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..
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
- 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.
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..
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)
Since the subject of this article is the USA, we will follow the local practice in the USA.. In the USA,
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* :
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..
Now 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..