Even though there are distinct differences between demurrage, detention and port charges, many are still oblivious to these differences and there have been several questions on this blog relating to these charges..
This article is about how demurrage, detention, and port charges work..
International Trade and Costs
When it comes to international trade, majority of the buyers and sellers use Incoterms to decide what each other’s responsibilities and liabilities are in terms of the business, especially related to costs..
Generally, there is very little room to manoeuvre in terms of additional and unbudgeted costs incurred on the shipment and therefore in their own interest it is important that the buyers and sellers take necessary precautions to ensure that all known costs relating to the business are discussed and finalised before the shipment commences..
There are many entities involved in the process of shipping a container from Point A to Point B, each with their own cost component, all of which have to be covered either by the seller or the buyer..
Demurrage, detention and port charges are just some of these costs that may be applicable in a shipment..
While some of the port charges are valid and unavoidable, demurrage, detention and some of the port charges (like port storage, early arrival, late arrival, amendment, shifting etc) are entirely avoidable if everyone in the chain follows the process that they need to follow..
What are port charges..??
Port charges, as the name suggests are a set of charges levied by the port or terminal which the container passes through..
In terms of container shipments, port charges may include but not limited to below :
Terminal Handling Charge (THC)
Is quite simply the charge levied by the port for the loading and discharging of a container from the ship.. THC differs from port to port, terminal to terminal around the world and is charged both by the load port and discharge port..
If the cargo is transhipped anywhere along the route, then the transhipment port also charges this THC but that is paid by the shipping line directly to the port and this quantum is usually included in the ocean freight charged by the line..
Early Arrival Charge
A charge levied by some of the ports/terminals for a container that arrives in the terminal BEFORE the stacks into which it is to be taken has been opened.. Early arrival can happen due to various reasons like a container missed the stacks for the previous vessel narrowly, but since the container is packed, it needs to be taken to the port..
The acceptance of containers prior to the stacks/gate open is at the discretion of the Port/Terminal Operator and on the circumstances surrounding the operation of the vessels..
Late Arrival Charge
A late arrival charge is a charge levied by the port for a container that arrives in the terminal AFTER the stacks into which it is to be taken has been closed.. This could be due to delays in documentation, packing delays, inspection, trucking delays and many other situations..
The acceptance of containers after the closing of stacks/gate is at the discretion of the Port/Terminal Operator and on the circumstances surrounding the operation of the vessels and if the containers can be accepted without disrupting the schedule of the vessel and ports..
Shifting charges
A charge levied by the port for a container that needs to be shifted around within the stacks.. This usually happens when a container is brought in for one port/vessel, but there may have been a change of destination or change in the ship or the container is required to be inspected..
Restow
Is an action taken during the load/discharge operation of a container ship wherein a container may be taken off the ship from one stow position and put back into the same or different stow position for purposes of cargo operation.. This may or may not involve placing the container on the quay..
This charge is usually for the account of the shipping line unless the shipping line is carrying out the restow operation due to a customer’s request for say incorrect stowage due to cargo misdeclaration or change of destination..
Amendment/Cancellation
Charge levied by the port/terminal for amending or cancelling any documentation/activity lodged with them.. Example would be passing an amending document for change of destination of a container, or the export of that container needs to be stopped etc..
Is a charge levied by the port for the prolonged stay of a container at port after expiry of free days.. This may be charged for a full container that is uncleared (imports) or a full container yet to be shipped (exports) or for an empty container sitting in the port..
Different ports/terminals offer different days free of storage (free days) and this needs to be closely monitored as port charges could run into very heavy amounts..
Port storage may also happen for containers that were short shipped (for example a vessel terminates its operations and sails before schedule) or transhipment containers that have been sitting at the port for long awaiting a transhipment vessel..
Lift On/Lift Off
Charge that may be levied by the port for additional handling done for containers that have already been received in the port for export or required to be moved to an area for inspection for imports etc..
Stuffing/Destuffing of Containers
Some ports/terminals allow the stuffing (packing)/de-stuffing (unpacking) of the containers within the port area and charge customers based on the port tariff..
This activity may happen at ports that provide CFS services and allow containers to be packed or unpacked in the port or due to some mistakes when the cargo was originally packed – say incompatible hazardous cargoes packed together..
Depending on the port/terminal/country, the port charges may be charged directly to the customer (importer or exporter) or to the shipping line, who in turn will charge this to the customer..
Of course, this is not the full list of port charges but these charges have been mentioned as it relates to the subject under discussion..
Demurrage and Detention
While some of these port charges may be unavoidable, demurrage and detention charges on the other hand are avoidable charges, but in a lot of cases due to mishandling, miscommunication, misunderstandings and not following the proper protocols, these charges occur..
When they do occur, these charges may create quite a financial impact on the whole business and sometimes these costs could be so prohibitive that some customers abandon their cargoes at the destination due to these costs..
Although the most common market practice is to combine demurrage and detention, there are several cases where these are charged separately, and therefore it is important to know the difference between demurrage and detention..
Let us look at what is demurrage, detention, causes of demurrage and detention, why is it charged, who charges it and who pays for it ..
What is Demurrage/Detention..??
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 line free days..
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 allowed line free days..
The definition of “line free days” is the number of days allowed by the shipping line for the customer to pick up the full container for unpacking, take it to their warehouse, unpack and return the empty to the container depot nominated by the shipping line..
These free days are different from the “port free days” which is the number of days allowed by the port/terminal to keep the containers in the port/terminal area, after which the port storage charges as published in the port/terminal tariff will apply..
Demurrage, Detention, and Port Charges calculation scenario
Scenario : A container is discharged off a ship on the 2nd July.. The consignee takes release of the cargo from the port on 12th July and returns the empty to the nominated depot on the 19th of July..
- Demurrage free days offered by the shipping line = 7 days
- Detention free days offered by the shipping line = 10 days
- Free days at port = 3 days
Demurrage calculation example:
As per the above dates, on the 12th of July, the box would have been sitting in the port/terminal for a total of 11 days..
As per the above scenario, line-free days for demurrage expired on the 8th of July..
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..
Detention calculation example:
The full container moves out of port on the 12th, the customer returned the empty only on the 19th of July..
Detention-free days = 10 days so this is valid till the 21st of July, but since the customer returned the empty on the 19th of July, DETENTION charges do not apply..
Port storage calculation example:
Using the above dates, since the port only offers 3 free days which expired on the 4th of July, then there will be 8 days of port storage till the 12th of July to be paid along with the demurrage..
So in essence for this container, the customer would pay
- Demurrage = 4 days (2nd July to 8th July is free, demurrage from 9th July to 12th July) – to the shipping line
- Detention = 0 days (10 days free so 12th July to 21st July is free, empty returned on 19th July so no detention)
- Port Storage = 8 days (2nd July to 4th July falls under port free days, so from 5th July to 12th July, 8 days of storage applicable) – to the port directly or via the shipping line
Combined demurrage/detention calculation example:
In the above example, if the “combined demurrage/detention” principle was to be used, then
- 7 line free days ends 8th July
- Container moves out on the 9th July and empty returned on the 19th July
- So there will be Demurrage/Detention for 11 days payable to the shipping line
- Port Storage = 8 days (2nd July to 4th July falls under port free days, so from 5th July to 12th July, 8 days of storage applicable) – to the port directly or via the shipping line
If you request additional line-free days from the shipping line they may ask if it is for demurrage or detention.. In various destination ports, the definition of demurrage and detention varies and hence the line needs to know where their exposure lies..
If the free days are shown as just “free days” it usually refers to “combined demurrage/detention” which is what a lot of the shipping lines apply to keep the calculations simple..
- If “x” free days are 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 are 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..
Are demurrage and detention applicable for 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 of 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 and free days 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..
But there are several discussions as to whether demurrage and detention charges are justified.. You can decide which side you are on..
Who pays for demurrage, detention, port charges..??
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 usually look to the consignee for imports and shippers for exports o pay for it..
So in summary,
There are several charges associated with a shipment.. Demurrage, detention, port charges can be considered as “unexpected, non-budgeted, uncosted, unforeseen” charges because no one in their right mind wants to incur these charges..
- 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)
- Port Charges relate to charges levied by the port/terminal some of which are unavoidable charges (like THC) which are known charges which form part of the costing of the entire shipment.. Some of the port charges are avoidable charges if the proper process is followed or these charges could wipe out the profits in a shipment as these are not budgeted or costed..
- Demurrage and detention do not apply to LCL shipments and are applicable only for FCL shipments..
What best practices do you follow to avoid demurrage, detention, and port charges..??
Article republished with some updates
The post How does demurrage, detention and port charges work..?? appeared first on Shipping and Freight Resource.
Source: shippingandfreightresource.com
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