Detention and Demurrage
Many importers and exporters ship their goods based on the lowest quoted shipping rate to increase their profit margins. Since detention and demurrage charges are invoiced post-shipment, how often are these charges taken into consideration when it comes to the bottom-line costs of importing/exporting?
Understanding Detention & Demurrage
Demurrage and detention charges are essential for shipping lines to ensure efficient container stock use. These post-shipment charges compensate the shipping line for its containers' use and encourage the merchant to return the container as soon as possible for the shipping line to re-use and have a fast turnaround.
Demurrage is the charge the merchant pays for using the container within the terminal, beyond the free time-period. Detention is the charge that the merchant pays for the use of the container outside of the terminal or depot, beyond the free time-period.
Detention & Demurrage in Import/Exports
Image Source: Container-xchange. Demurrage & Detention
For export cargo, the detention time is the period from the pick-up of the empty container from the terminal until gate-in of the full container. Demurrage time is the period from gate-in of the full container into the terminal until the full container is loaded onboard a vessel in the terminal.
For import cargo, the demurrage time is the period from container discharge from the vessel until gate-out of the full container from the terminal. The detention time is the period from gate-out of the full container until gate-in of the empty container into the restoration point.
Multiple factors and variables affect detention and demurrage charges on a shipment. Detention and demurrage charges can significantly impact the bottom line for the exporters and importers. There are many instances where parties pay as much as twenty times the cargo value due to these charges.
Detention & Demurrage Data
In 2018, the Federal Maritime Commission named Commissioner Rebecca Dye as the investigative officer for Fact Finding 28, which focused on the impact of detention and demurrage on supply chain efficiency. As part of this audit program, nine major steamship carriers must provide detention and demurrage data quarterly. Based on the quarterly data provided by the steamship lines, the total amount of detention and demurrage billed increased roughly nine-fold while the collected detention and demurrage increased roughly tenfold between Q2 2020 and Q1 2022. In dollar terms, the nine carriers billed roughly $8.9 billion in detention and demurrage charges and collected roughly $6.9 billion over the two-year period.
Image Source: Federal Maritime Commission. (n.d.). Detention and Demurrage
Insights from the annual Demurrage and Detention benchmark report showed that there was a major spike in detention and demurrage charges in 2021. The global average increase was 39% for standard containers whereas the charges for 20 distribution centers doubled in 2021. Congested supply chains brought on by COVID restrictions and capacity issues added to the mounting charges, which in return made it harder to both extract containers from terminals and return empty equipment.