allow that to be done? And what would be the cost of unloading and loading 27 containers, and how much labor (at US wages) would it take to slit open the boxes and apply 16,200 stickers? Meanwhile, the buyer was crying for its product in order to meet their tight construction schedule and the warm and dry summer weather was deteriorating into the wetness of autumn.

    Could we ask the rail terminal to give us a break? . . . Yeah, right, when pigs fly, and so the USD$4,050 per day continued to incur and the BNSF rail terminal smiled, all the way to the bank. There was nothing we could do about that and a solution to our problem had to be found, and fast.

    How to solve the problem? As quickly as possible, move all 27 containers to a Bonded Warehouse yard. However finding a Bonded Warehouse in Minneapolis that had a yard big enough to hold 27 containers was not easy. Minneapolis ain’t LA or New York. Yes, the drayage was an added expense on this DDP shipment, but not USD$4,050 per day.

    Then, we had to find a loop-hole in the US marking law, comply with the requirements of the loop-hole and have the cargo released without applying 16,200 stickers. The solution was found by our in-house corporate counsel researching the law, complying with the requirement of the loop-hole, making a personal appearance at US Customs in Long Beach, California, the office having jurisdiction over all US marking problems, presenting the loop-hole package to the head of US Customs Marking Division in Long Beach and gaining his understanding and cooperation.

    Meanwhile, as the wheels of government ground slowly forward, considerable Demurrage/Detention incurred. The entire process took more than 35 days and a LOT of work!
    At least we did not need to unload the containers and mark the product, all 16,200 of them, and the loop-hole worked in our favor.

    And you all thought you have had Demurrage/Detention problems! . . .

  8. By Kwaku Duah-Anane Reply

    Why is it that some shipping lines in Ghana West Africa charge both detention, container deposit and demurrage at the same time?

    • By Hariesh Manaadiar

      Hi Kwaku, it is possible for the same container to have demurrage and detention.. Remember these are two different terms and charges, but the reason for these two charges are the same.. Container being kept by the customer more than the allowed free days.. Container deposit is totally something else.. Container deposit is charged in a few countries where the risk of containers getting lost or not being returned altogether is great.. In those cases, the lines will surely need to recoup their losses and if container is not returned then the client forfeits the deposit..

  9. By Denise Mendonça Reply

    That is a very good point, by one side I really believe that Shipping cos can not assume alone this aditional cost, but lets keep in mind the word cost. If we consider that the per diem of one 20′ GP is aprox. usd 0,60 per day – charge Usd 115,00 per day it is too much. I understand that Shipping companies need to recover cost but not have income with this logistics restriction. Point is, if we consider the freight situation in some port over the world, shipping cos. are making a lot of money with detention and demurrage – someone know how much shipping cos. are paying to terminals (demurrage).
    I am not against Shipping cos. to charge a compensation – but that level of values are crazy.
    Regarding vessels size – yes it cause a impact in the terminal operation – yes terminals should be prepared to it – but shipping cos. also had a reduction on their logistics operation (at least that is the speech – more efficient vessels).
    Hope that we can find a value that will be fair to all parties envolved.

  10. By Tom Ross Reply

    Hi , Unfortunately my company is one of the ones that are constantly financially hit by this problem.

    One aspect that you have not mentioned in your article is a situation where US customs decides to inspect your cargo.

    Now not only will you have to pay for this inspection. ( I always assumed US customs is financed by the government) they often pick it up for inspection on the last free day . I have situations where the inspection station is considered part of the Port. So after the inspection, that can take 2-3 days , one has to satisfy all inspection fee’s, pay for trucking to and back US customs location, then pay Demmurage (Port says you haven’t picked it up on time) and most probably will pay Detention.

    Now one would assume something out of control by the importer should not be penalized.

    • By Hariesh Manaadiar

      Hi Tom, I do sympathise with you on this point, but you are not alone (if it is of any consolation).. This issue with customs and other authorities inspecting cargoes happens in many other countries invariably costing the customer demurrage/detention in the bargain..

  11. By Vanessa C S Santos Reply

    Hello!

    I’d liketo ask if someone here have seen any software to control demurrage charges. I work in a big company and so many shipments with incurrency of demurrage in most of them .. It’s pretty hard to control using excel only.

    • By Grant Sernick

      Hi Vanessa,

      Helping companies control demurrage and detention is but one of the many things that 3rdwave helps companies manage. Please feel free to drop me a line at grant@3rdwave.co if you would like more information.

      Grant
      Director of Sales – 3rdwave.co

  12. By George Koumeen Reply

    If original BL ( contract of carriage ) does not stipulate demurrage charges clause i.e. no free time and then applicable demurrage; is shipping line entitled to collect demurrage from consignee based on the known demurrage applicable tariff even if OBL stating that container is under FCL/FCL term?

    • By Denise Mendonça

      Hi George,
      Yes they can – normally shipping cos. inform that this information is available in their web site and it is normal pratice in international trade.

      Brgds

  13. By Er Prem Gafrg Reply

    Hariesh
    Thanks for your blog which has been written with US Laws in mind,Could you please inform its relevance with reference to Indian situation and laws frames by various port trusts and Container depots both Private and Public sector

    So long the Shipping company does not issue the delivery order to the ultimate importer the Cargo remains in the custody of Shipping lines as bailor and the container depots as bailee.

    The container depots keeps the import cargo (both FCL and LCL) in their custody on behalf of shipping lines.While as per the rules /tarrif and circulars of various container depots like CONCOR.The containers must be removed within a free period or are put to auction proceedings are started

    Could you please highlight the aftermath duly substantiated by case laws, in case neither Shipping lines removes the containers nor the custodians of container depots issues notices notices to shipping line for removal of such containers or otherwise initiate proceedings against the shipping lines .

  14. By Sven Valentin Reply

    Thanks for explaining the difference between demur rage and detention. Both concepts are very often confused. Some B/L’s are also misleading.
    Brgds
    Sven Valentin

  15. Pingback: Are demurrage and detention charges justified..?? | Timothy Jewell

  16. By Debra Reply

    It’s not a fair situation but it’s justifiable this research is very very informative to all participants

  17. By Soraya Maduro ODOR Reply

    Dear All

    We in the Caribbean are expirience these charges.

    Rgrds
    Soraya
    Maxor Sea & Freight

  18. By Krish Patnaik Reply

    Wonderful article. Could you put some light on how a shipping company calculates demurrage and detention charges ? Is the cost of long standing in the terminal a big factor when making this calculation ?

  19. By David Murray Reply

    This article is based on” severe congestion” at “USA gateways of Los-Angeles/Long Beach on the West Coast nd New York-New Jersey on the East Coast” that “seems to be continuing till now..” This is not true, while I can’t comment on the US East Coast because our company does not ship in or out of those ports, I can tell you that there is NOT congestion at the Los-Angeles/Long Beach. In 2014 there was serious congestion and we all suffered because of the labor disputes. For at least the last year there has been no “congestion” at the Los-Angeles/Long Beach ports, and it has been business as usual. While this does not affect the general thrust of this article, which is detention and demurrage, please don’t blame the Los-Angeles/Long Beach ports for causing a problem in 2017, as the congestion simply is not a problem here any more and the ports are functioning quite nicely.

    • By Hariesh Manaadiar

      Hello David, I am not “blaming” the ports for the congestion.. Merely sharing the situation and asking the question whether the demurrage and detention is justified..

      Your comment based on your local knowledge about current congestion in LA/LGB noted and I thank you for clarifying it.. I have removed the reference to congestion in 2017.. 🙂

      But the main question still remains.. Do you have any views on that..??

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