Yes, there is a clear difference between demurrage and detention.. Let me explain..
Shipping and freight can be full of surprises and variables in terms of costs for a customer..
In a lot of cases, these costs maybe highly prohibitive to the extent of some customers abandoning cargoes at destination due to these costs..
In the context of containerised cargo these two cost items DEMURRAGE and DETENTION are crucial and could become a huge problem for the customers if they do not control their shipments properly and effectively.. Demurrage and detention is mostly associated with imports although it may happen in the case of exports as well..
In this article I will explain, What is demurrage and detention, why is it charged, who charges it and who pays for it with some examples..
Although the most common market practice is to combine demurrage and detention, it is important to know the difference between demurrage and detention..
What is Demurrage..??
Demurrage, is a charge levied by the shipping line to the importer in cases where they have not taken delivery of the full container and move it out of the port/terminal area for unpacking within the allowed free days..
A container is discharged off a ship on the 2nd July.. Consignee approaches the shipping line to take delivery of the cargo around 12th July..
If we consider the standard free days offered by the shipping line (different to port free days) as 7 days from date of discharge, the free days will expire on the 8th of July..
As of the 12th July, the box would have been sitting in the port/terminal for a total of 11 days..
11 days dwell time – 7 free days = 4 days that the box has overstayed its welcome in the port/terminal..
So, the line will be eligible to charge the consignee DEMURRAGE for 4 days from 9th to 12th July at a rate fixed by the line..
So what is Detention then..!!
Detention is a charge levied by the shipping line to the importer in cases where they have taken the full container for unpacking (let’s say within the free days) but have not returned the empty container to the nominated empty depot before the expiry of the free days allowed..
So in the above example, the customer took the full box out of the port/terminal on the 7th of July which is within the free days (expiring on the 8th of July), but returned the empty container to the line’s nominated depot only on the 19th of July..
So the line will be eligible to charge the consignee DETENTION for 11 days from the 9th July (after expiry of free days) till the 19th July at the rate fixed by the line..
If you request additional free days from the shipping line they would usually ask if it is for demurrage or detention which means they want to ascertain whether the customer is going to be keeping the container with them before or after moving it out of the port/terminal.. Also in various destination ports, the definition of demurrage and detention varies and hence the line needs to know where their exposure lies..
Shipping lines very rarely offer free days for either demurrage only or detention only.. If the free days is shown as just “free days” it usually refers to “combined demurrage/detention” which is what most of the shipping lines apply..
If “x” free days offered for demurrage only, then that means that the client has “x” free days to pick up the full container after which the empty has to be returned the same day to avoid costs..
If “x” free days offered for detention only, then that means that the client can use the “x” free days to unpack the container and take it back to the depot.. They might have some unpacking problems at their warehouse which necessitates such requests..
So what about exports..??
Exports : In the case of exports, shipping lines normally give about 5 free days within which the shipper has to pick up the empty, pack it and return it full to the port..
In case of delays more than 5 days, the line charges Detention (generally same tariff as import detention) for the days that the empty is kept with the client as empty or full..
Once the container is packed and say for example the shipper is unable to ship the same due to any reason, then the Demurrage will be charged at the rate fixed by the line till the full container is shipped out..
What I have mentioned above is the generic and most common form of use of these two terms demurrage and detention..
In some countries like Saudi Arabia and Japan, the term demurrage seems to be used to denote storage in the port/lines terminal..
But in the majority of the countries there is a difference between demurrage and storage.. The best option would be for you to check with the shipping line in your country how these terms are defined..
So why does the shipping line charge demurrage and detention
In a container shipping line operation, the cost of the container, repair, maintenance, leasing etc works out to around 20% of the shipping line’s cost.. A container, like a ship, will make money for its owner only when it is in circulation and not when it is idle..
In the above case, the container stayed for an extra 11 days with the consignee.. This means for those 11 days the container was out of the control of the shipping line which meant that this particular container did not yield any revenue for the shipping line for these 11 days..
The charging of the demurrage and detention by the shipping line is their way of getting some compensation for the period that this container was out of the revenue generating cycle..
Who pays for it..??
Well in the case of imports, the consignee would be liable for the same and in the case of exports, the shipper would be liable for the same.. There could however be cases where the consignee could not clear the container because they didn’t receive the relevant documents from the shipper in time.. In such cases, the consignee would look to the shipper for compensation, but for the shipping line, this is revenue lost and they need someone to pay for it..
So in summary,
- 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 exports
- 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)
How are these terms handled and dealt in your country..?? Please do share for the benefit of all..