Frachtbox team

What is demurrage?


Published 25 Dec 2020

What is demurrage?

What is demurrage?

 

The term “demurrage" 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 (laytime). By extension, demurrage refers to the charges that the charterer pays to the ship owner for its delayed operations of loading/unloading.

 

You run into demurrage and detention charges when you are late with your containers. From the day you exceed your number of free days, demurrage and detention charges will be calculated. They will increase every day until you deliver the containers back to the allocated destination. Such high per diem charges might be “unjust and unreasonable” for freight forwarders. But for shipping lines, they ensure the efficient use of their containers. Ten years ago, these fines were rare. Today they are quite common and can easily exceed $100 per container per day.

 

Demurrage and detention come out to play when a carrier or shipping line’s containers are not delivered back within the allowed free days. The free days determine the number of days a shipper can use the container for free. For conventional shipping, the free days are often somewhere between 3-5 days after the container has been discharged from the vessel. Charges are applied for storage of the container until the container is picked up and gated from the terminal. If the free time is exceeded, the user has to pay a demurrage and detention charge. These charges are usually calculated per day and must be paid before the cargo can be picked up from the port.

 

Difference between demurrage and port storage charges

Port storage charges are fix and defined in advance, but demurrage costs come up later. Shipping lines charge demurrage fees when clearance is delayed. It is also possible that you have to pay both demurrage and port storage fees at the same time.

 

Why does demurrage occur?

Demurrage calculation

To calculate demurrage and detention charges you need a row of things. Here is an example to clarify. Let’s say you have 1 container that arrives on the 10th of October and can be collected on the 4th of November. That means it will take 25 days before the container is picked up. If you have 5 free days, in that case you will be charged for 20 demurrage days. The rate for 20ft container in the first 10 days is 60 dollars per day and the rate after 10 days increases to 120 dollars per day. In total you would have to pay 1800 dollars demurrage. This is just an example; prices vary from country to country and time to time.

 

The table below shows that the highest demurrage charge in 2020 is in the Los Angeles port, where you have to pay 196,9 dollars per day on average. You can check and compare the average prices of various cities on the table.

 

 


 

Increase of detention and demurrage charges in recent years

During the last few years, free time periods have been shortened, while demurrage and detention tariffs have increased significantly globally. There are indications that shipping lines abuse the charging of demurrage and detention to maximize profits. It is understood that shipping lines have been suffering in a very tough business environment and do everything they can to develop revenue streams that are not necessarily derived from freight. Companies, which do import and export have a lot of complains about these high charges. The Corona crises where paperwork is delayed and everything works slower, made this situation even worse.

 

There are some debates on the improvement of the current situation and companies hope for solutions real soon.